Quarterly Report • Aug 12, 2011
Quarterly Report
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2011 January February March April May June July August September October November December
| E.ON Group Financial Highlights1 | |||
|---|---|---|---|
| January 1 – June 30 | 2011 | 2010 | +/- % |
| Electricity sales2 | 576.1 billion kWh | 482.5 billion kWh | +19 |
| Gas sales2 | 868.2 billion kWh | 761.9 billion kWh | +14 |
| Sales | €53,048 million | €44,304 million | +20 |
| Adjusted EBITDA | €4,325 million | €7,870 million | -45 |
| Adjusted EBIT | €2,373 million | €6,076 million | -61 |
| Net income | €948 million | €4,169 million | -77 |
| Net income attributable to shareholders of E.ON AG | €691 million | €3,911 million | -82 |
| Adjusted net income | €933 million | €3,255 million | -71 |
| Investments | €2,467 million | €3,669 million | -33 |
| Cash provided by operating activities of continuing operations | €2,362 million | €5,595 million | -58 |
| Economic net debt (June 30 and December 31) | -€33,556 million | -€37,701 million | +4,1453 |
| Employees (June 30 and December 31) | 79,158 | 85,105 | -7 |
| Earnings per share attributable to shareholders of E.ON AG | €0.36 | €2.05 | -82 |
| Weighted-average shares outstanding (in millions) | 1,905 | 1,905 | – |
| 1Adjusted for discontinued operations. 2Includes trading sales volume. 3Change in absolute terms. |
Adjusted EBIT Adjusted earnings before interest and taxes. It is derived from income/loss from continuing operations before interest income and income taxes and is adjusted to exclude certain extraordinary items, mainly other income and expenses of a non-recurring or rare nature.
Adjusted EBITDA Adjusted earnings before interest, taxes, depreciation, and amortization. It is E.ON's key figure for purposes of internal management control and as an indicator of a business's long-term earnings power.
Adjusted net income An earnings figure after interest income, incomes taxes, and minority interests that has been adjusted to exclude certain extraordinary effects. Along with effects from the marking to market of derivatives, the adjustments include book gains and book losses on disposals, restructuring expenses, and other non-operating income and expenses of a non-recurring or rare nature (after taxes and minority interests). Adjusted net income also excludes special tax effects and income/loss from discontinued operations, net.
Investments Cash-effective investments as shown in the Consolidated Statements of Cash Flows.
Economic net debt Key figure that supplements net financial position with the fair value (net) of currency derivatives used for financing transactions (but excluding transactions relating to our operating business and asset management), with pension obligations, and with asset retirement obligations (less prepayments to the Swedish nuclear fund).
January 1 – June 30, 2011
Your company's first-half adjusted EBITDA was sharply lower, falling 45 percent year on year to roughly €4.3 billion. Adjusted net income declined by 71 percent to €0.9 billion. At -€382 million, our adjusted net income for April through June represents the first quarterly net loss E.ON has ever recorded. This dramatic deterioration of our earnings primarily reflects the German government's decisions regarding the phaseout of nuclear energy. The order for the immediate and permanent shutdown of Isar 1, Unterweser, Krümmel, and Brunsbüttel nuclear power stations requires us to take significant writedowns on nuclear fuel and operating materials and to record significant provisions. This had an adverse effect of €1.7 billion in the second quarter alone. The shutdown of nuclear power stations combined with the retention of the nuclear-fuel tax will continue to have a tangible negative effect on our earnings performance going forward. And we face other challenges. The business environment in many European markets in which we operate remains difficult. In these markets, tepid energy demand and weak power and gas prices have made margins narrower and reduced capacity utilization, in some cases to a significant degree. In our gas business, we've negotiated new, advantageous procurement prices for more than one third of our supply portfolio. However, no agreement was reached with our biggest supplier, Gazprom. In late July, we therefore called for the intercession of an international arbitration panel. Nevertheless, we'll continue talks with our Russian partner in the hopes that we can perhaps still reach a mutually acceptable solution for our long-term supply contracts.
We've made good progress reducing our debt. Thanks to the systematic implementation of our divestment program, in just a little more than two years we've succeeded in halving our net financial position, which stood at -€16 billion at the end of the second quarter. But on balance it's clear that in particular Germany's political decisions will have a substantial adverse impact on our business beyond the current year. Obviously, we're taking legal action against the nuclear-fuel tax, which we believe is unlawful. And obviously we'll quantify the financial damage caused by the early shutdown of our nuclear power stations and present these figures to Germany's political leadership. But for now we have to shoulder these burdens. Moreover, we can't expect any near-term relief in our other markets. We're therefore adjusting our 2011 forecast. We now expect our adjusted EBITDA to be between €9.1 and €9.8 billion and our adjusted net income to be between €2.1 and €2.6 billion, which is below our earlier earnings guidance. Due to the sharp reduction in our anticipated earnings, we're unable to stand by our previous forecast of a minimum dividend of €1.30 per share for the 2011 financial year. E.ON now plans to pay out a dividend of €1 per share for the 2011 financial year. As a rule, we're maintaining our dividend policy of paying out 50 to 60 percent of our adjusted net income.
Our half-year earnings and full-year forecast demonstrate that we need to meet our current business challenges head-on. This means that the Board of Management needs to take decisive countermeasures. Our preliminary deliberations indicate the basic direction of such measures. Because our ability to influence the earnings side—which is driven by interventionist policymaking and market developments—is limited, we need to reduce our costs and enhance our efficiency. Our organization needs to be as efficient as possible, particularly in support functions that don't directly contribute to our earnings. Our administration costs can't exceed a level that makes business sense in light of our revenues. The Board of Management has therefore already begun developing resolute cost-cutting measures. We'll do everything we can to ensure your company's ability to act, its earnings strength, and thus as many jobs as possible. This effort includes swiftly implementing our new corporate strategy, cleaner & better energy, which calls for selective growth in and outside Europe. This strategy remains the right course for E.ON, even in view of our altered business environment. And we still intend that over the medium term our businesses outside Europe will deliver one quarter of our earnings. We're already making good progress towards this objective by expanding these businesses. In July, we commissioned a new gas-fired generating unit in Russia, where we now have nearly 10 gigawatts of installed capacity. Our wind portfolio in North America will soon surpass the 2 gigawatt mark. And we're on schedule in indentifying new growth regions in other parts of the world. But the energy future has to be financed. So we need to be even more selective in our investments and even more aggressive in our efforts to cut costs. This also represents an opportunity to become a leaner, more agile, and ultimately better company. To achieve this, we need to take action now to safeguard our business, reorganize parts of it, and tangibly enhance our performance. I'm firmly convinced that we'll succeed.
Best wishes,
Dr. Johannes Teyssen
E.ON stock (factoring in reinvested dividends) finished the first half of 2011 9 percent below its year-end closing price for 2010, thereby underperforming its peer index (the STOXX Utilities rose by 1 percent during the same period), Germany's DAX index (+7 percent), and the EURO STOXX 50 index (+5 percent).
In the first half of 2011, the number of E.ON shares traded rose to 1.4 billion shares, while E.ON's stock-exchange trading volume declined by 11 percent year on year to €31.4 billion due to the stock's lower average price.
Visit eon.com for the latest information about E.ON stock.
| E.ON Stock | ||
|---|---|---|
| June 30, | Dec. 31, | |
| 2011 | 2010 | |
| Shares outstanding (in millions) | 1,905 | 1,905 |
| Closing price () | 19.59 | 22.94 |
| Market capitalization ( in billions)1 | 37.3 | 43.7 |
| 1Based on shares outstanding. |
| Performance and Trading Volume | ||
|---|---|---|
| January 1 – June 30 | 2011 | 2010 |
| High (€)1 | 25.11 | 29.36 |
| Low (€)1 | 18.42 | 22.18 |
| Trading volume2 | ||
| Millions of shares | 1,432.1 | 1,348.1 |
| € in billions | 31.4 | 35.4 |
| 1Xetra. |
2Source: Bloomberg (all German stock exchanges).
E.ON is a major investor-owned energy company. Led by Group Management in Düsseldorf, our operations are segmented into global units (by function) and regional units (by country). This new setup took effect on January 1, 2011. Figures of our former market units were allocated to our new entities.
Group Management in Düsseldorf oversees the E.ON Group as a whole and coordinates its operations. Its tasks include charting E.ON's strategic course, defining its financial policy and initiatives, managing business issues that transcend individual markets, managing risk, and continually optimizing the Group's business portfolio.
Several entities perform important support functions for our core businesses wherever we operate. These functions (IT, procurement, insurance, business processes) are centrally organized so that we pool professional expertise and leverage synergies.
Four global units are responsible for generation, renewables, our global gas business, and energy trading. We've also restructured our new-build and technology activities and combined our project-management and engineering expertise to support the construction of new assets and the operation of existing assets across the Group. This unit also oversees our entire research and development effort.
This global unit consists of our conventional (fossil and nuclear) generation assets in Europe. It manages and optimizes these assets across national boundaries.
We also take a global approach to managing our carbonsourcing and renewables businesses. Our objective is to extend our leading position in this growing market.
This global unit is responsible for gas procurement (including our own gas production) and for project and product development in gas storage, gas transport, liquefied natural gas, and technical asset support.
This unit is responsible for our trading activities in power, gas, coal, oil, and carbon allowances and is active on all major European energy exchanges.
Twelve regional units manage our distribution and sales operations (including distributed generation) in Europe: Germany, the United Kingdom, Sweden, Italy, Spain, France, the Netherlands, Hungary, Czechia, Slovakia, Romania, and Bulgaria. We manage our power generation business in Russia as a specialfocus region.
According to preliminary figures from AGEB, an energy industry working group, Germany consumed about 3 percent less primary energy in the first half of 2011 than in the prior-year period. The three main factors were warm weather, the nuclear-energy moratorium, and higher oil prices. For the first time in 25 years, nuclear energy met less than 10 percent of the country's energy needs. Since May, Germany's power transfer balance shows significant net imports. Due to a weather-driven decline in residential gas consumption and less demand from gasfired power stations, Germany consumed 8 percent less natural gas despite the fact that industry consumed more gas thanks to business growth.
Electricity consumption in England, Scotland, and Wales was about 157 billion kWh in the first half of 2011 compared with 162 billion kWh in the first half of 2010. Gas consumption (excluding power stations) fell from 355 billion kWh to 313 billion kWh. Exceptionally cold weather in the prior-year period along with a warm April 2011 were the main factors in the decline.
The Nordic region consumed 198 billion kWh of electricity in the first half of 2011, about 4 billion kWh less than in the same period of 2010, which saw very cold temperatures. Net electricity imports from surrounding countries were about 9 billion kWh compared with about 10 billion kWh in the prioryear period.
Hungary consumed 16.9 billion kWh of electricity, 1.5 percent more than in the prior-year period. The different number of work days and higher industrial demand were the main reasons for the increase. Driven by weather factors, Hungary's gas consumption decreased by 6.7 percent to 6,375 million cubic meters.
Italy consumed 162.9 billion kWh of electricity, an increase of 1.6 percent from the prior-year figure (160.3 billion kWh). Gas consumption declined by 4.5 percent to 444 billion kWh (prior year: 465 billion kWh) due to weather factors.
Peninsular electricity consumption in Spain was 128 billion kWh, about the same as the prior-year figure (0.4 percent higher if adjusted for differences in temperature and the number of working days). Retail gas consumption was also roughly unchanged at 138 billion kWh.
France's electricity consumption fell by 5.4 percent to 249.3 billion kWh (consumption rose by 0.4 percent if adjusted for differences in temperature and the number of working days). By contrast, total generation increased by 0.8 percent to 281.7 billion kWh.
The Russian Federation generated about 525 billion kWh of electricity, 1.8 percent more than in the prior-year period.
Four main factors drove electricity and natural gas markets in Europe and the electricity market in Russia in the first half of 2011:
At the start of the second quarter, energy markets continued to be driven by the unrest in North Africa and the Middle East, the earthquake and tsunami in Japan, and the response to them. As the quarter progressed, however, Greece's debt crisis and worse prospects for economic growth in the European Union became increasingly tangible factors. In particular, prices for carbon allowances dropped significantly, which subsequently influenced power prices.
After at times exceeding \$125 per barrel in April due to ongoing unrest in North Africa and the Middle East and supply disruptions from Libya, the price of oil fell sharply in early May to \$110 per barrel. After climbing briefly in early June, the price fell again on an announcement by the International Energy Agency ("IEA") that IEA member countries planned to release 60 million barrels from their emergency stocks. The IEA said it was necessary to relieve tightness in the oil market which threatened to undermine the fragile global economic recovery.
In the second quarter, prices on Europe's coal market (as measured by the API#2 index) continued to be driven by the consequences of Germany's nuclear-energy moratorium, although demand for coal in Germany declined slightly due to increased power imports. Coal imports in Asia and the Pacific region were also significantly lower, at times even below the prior-year figures. As a result, the front-year index ended the second quarter at about \$128 per metric ton, below prices at the start of the quarter which at times exceeded \$134. The freight market remained weak because of ongoing oversupply.
European forward gas prices declined slightly in the second quarter. After substantially milder weather sent gas prices lower in April, prices reached a temporary high in May because of outages at production facilities in Norway and Germany's announcement that the shutdown of eight nuclear power plants ("NPPs") would be made permanent. Prices fell again in June due to anticipated negative consequences from Greece's debt crisis. On balance, however, gas prices experienced a substantial recovery in the first half of the year and tracked the generally positive developments on fuel markets. Other drivers included higher anticipated demand (particularly from gas-fired power stations), tightness on the global LNG market (due to the earthquake in Japan), and waning optimism regarding the prospects for shale-gas production in Europe.
The December carbon contract for next-year delivery of EU allowances under the European Emissions Trading Scheme, which had risen by about €3 to about €18 per metric ton through the end of March on increased power generation from natural gas and coal due to Germany's moratorium, subsequently trended downward, finishing June at roughly the same level as at the start of the year. The drivers included Greece's debt crisis und worse prospects for economic growth in the European Union, which raised doubts about the viability of more ambitious emissions targets.
In Germany, prices for baseload electricity for 2012 delivery increased by about 10 percent in the first half, mainly because of the Japan crisis, Germany's subsequent moratorium, and rising gas, coal, and carbon prices. They then fell through the end of June by €3 to €57 per MWh, tracking the decline in carbon-allowance prices. Germany's shutdown of NPPs continued to benefit its neighbors (particularly France and Czechia), which are exporting more power to Germany. U.K. electricity prices moved in a similar pattern to Germany's, albeit at a higher level and with a greater impact from rising gas prices. Electricity prices in the Nordic market were
impacted by the altered situation in the country's water reservoirs. After extremely low reservoir levels and cold winter weather had sent prices to record highs in the first quarter, in the second quarter considerable reservoir inflows caused prices to drop temporarily. The altered reservoir situation also affected forward prices. Prices for delivery in 2012 fell below €47 per MWh in June, additionally influenced by lower carbon prices and declining forward prices in Germany. In Italy and Spain, electricity prices for next-year delivery largely tracked fuel prices. At the start of the second quarter, prices continued their upward trend from the first quarter but then fell in June on lower carbon prices, finishing the quarter at €73 per MWh in Italy and €53 in Spain.
Higher fuel prices and a 1.5-percent year-on-year increase in demand sent electricity prices in Russia higher, particularly in the European price zone, where lower temperatures in March and April along with the economic upturn served to increase demand. In the Siberian price zone, by contrast, consumption was at times lower due to warmer winter temperatures and the early onset of summer. The weighted-average price for the first half was RUB 970 (around €24) per MWh in the European price zone and RUB 533 (around €13) in the Siberian price zone.
The E.ON Group's owned generation declined by 3 percent, from 137.1 billion kWh in the first half of 2010 to 132.6 billion kWh in 2011. By contrast, power procured increased by 27 percent to 454 billion kWh.
The reduction in Generation's owned generation is primarily attributable to the shutdown of Unterweser and Isar 1 nuclear power stations in Germany after the expiration of the moratorium period set by the German federal government. The decline was also due to lower current market spreads in the United Kingdom, which made some plant less economic to operate.
Renewables' owned generation of 11.6 billion kWh exceeded the prior-year figure (11.4 billion kWh). Owned generation in the Hydro reporting unit declined in all regions due to lower water levels, falling by an aggregate 1.1 billion kWh. In particular, hydro output in Sweden declined because of low inflow in the fall and winter of 2010–2011 and high production at the end of 2010 when reservoir levels were already low. By contrast, owned generation at the Wind/Solar/Other reporting unit rose by 34 percent to 5.1 billion kWh. Wind farms accounted for 98 percent of its owned generation, with biomass and micro-hydro facilities accounting for the rest.
Owned generation at the Germany regional unit's distributed generating facilities rose by 3 percent year on year. Less output from small-scale hydroelectric plants due to lower flowthrough was offset by positive effects from the commissioning of a generating unit in Plattling in April 2010.
Other EU Countries' owned generation declined by 0.9 billion kWh, mainly because lower market spreads in the United Kingdom (including volumes from CHP plants) made some gas-fired units less economic to operate. A temperature-driven decline in owned generation in the Netherlands was another adverse factor.
| Power Procurement | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other EU | ||||||||||||||||
| Jan. 1–June 30 | Generation | Renewables | Trading | Germany | Countries | Russia | Consolidation | E.ON Group | ||||||||
| Billion kWh | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Owned generation | 83.5 | 89.8 | 11.6 | 11.4 | – | – | 3.5 | 3.4 | 3.9 | 4.8 | 30.1 | 27.7 | – | – | 132.6 | 137.1 |
| Purchases | 18.8 | 23.5 | 2.9 | 2.9 | 482.4 | 372.3 | 89.6 | 96.2 | 80.2 | 77.7 | 2.0 | 2.0 | -221.9 | -217.4 | 454.0 | 357.2 |
| Jointly owned | ||||||||||||||||
| power plants | 6.2 | 6.4 | 0.8 | 0.8 | – | – | 0.1 | – | – | – | – | – | – | – | 7.1 | 7.2 |
| Trading/out | ||||||||||||||||
| side sources | 12.6 | 17.1 | 2.1 | 2.1 | 482.4 | 372.3 | 89.5 | 96.2 | 80.2 | 77.7 | 2.0 | 2.0 | -221.9 | -217.4 | 446.9 | 350.0 |
| Total | 102.3 | 113.3 | 14.5 | 14.3 | 482.4 | 372.3 | 93.1 | 99.6 | 84.1 | 82.5 | 32.1 | 29.7 | -221.9 | -217.4 | 586.6 | 494.3 |
| Station use, | ||||||||||||||||
| line loss, etc. | -1.1 | -1.5 | -0.3 | -0.6 | – | – | -2.9 | -3.2 | -5.3 | -5.5 | -0.9 | -1.0 | – | – | -10.5 | -11.8 |
| Power sales | 101.2 | 111.8 | 14.2 | 13.7 | 482.4 | 372.3 | 90.2 | 96.4 | 78.8 | 77.0 | 31.2 | 28.7 | -221.9 | -217.4 | 576.1 | 482.5 |
| Owned Generation by Energy Source | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Generation | Renewables | Germany | Other EU Countries |
Russia | E.ON Group | |||||||
| Billion | Billion | Billion | Billion | Billion | Billion | |||||||
| Jan. 1–June 30, 2011 | kWh | % | kWh | % | kWh | % | kWh | % | kWh | % | kWh | % |
| Nuclear | 31.3 | 37 | – | – | – | – | – | – | – | – | 31.3 | 24 |
| Lignite | 2.4 | 3 | – | – | – | – | 0.2 | 5 | 5.6 | 19 | 8.2 | 6 |
| Hard coal | 29.9 | 36 | – | – | – | – | – | – | – | – | 29.9 | 22 |
| Natural gas, oil | 19.9 | 24 | – | – | 0.1 | 3 | 3.1 | 79 | 24.5 | 81 | 47.6 | 36 |
| Hydro | – | – | 6.5 | 56 | 1.1 | 31 | 0.1 | 3 | – | – | 7.7 | 6 |
| Wind | – | – | 5.0 | 43 | – | – | – | – | – | – | 5.0 | 4 |
| Other | – | – | 0.1 | 1 | 2.3 | 66 | 0.5 | 13 | – | – | 2.9 | 2 |
| Total | 83.5 | 100 | 11.6 | 100 | 3.5 | 100 | 3.9 | 100 | 30.1 | 100 | 132.6 | 100 |
The Russia unit generated about 97 percent of its total needs of 31.2 billion kWh at its own power stations. When it made business sense, Russia met its delivery obligations by purchasing electricity instead of producing it.
E.ON Ruhrgas procured 361.6 billion kWh of natural gas from producers in and outside Germany in the first half of 2011, about 2 percent less than in the prior-year period. The biggest suppliers were Russia (which accounted for 29 percent), Norway (27 percent), Germany (20 percent), and the Netherlands (16 percent). E.ON Földgáz Trade of Hungary, whose biggest supplier is Russia, accounted for the Gas global unit's remaining procurement (roughly 37 billion kWh).
The Gas global unit's gas production in the North Sea declined slightly to 720 million cubic meters. Oil and condensates production of 2.1 million barrels was also down, declining by 20 percent from the prior-year figure. The main factors were a temporary technical production stoppage at Njord field and natural production declines at older fields. Together, these factors caused total upstream production of gas, oil, and condensates to fall by 10 percent to 6.6 million barrels of oil equivalent. In addition to its North Sea production, Gas had 3.3 billion cubic meters of production from Yuzhno Russkoye, which was acquired in late 2009 and is accounted for using the equity method. This represents a slight increase over the prior-year figure.
| Upstream Production | |||
|---|---|---|---|
| January 1–June 30 | 2011 | 2010 | +/- % |
| Oil/condensates (million barrels) | 2.1 | 2.7 | -22 |
| Gas (million standard cubic meters) |
720 | 740 | -3 |
| Total (million barrels of oil equivalent) |
6.6 | 7.3 | -10 |
To execute its procurement and sales mission for the E.ON Group, the Trading global unit traded the following financial and physical quantities:
| Trading Volume | ||
|---|---|---|
| January 1–June 30 | 2011 | 2010 |
| Power (billion kWh) | 997 | 820 |
| Gas (billion kWh) | 1,263 | 951 |
| Carbon allowances (million metric tons) | 318 | 393 |
| Oil (million metric tons) | 49 | 51 |
| Coal (million metric tons) | 106 | 130 |
The table above shows our entire trading volume for the first half, including volume for delivery in future periods.
On a consolidated basis, the E.ON Group increased its power sales by 19 percent to 576.1 billion kWh in the first half of 2011. Higher trading sales volume was the main factor.
Generation sold 10.6 billion kWh less power than in the prioryear period. Power sales were down by 4.4 billion kWh in the United Kingdom (where current market spreads made some plant less economic to operate), by 4.1 billion kWh in Germany (where the shutdown of Unterweser and Isar 1 nuclear power stations reduced deliveries to the Trading unit), and by 2.7 billion kWh in France (due to the transfer of certain activities to Trading). Power sales in the Netherlands, by contrast, rose by 1.3 billion kWh.
Renewables sold 0.5 billion kWh more power than last year. Power sales at the Hydro reporting unit declined by an aggregate 0.8 billion kWh on lower output in all regions. Wind/ Solar/Other, which sells its output exclusively in markets with incentive mechanisms for renewables, grew power sales by 1.3 billion kWh, or 30 percent, primarily because of an increase in its generating capacity.
The decline in power sales at the Germany regional unit primarily reflects the sale of our ultrahigh-voltage transmission system (transpower) in late February 2010. A decline in customer numbers was also an adverse factor.
Other EU Countries sold 1.8 billion kWh more power. Gains of 5 billion kWh (primarily in the United Kingdom, including volumes from CHP plants, and France) more than offset declines of 3.2 billion kWh (primarily in Italy, Sweden, and Czechia).
The Russia unit sold 31.2 billion kWh on the wholesale market. This 9-percent increase is mainly attributable to the commissioning of new generating capacity.
| Power Sales | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other EU | ||||||||||||||||
| Jan. 1–June 30 | Generation | Renewables | Trading | Germany | Countries | Russia | Consolidation | E.ON Group | ||||||||
| Billion kWh | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Residential and | ||||||||||||||||
| SME | – | – | – | – | – | – | 13.3 | 14.5 | 31.7 | 32.1 | – | – | – | – | 45.0 | 46.6 |
| I&C | 1.8 | 2.0 | – | 1.0 | – | – | 15.7 | 13.9 | 39.6 | 35.8 | – | – | -0.1 | – | 57.0 | 52.7 |
| Sales partners | 18.0 | 18.3 | 2.5 | 1.4 | – | – | 44.0 | 43.6 | 1.7 | 2.4 | – | – | -2.5 | -3.9 | 63.7 | 61.8 |
| Customer | ||||||||||||||||
| segments | 19.8 | 20.3 | 2.5 | 2.4 | – | – | 73.0 | 72.0 | 73.0 | 70.3 | – | – | -2.6 | -3.9 | 165.7 | 161.1 |
| Wholesale market/ | ||||||||||||||||
| Trading | 81.4 | 91.5 | 11.7 | 11.3 | 482.4 | 372.3 | 17.2 | 24.4 | 5.8 | 6.7 | 31.2 | 28.7 | -219.3 | -213.5 | 410.4 | 321.4 |
| Total | 101.2 | 111.8 | 14.2 | 13.7 | 482.4 | 372.3 | 90.2 | 96.4 | 78.8 | 77.0 | 31.2 | 28.7 | -221.9 | -217.4 | 576.1 | 482.5 |
On a consolidated basis, the E.ON Group increased its gas sales by 106.3 billion kWh, or 14 percent, to 868.2 billion kWh in the first half of 2011. Higher trading sales volume was the main factor.
Our Gas global unit is responsible for procuring gas for our regional sales entities and the Trading unit and for marketing gas in regions in which our sales and trading entities do not operate. This is reflected in Gas's sales volume, which is adjusted for intrasegment effects and consists of the gas sales of E.ON Ruhrgas, Ferngas Nordbayern, and E.ON Földgáz Trade. Gas sold a total of 394 billion kWh of gas, a reduction of about 19 billion kWh, or roughly 5 percent, relative to the first half of 2010. Broken down by customer segment, Gas made 14 percent of its gas sales to sales partners, 55 percent to the Germany regional unit, 16 percent outside Germany, and 14 percent to Trading. The sales partner segment consists mainly of E.ON sales entities and regional gas companies and municipal utilities supplied directly by Gas. The roughly 21 billion kWh decline in sales to this segment primarily reflects warmer weather compared with the prior-year period. Gas sales to the Germany regional unit were about 7 billion kWh lower. Gas sales outside Germany, which were essentially unchanged,
consist mainly of the sales volume of E.ON Földgáz Trade, which sold about 48 billion kWh of gas. Other gas sales outside Germany went mainly to E.ON Group companies. Gas sales to the Trading unit rose by about 10 billion kWh year on year because of an increase in spot trading, which resulted primarily from increased trading in LNG cargos.
The Germany regional unit sold about 22 billion kWh less gas, mainly because of customer losses and weather effects.
Gas sales volume at Other EU Countries was down by 8.5 billion kWh. The main drivers were very cold weather in the prior-year period in the United Kingdom, Italy, and Hungary; ongoing energy-efficiency measures in the United Kingdom; increased customer churning in Italy; and a reduction in deliveries to the CCGT businesses in Sweden. Gas sales volume was higher in several other markets, particularly in Czechia, where we acquired new customers.
| Gas Sales | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other EU | ||||||||||||||
| January 1–June 30 | Gas | Generation | Trading | Germany | Countries | Consolidation | E.ON Group | |||||||
| Billion kWh | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Residential and SME | – | – | – | – | – | – | 14.8 | 20.1 | 52.7 | 59.3 | – | – | 67.5 | 79.4 |
| I&C | 3.9 | 3.5 | – | – | – | – | 68.2 | 69.4 | 27.8 | 30.6 | -5.6 | -8.9 | 94.3 | 94.6 |
| Sales partners | 53.6 | 74.5 | – | – | – | – | 172.0 | 187.8 | 0.5 | 0.7 | -52.5 | -58.9 | 173.6 | 204.1 |
| Customer segments | 57.5 | 78.0 | – | – | – | – | 255.0 | 277.3 | 81.0 | 90.6 | -58.1 | -67.8 | 335.4 | 378.1 |
| Germany | 215.7 | 222.8 | – | – | – | – | – | – | – | – | -215.7 | -222.8 | – | – |
| Other countries | 64.7 | 65.5 | – | – | – | – | – | – | – | – | -25.6 | -26.0 | 39.1 | 39.5 |
| Wholesale market/Trading | 56.0 | 46.1 | 0.1 | 1.6 | 618.8 | 479.5 | – | – | 6.7 | 5.6 | -187.9 | -188.5 | 493.7 | 344.3 |
| Total | 393.9 | 412.4 | 0.1 | 1.6 | 618.8 | 479.5 | 255.0 | 277.3 | 87.7 | 96.2 | -487.3 | -505.1 | 868.2 | 761.9 |
Our first-half sales rose by 20 percent year on year to €53 billion. Almost all our reporting segments recorded higher sales and had a higher share of external sales, particularly Trading.
| Sales | |||
|---|---|---|---|
| January 1–June 30 | |||
| € in millions | 2011 | 2010 | +/- % |
| Generation | 7,577 | 6,808 | +11 |
| Renewables | 1,132 | 913 | +24 |
| Gas | 11,626 | 10,872 | +7 |
| Trading | 30,492 | 21,326 | +43 |
| Germany | 18,728 | 18,822 | – |
| Other EU Countries | 11,906 | 11,623 | +2 |
| Russia | 780 | 630 | +24 |
| Group Management/ | |||
| Consolidation | -29,193 | -26,690 | – |
| Total | 53,048 | 44,304 | +20 |
The Generation global unit increased its sales by €769 million relative to the prior-year figure.
| Sales | |||
|---|---|---|---|
| January 1–June 30 | |||
| € in millions | 2011 | 2010 | +/- % |
| Nuclear | 2,695 | 2,386 | +13 |
| Fossil | 4,806 | 4,380 | +10 |
| Other/Consolidation | 76 | 42 | +81 |
| Generation | 7,577 | 6,808 | +11 |
The Nuclear reporting unit's first-half sales were up by €309 million on higher market-based transfer prices for deliveries to our Trading unit in Germany. Generally, our internal transfer prices are derived from the forward prices that are current in the marketplace three years prior to delivery. The resulting transfer prices, which our Trading unit pays our generation units for their output, were higher in 2011 than the prices for the 2010 delivery period. The German federal government's nuclearenergy moratorium and the shutdown of Unterweser and Isar 1 nuclear power stations had an adverse impact on sales. Nuclear's sales were also positively impacted by higher sales volume due to higher availability, higher average transfer prices, and positive currency-translation effects in Sweden.
The Fossil reporting unit grew sales by €426 million on higher market-based transfer prices for deliveries to our Trading unit in Germany, the United Kingdom, and the Netherlands.
Sales at Renewables rose by €219 million.
| Sales | |||
|---|---|---|---|
| January 1–June 30 € in millions |
2011 | 2010 | +/- % |
| Hydro | 716 | 631 | +13 |
| Wind/Solar/Other | 416 | 282 | +48 |
| Renewables | 1,132 | 913 | +24 |
The increase in sales of €85 million recorded at the Hydro reporting unit is mainly attributable to higher market-based transfer prices for deliveries to our Trading unit in Germany and Sweden. Lower output had a negative impact on sales.
The primary reason for the €134 million increase in Wind/ Solar/Other's sales was a considerable increase in generating capacity, particularly in the United Kingdom, Denmark, and the United States.
Gas's sales were up by 7 percent to around €11.6 billion (prior year: €10.9 billion).
| Sales | |||
|---|---|---|---|
| January 1–June 30 € in millions |
2011 | 2010 | +/- % |
| Upstream | 815 | 677 | +20 |
| Midstream | 10,743 | 10,247 | +5 |
| Transmission/Shareholdings | 570 | 674 | -15 |
| Other/Consolidation | -502 | -725 | +31 |
| Global Gas | 11,626 | 10,872 | +7 |
The Upstream reporting unit's sales rose by €138 million. Positive energy price developments and increased volume from Yuzhno Russkoye gas field in Siberia more than offset lower production at gas fields in the North Sea.
The Midstream reporting unit's gas wholesale business grew sales by 5 percent. The wholesale gas and storages businesses both posted higher sales. Lower sales volume was more than offset by higher sales prices at the wholesale gas business. Capacity enlargement and an increase in capacity sold led to higher sales at the storage business.
Lower transport charges in the regulated business and lower sales of control and balancing energy resulted in a decrease in sales at Transmission/Shareholdings.
Trading recorded sales of about €30 billion in the first half of 2011. Sales from proprietary trading are shown net, along with the associated cost of materials, in the Consolidated Statements of Income. The increase in sales resulted mainly from higher sales volumes, particularly of power and gas.
| Sales | |||
|---|---|---|---|
| January 1–June 30 | |||
| € in millions | 2011 | 2010 | +/- % |
| Proprietary Trading | 20 | -25 | – |
| Optimization | 30,472 | 21,351 | +43 |
| Trading | 30,492 | 21,326 | +43 |
Sales at the Germany regional unit declined by €94 million.
| Sales | |||
|---|---|---|---|
| January 1–June 30 | |||
| € in millions | 2011 | 2010 | +/- % |
| Distribution Networks | 5,651 | 5,157 | +10 |
| Non-regulated/Other | 13,077 | 13,665 | -4 |
| Germany | 18,728 | 18,822 | – |
The Distribution Networks reporting unit grew sales by €494 million. The increase is primarily attributable to significantly higher sales in conjunction with Germany's Renewable Energy Law. A regulation-driven decline in network charges was the main negative factor.
Sales at the Non-regulated/Other reporting unit fell by €588 million, mainly because of lower retail gas sales volume. Another factor is that the prior-year figure includes two months of sales from transpower's transmission business.
Other EU Countries grew sales by €283 million.
| Sales | |||
|---|---|---|---|
| January 1–June 30 | |||
| € in millions | 2011 | 2010 | +/- % |
| U.K. | 4,367 | 4,465 | -2 |
| (£ in millions) | (3,791) | (3,885) | (-2) |
| Sweden | 1,662 | 1,683 | -1 |
| (SEK in millions) | (14,861) | (16,473) | (-10) |
| Czechia | 1,429 | 1,192 | +20 |
| (CZK in millions) | (34,795) | (30,670) | (+13) |
| Hungary | 1,054 | 1,075 | -2 |
| (HUF in millions) | (283,982) | (292,003) | (-3) |
| Remaining regional units | 3,394 | 3,208 | +6 |
| Other EU Countries | 11,906 | 11,623 | +2 |
Sales at the U.K. regional unit declined by €98 million, mainly because of the disposal of its regulated business (Central Networks), which recorded sales of €185 million in the second quarter of 2010.
The Sweden regional unit's sales decreased by €21 million, despite positive currency-translation effects of €144 million. The decline is mainly due to lower retail sales which reflect high electricity spot prices in the first half of 2010.
Sales in Czechia rose by €237 million, primarily because of higher compensation payments for the preferential dispatch of renewable-source electricity in the distribution network.
Sales at the Hungary regional unit were slightly lower, falling by €21 million.
Sales at the remaining regional units rose by €186 million, in particular because of positive margin effects in France, the Netherlands, and Spain. The acquisition of new customers in France and the Netherlands was another positive factor. Sales in Italy declined on lower sales volume.
An increase in generating capacity along with higher power prices enabled the Russia region to grow sales by 24 percent, from €630 million in the first half of 2010 to €780 million in 2011. In local currency, sales were up by 25 percent, from RUB 25,036 million to RUB 31,304 million.
Own work capitalized of €255 million was roughly at the prioryear level (€257 million) and consisted chiefly of engineering services performed in our network business in conjunction with new-build projects.
Other operating income declined by 9 percent to €7,792 million (prior year: €8,567 million). Lower income from exchange-rate differences of €3,174 million (€3,610 million) and from derivative financial instruments of €2,465 million (€3,364 million) were the main factors in the decline. In derivative financial instruments, there were significant effects from commodity derivatives. These principally affected our coal, oil, and natural gas positions. Countervailing effects were recorded under other operating expenses. Gains on the disposal of securities, fixed assets, and shareholdings amounted to €1,321 million (€1,054 million). In the current-year period, these gains are primarily attributable to the sale of Gazprom equity; in the prior-year period, to the disposal of power capacity and our
ultrahigh-voltage transmission system (transpower) in line with our commitment to the European Commission. Miscellaneous other operating income consisted primarily of reductions to valuation allowances and provisions as well as compensation payments received for damages.
Costs of materials rose by €12,300 million to €45,832 million (€33,532 million) due to an increase in business volume compared with the prior-year period, higher costs stemming from the amendment of Germany's Nuclear Energy Act which calls for the early, unplanned shutdown of nuclear power plants ("NPPs") in Germany, and higher fuel costs.
Personnel costs of €2,517 million were roughly on par with the prior-year figure (€2,603 million).
Depreciation charges increased by €340 million to €2,137 million (€1,797 million). The amendment of Germany's Nuclear Energy Act which calls for the early, unplanned shutdown of NPPs in Germany made it necessary to record impairment charges on assets.
Other operating expenses rose by 14 percent, or €1,114 million, to €8,882 million (€7,768 million). This is mainly attributable to higher expenditures relating to currency differences of €3,829 million (€3,420 million) and losses on the disposal of shareholdings in the first half of 2011 in the amount of €648 million. The latter mainly reflect negative effects from the reclassification of currency-translation effects in equity in the wake of the simplification of E.ON's organizational setup. Lower expenditures relating to derivative financial instruments of €2,096 million (€2,207 million) had a countervailing effect.
Income from companies accounted for under the equity method declined to €245 million (€343 million), primarily due to impairment charges resulting from the amendment of Germany's Nuclear Energy Act which calls for the early, unplanned shutdown of NPPs in Germany.
Effective January 1, 2011, adjusted EBITDA replaced adjusted EBIT as our key figure for purposes of internal management control and as an indicator of our units' long-term earnings power. It is an earnings figure before interest, taxes, depreciation, and amortization and is adjusted to exclude certain extraordinary items. We made the change because adjusted EBITDA is unaffected by investment and depreciation cycles and also provides a better indication of our cash-effective earnings (see the commentary in Note 12 to the Condensed Consolidated Interim Financial Statements).
Our first-half adjusted EBITDA was down by about €3.5 billion year on year. The main reasons were:
| Adjusted EBITDA | |||
|---|---|---|---|
| January 1–June 30 € in millions |
2011 | 2010 | +/- % |
| Generation | 558 | 1,763 | -68 |
| Renewables | 753 | 608 | +24 |
| Gas | 578 | 1,478 | -61 |
| Trading | -151 | 830 | – |
| Germany | 1,276 | 1,312 | -3 |
| Other EU Countries | 1,255 | 1,713 | -27 |
| Russia | 252 | 172 | +47 |
| Group Management/ Consolidation |
-196 | -6 | – |
| Total | 4,325 | 7,870 | -45 |
Generation's adjusted EBITDA declined by €1,205 million.
| Generation | ||||
|---|---|---|---|---|
| January 1–June 30 | Adjusted EBITDA | Adjusted EBIT | ||
| € in millions | 2011 | 2010 | 2011 | 2010 |
| Nuclear | -293 | 979 | -514 | 899 |
| Fossil | 857 | 763 | 516 | 412 |
| Other/Consolidation | -6 | 21 | -10 | 21 |
| Total | 558 | 1,763 | -8 | 1,332 |
The Nuclear reporting unit's adjusted EBITDA fell by €1,272 million. Although its operations in Germany benefitted from higher market-based transfer prices for deliveries to our Trading unit, the nuclear-energy moratorium and the amendment of Germany's Nuclear Energy Act which calls for the early, unplanned shutdown of Unterweser, Isar 1, Krümmel, and Brunsbüttel NPPs had an adverse affect on earnings. Expenses relating to the nuclear-fuel tax in Germany also had a negative impact. As a result, Nuclear's adjusted EBITDA in Germany declined by €1.9 billion year on year. Nuclear's adjusted EBITDA in Sweden rose by €143 million, primarily because of higher sales volumes resulting from increased availability and higher average transfer prices.
Adjusted EBITDA at the Fossil reporting unit rose by €94 million. Earnings were higher in Germany and in the United Kingdom, mainly because of higher market-based transfer prices compared with the prior-year period. Earnings in Spain were adversely affected by narrower margins and in Italy by higher operating costs and intermittently narrower margins.
Renewables' adjusted EBITDA increased by €145 million, or 24 percent.
| Renewables | ||||
|---|---|---|---|---|
| January 1–June 30 | Adjusted EBITDA | Adjusted EBIT | ||
| € in millions | 2011 | 2010 | 2011 | 2010 |
| Hydro | 449 | 399 | 392 | 343 |
| Wind/Solar/Other | 304 | 209 | 186 | 112 |
| Total | 753 | 608 | 578 | 455 |
The Hydro reporting unit's adjusted EBITDA rose by 13 percent to €449 million, chiefly because of higher market-based transfer prices for deliveries to Trading. Earnings were adversely affected by lower output and hedging effects in Spain.
Adjusted EBITDA at Wind/Solar/Other was significantly higher, mainly because of a considerable increase in generating capacity.
Gas's adjusted EBITDA of €578 million was sharply lower than the prior-figure of €1,478 million.
| Gas | ||||
|---|---|---|---|---|
| January 1–June 30 | Adjusted EBITDA | Adjusted EBIT | ||
| € in millions | 2011 | 2010 | 2011 | 2010 |
| Upstream | 433 | 343 | 307 | 202 |
| Midstream | -257 | 765 | -321 | 711 |
| Transmission/ Shareholdings |
305 | 300 | 235 | 235 |
| Other/Consolidation | 97 | 70 | 97 | 70 |
| Total | 578 | 1,478 | 318 | 1,218 |
Upstream's adjusted EBITDA rose by €90 million. Positive energy price developments and increased volume from Yuzhno Russkoye gas field in Siberia more than offset lower production at gas fields in the North Sea.
Midstream's earnings development reflect the dramatic decline in earnings at the gas wholesale business. The disconnect between oil and gas prices and the resulting negative gas-oil spread led to considerable margin pressure. The prices of our procurement contracts, which are largely oil indexed, are above the level of the prices that can be achieved in our gas sales business, which are based on wholesale prices. Negotiations with producers to adjust procurement prices have been successful, but do not yet encompass the entire portfolio and in 2011 only partly offset negative margins. The slight year-on-year decline in sales volume was weather driven. Equity earnings were lower due to the sale of our Gazprom stake; in the prior-year period, we recorded the dividend on this stake. Our gas-storage business, which is also part of the Midstream reporting unit, recorded slightly higher earnings, primarily because of an increase in capacity.
Adjusted EBITDA at Transmission/Shareholdings was roughly at the prior-year level, with lower earnings at the regulated transport business offset by higher equity earnings from associated companies.
Trading's adjusted EBITDA was -€151 million. Optimization, whose main purpose is to limit risks and to optimize the deployment of the E.ON Group's generation and production assets, had earnings of -€137 million, mainly because of higher transfer prices paid to our generation units' non-fossil portfolio and lower achieved prices. Proprietary Trading, which recorded a loss of €14 million, was adversely affected by market developments following the German government's announcement of a nuclear-energy moratorium.
| Trading | ||||
|---|---|---|---|---|
| January 1–June 30 | Adjusted EBITDA | Adjusted EBIT | ||
| € in millions | 2011 | 2010 | 2011 | 2010 |
| Proprietary Trading | -14 | -64 | -17 | -65 |
| Optimization | -137 | 894 | -143 | 891 |
| Total | -151 | 830 | -160 | 826 |
Adjusted EBITDA at the Germany regional unit declined by €36 million.
| Germany | ||||
|---|---|---|---|---|
| January 1–June 30 | Adjusted EBITDA | Adjusted EBIT | ||
| € in millions | 2011 | 2010 | 2011 | 2010 |
| Distribution Networks | 807 | 1,028 | 500 | 730 |
| Non-regulated/Other | 469 | 284 | 314 | 153 |
| Total | 1,276 | 1,312 | 814 | 883 |
Distribution Networks' adjusted EBITDA declined by €221 million. This unit recorded higher power and gas network charges in the prior-year period, in part because of non-recurring regulatory effects.
Adjusted EBITDA at Non-regulated/Other rose by €185 million, due in part to higher earnings in the retail business. Earnings also benefitted from improvements stemming from costcutting measures. The disposal of the ultrahigh-voltage transmission system (transpower) in late February 2010 had an adverse impact on earnings.
Other EU Countries' adjusted EBITDA declined by 27 percent, or €458 million.
| Other EU Countries | |||||
|---|---|---|---|---|---|
| January 1–June 30 | Adjusted EBITDA | Adjusted EBIT | |||
| € in millions | 2011 | 2010 | 2011 | 2010 | |
| U.K. | 228 | 649 | 156 | 533 | |
| (£ in millions) | (198) | (565) | (135) | (464) | |
| Sweden | 371 | 353 | 252 | 246 | |
| (SEK in millions) | (3,318) | (3,452) | (2,256) | (2,411) | |
| Czechia | 256 | 226 | 201 | 172 | |
| (CZK in millions) | (6,233) | (5,841) | (4,894) | (4,425) | |
| Hungary | 139 | 183 | 78 | 125 | |
| (HUF in millions) | (37,410) | (49,809) | (20,891) | (33,970) | |
| Remaining regional units | 261 | 302 | 192 | 210 | |
| Total | 1,255 | 1,713 | 879 | 1,286 | |
The U.K. regional unit's adjusted EBITDA decreased by €421 million, primarily because of higher costs in the wholesale market which led to reduced margins. The disposal of the regulated business (Central Networks) also had a negative impact on earnings; this business recorded adjusted EBITDA of €133 million in the second quarter of 2010.
The Sweden regional unit's adjusted EBITDA increased by €18 million due to positive currency-translation effects of €32 million. Negative effects from disposals were partially offset by wider retail margins. Earnings were also higher on improved margins in the heating business.
Adjusted EBITDA in Czechia rose by €30 million, primarily because of higher compensation payments for the preferential dispatch of renewable-source electricity in the distribution network.
The main contributions to the Hungary regional unit's adjusted EBITDA came from its distribution network business (€113 million) and its retail business (€16 million). The decline from the prior-year figure is attributable to narrower margins and to Hungary's new revenue-based crisis tax.
Adjusted EBITDA at the remaining regional units decreased by €41 million, mainly because higher procurement costs led to narrower margins in the gas business in Romania. Higher allowances for overdue receivables in Italy constituted another negative factor. Wider margins at the distribution network business in Spain had a positive impact on earnings.
The Russia unit's adjusted EBITDA rose by €80 million, from €172 million in the prior-year period to €252 million, mainly because of higher generating capacity and an improved power margin. Adjusted EBIT was €195 million (€118 million). Adjusted EBITDA in local currency increased by 48 percent, from RUB 6,835 million to RUB 10,114 million. Adjusted EBIT was RUB 7,826 million (RUB 4,689 million).
Net income attributable to shareholders of E.ON AG of €691 million and corresponding earnings per share of €0.36 were far below the respective prior-year figures, €3,911 million and €2.05.
| Net Income | ||
|---|---|---|
| January 1–June 30 | ||
| € in millions | 2011 | 2010 |
| Adjusted EBITDA | 4,325 | 7,870 |
| Depreciation and amortization | -1,960 | -1,792 |
| Impairments (-)/Reversals (+)1 | 8 | -2 |
| Adjusted EBIT | 2,373 | 6,076 |
| Adjusted interest income (net) | -846 | -1,171 |
| Net book gains/losses | 1,162 | 721 |
| Restructuring/cost-management expenses | -255 | -233 |
| Other non-operating earnings | -1,426 | 1,380 |
| Income/Loss (-) from continuing | ||
| operations before taxes | 1,008 | 6,773 |
| Income taxes | -73 | -1,846 |
| Income/Loss (-) from continuing operations |
935 | 4,927 |
| Income/Loss (-) from discontinued | ||
| operations, net | 13 | -758 |
| Net income Attributable to |
948 | 4,169 |
| shareholders of E.ON AG | 691 | 3,911 |
| Attributable to non-controlling interests | 257 | 258 |
1Impairments differ from the relevant amounts reported in accordance with IFRS due to impairments on companies accounted for under the equity method and impairments on other financial assets, and also due to impairments recognized in non-operating earnings.
Our adjusted interest expense (net) improved by €325 million year on year, mainly because of the reduction in the E.ON Group's net debt. The absence of the adverse interest effect on prepayments to a fund to support renewables in Germany recorded at year-end 2010 also had a positive impact on adjusted interest expense (net).
| Adjusted Interest Expense (Net) | ||
|---|---|---|
| January 1–June 30 € in millions |
2011 | 2010 |
| Interest expense shown in Consolidated Statements of Income |
-1,027 | -1,136 |
| Interest income (-)/expense (+) not affecting net income |
181 | -35 |
| Total | -846 | -1,171 |
First-half net book gains were €441 million, or 61 percent, above the prior-year level. In the current-year period, book gains were recorded mainly on the sale of the network business in the United Kingdom, Gazprom equity, and securities; in the prior-year period, on the disposal of power capacity and our ultrahigh-voltage transmission system (transpower) in line with our commitment to the European Commission.
Restructuring and cost-management expenditures increased by €22 million. As in the prior year, a significant portion of these expenditures resulted from restructuring measures at our regional utilities in Germany. The current-year figure also includes costs relating to the restructuring of our IT organization.
Other non-operating earnings include the marking to market of derivatives. We use derivatives to shield our operating business from price fluctuations. Marking to market resulted in a negative effect of €225 million at June 30, 2011, compared with a positive effect of €1,372 million at June 30, 2010. In the current-year period, there were also negative effects from the reclassification of currency-translation effects in equity in the wake of the simplification of E.ON's organizational setup, from impairment charges recorded in conjunction with the amendment of Germany's Nuclear Energy Act, and from prepayment penalties in connection with our announced debt reduction to the extent that such penalties have a tangible relationship to disposal proceeds.
Our tax expense fell by €1.8 billion compared with the prioryear period, principally because of the decline in our earnings and a relative increase in tax-free earnings. Our tax rate decreased from 27 percent in the prior-year period to 7 percent.
Prior-year income/loss from discontinued operations, net, consists mainly of the earnings of the U.S. Midwest market unit, which was sold in 2010. Pursuant to IFRS, its results are reported separately in the Consolidated Statements of Income (see Note 4 to the Condensed Consolidated Interim Financial Statements). The high negative figure reflects an impairment charge of €0.9 billion on goodwill at U.S. Midwest in conjunction with the disposal of our U.S. power and gas business.
Net income reflects not only our operating performance but also special effects such as the marking to market of derivatives. Adjusted net income is an earnings figure after interest income, income taxes, and minority interests that has been adjusted to exclude certain special effects. In addition to the marking to market of derivatives, the adjustments include book gains and book losses on disposals, restructuring expenses, other non-operating income and expenses (after taxes and minority interests) of a special or rare nature. Adjusted net income also excludes income/loss from discontinued operations and from the cumulative effect of changes in IFRS principles (after taxes and minority interests), as well as special tax effects.
| Adjusted Net Income | |||
|---|---|---|---|
| January 1–June 30 € in millions |
2011 | 2010 | +/- % |
| Net income attributable to shareholders of E.ON AG |
691 | 3,911 | -82 |
| Net book gains | -1,162 | -721 | – |
| Restructuring and cost-manage ment expenses |
255 | 233 | – |
| Other non-operating earnings | 1,426 | -1,380 | – |
| Taxes and minority interests on non-operating earnings |
-211 | 471 | – |
| Special tax effects | -53 | -17 | – |
| Income/Loss from discontinued operations, net |
-13 | 758 | – |
| Total | 933 | 3,255 | -71 |
Our first-half investments declined by €1.2 billion year on year to €2.5 billion. We invested about €2.4 billion in property, plant, and equipment and in intangible assets (prior year: €3.4 billion). Share investments totaled €0.1 billion versus €0.3 billion in the prior-year period.
| Investments | |||
|---|---|---|---|
| January 1–June 30 | |||
| € in millions | 2011 | 2010 | +/- % |
| Generation | 641 | 1,403 | -54 |
| Renewables | 419 | 536 | -22 |
| Gas | 463 | 468 | -1 |
| Trading | 7 | 5 | +40 |
| Germany | 306 | 319 | -4 |
| Other EU Countries | 495 | 631 | -22 |
| Russia | 111 | 252 | -56 |
| Group Management/ | |||
| Consolidation | 25 | 55 | -55 |
| Total | 2,467 | 3,669 | -33 |
| Maintenance investments Growth and replacement |
404 | 383 | +5 |
| investments | 2,063 | 3,286 | -37 |
Generation invested about €762 million less than in the prioryear period. Investments in property, plant, and equipment and intangible assets declined by €683 million, from €1,297 million to €614 million. The high prior-year figure mainly reflects expenditures on generation projects in Gönyü (Hungary), Malzenice (Slovakia), Irsching (Germany), Algeciras (Spain), and Émile Huchet (France), which are now largely completed. In addition, investments in the generation project in Maasvlakte (Netherlands) were higher in the prior-year period.
Investments at Renewables were down by €117 million. Hydro's investments of €33 million were 25 percent below the prioryear figure of €44 million. Wind/Solar/Other's investments declined by 21 percent, from €491 million in the prior-year period to €386 million. These expenditures mainly reflect the development and construction of wind farms in Europe and the United States.
Gas invested €463 million. Of this figure, €419 million (prior year: €407 million) went towards property, plant, and equipment and towards intangible assets. It consisted mainly of investments in the exploration business and in gas infrastructure. Share investments of €44 million (€61 million) were chiefly attributable to the repurchase of E.ON Bioerdgas from E.ON Climate & Renewables and to a capital increase at Nord Stream pipeline business.
The Germany regional unit invested €306 million, nearly as much as in the prior-year period. Investments in property, plant, and equipment and intangible assets declined by €18 million to €300 million, owing principally to high expenditures in the prior year for Plattling power station and waste-incineration projects. Share investments totaled €6 million.
Investments at Other EU Countries were €136 million below the prior-year figure. The U.K. regional unit invested about €154 million (prior year: €264 million) in property, plant, and equipment and intangible assets. The sale of Central Networks was the main cause for the decline. The Sweden unit invested €137 million, roughly on par with the prior-year figure due to positive currency-translation effects of €12 million. It invested €133 million (€136 million) in intangible assets and property, plant, and equipment to maintain and expand existing distributed generating units and to upgrade and modernize its distribution network. Share investments totaled €4 million versus €1 million in the prior-year period. Investments of €64 million in Czechia and €72 million in Hungary were at the prior-year level.
The Russia unit invested €111 million (prior year: €252 million), mainly in its new-build program.
E.ON presents its financial condition using, among other financial measures, cash provided by operating activities of continuing operations and economic net debt.
At €2.4 billion, our cash provided by operating activities of continuing operations was considerably below the prior-year figure of €5.6 billion. The main reasons for the decline were cash-effective items in conjunction with the decrease in adjusted EBITDA, a non-recurring adverse effect relating to the refunding of pension assets in the United Kingdom, and negative working-capital effects. The main negative factors for the latter item were lower subsidy payments for new wind farms in the United States due to a decrease in new capacity commissioned and changes in working capital at Trading and Gas.
Cash provided by investing activities of continuing operations amounted to €2.8 billion in the first half of 2011 (prior year: -€2.7 billion). The sale of Central Networks was the main positive factor. In addition, investment expenditures on property, plant, and equipment were lower than in the prior-year period.
Cash provided by financing activities of continuing operations of -€5.9 billion in the first half of 2011 (prior year: -€5.7 billion) primarily reflects E.ON's dividend payout and the repayment of financial liabilities ahead of schedule.
Compared with the figure recorded at December 31, 2010 (-€37,701 million), our economic net debt improved by €4,145 million to -€33,556 million. The main reasons for the improvement were the sale of Central Networks and the sale of the second tranche of Gazprom stock. In the first half of 2011, our cash provided by operating activities and disposal proceeds exceeded our investments in property, plant, and equipment. E.ON AG's dividend payout had an adverse affect on our economic net debt. A decline in provisions for pensions offset an increase in provisions for nuclear waste management, which was due in part to the amendment of Germany's Nuclear Energy Act.
The calculation of economic net debt includes the fair value (net) of currency derivatives used for financing transactions (but excluding transactions relating to our operating business and asset management) in order to also reflect the foreigncurrency effects of financial transactions which, for accounting reasons, would not be included in the components of net financial position.
| Economic Net Debt | ||
|---|---|---|
| June 30, | Dec. 31, | |
| € in millions | 2011 | 2010 |
| Liquid funds | 7,420 | 8,273 |
| Non-current securities | 4,863 | 3,903 |
| Total liquid funds and non-current | ||
| securities | 12,283 | 12,176 |
| Financial liabilities to banks and third | ||
| parties | -27,960 | -31,799 |
| Financial liabilities resulting from | ||
| interests in associated companies and | ||
| other shareholdings | -822 | -692 |
| Total financial liabilities | -28,782 | -32,491 |
| Net financial position | -16,499 | -20,315 |
| Fair value (net) of currency derivatives | ||
| used for financing transactions1 | 542 | 334 |
| Provisions for pensions | -2,558 | -3,250 |
| Asset-retirement obligations | -16,534 | -15,968 |
| Less prepayments to Swedish nuclear | ||
| fund | 1,493 | 1,498 |
| Economic net debt | -33,556 | -37,701 |
1Does not include transactions relating to our operating business or asset management.
E.ON did not issue bonds in the first half of 2011. In line with our announcement that we would use a portion of disposal proceeds to reduce our debt, on January 24, 2011, we made a two-stage offer to repurchase, ahead of schedule, bonds with a face value of about €7 billion. We repurchased about €1.8 billion in bonds under this offer. In addition, we repaid or cancelled about €0.6 billion in promissory notes in the first half of 2011. Together with on-schedule bond repayments of €0.6 billion and with the deconsolidation of €0.6 billion of debt due to the disposal of our U.K. distribution business, in the first half of 2011 E.ON reduced its gross financial liabilities to financial institutions and third parties by €3.8 billion to €28 billion.
In April 2011, E.ON's Debt Issuance Program ("DIP") was extended, as planned, for another year. The DIP enables us to issue debt to investors in public and private placements. It has a total volume of €35 billion, of which about €22 billion had been utilized at the time of the extension.
Standard & Poor's ("S&P") long-term rating for E.ON is A; Moody's long-term rating for E.ON is A2. The short-term ratings are A-1 (S&P) and P-1 (Moody's). Both S&P and Moody's confirmed their long-term and short-term ratings for E.ON, all with
a stable outlook, in March 2011. In July 2011, S&P reconfirmed its A rating and changed the outlook from stable to negative. Moody's announced in June 2011 that it would review its A2 rating for a possible one-notch downgrade within three months. The ratings assigned by both agencies therefore remain in line with E.ON's rating target ("solid single A").
Non-current assets at June 30, 2011, declined by 3 percent compared with the figure at year-end 2010, mainly due to the sales of the assets of our U.K. network business. This effect was partially offset by investments in property, plant, and equipment and by higher receivables from non-current derivative financial instruments.
Current assets declined by 10 percent from year-end 2010, mainly because of a decrease in operating receivables and the sale of Gazprom stock.
Our equity ratio of 30 percent was unchanged from the figure recorded at year-end 2010 despite E.ON AG's dividend payout of €2.8 billion in May 2011.
Non-current liabilities declined by 6 percent relative to yearend 2010, primarily because of the early repayment of noncurrent debt. This effect was partially mitigated by an increase in liabilities from non-current derivative financial instruments.
Current liabilities declined by 6 percent relative to year-end 2010, mainly because of a decrease in operating liabilities.
The following key figures underscore that the E.ON Group has a solid asset and capital structure:
Additional information about our asset situation is contained in Note 4 of the Condensed Consolidated Interim Financial Statements.
| Consolidated Assets, Liabilities, and Equity | ||||
|---|---|---|---|---|
| € in millions | June 30, 2011 | % | Dec. 31, 2010 | % |
| Non-current assets | 103,526 | 71 | 106,657 | 70 |
| Current assets | 41,435 | 29 | 46,224 | 30 |
| Total assets | 144,961 | 100 | 152,881 | 100 |
| Equity | 43,821 | 30 | 45,585 | 30 |
| Non-current liabilities | 65,513 | 45 | 69,580 | 45 |
| Current liabilities | 35,627 | 25 | 37,716 | 25 |
| Total equity and liabilities | 144,961 | 100 | 152,881 | 100 |
As of June 30, 2011, the E.ON Group had 79,158 employees worldwide, less than at year-end 2010. E.ON also had 1,935 apprentices and 296 board members and managing directors.
As of the same date, 43,872 employees, or 55 percent of all staff, were working outside Germany, slightly less than at year-end 2010.
| Employees1 | |||
|---|---|---|---|
| June 30, | Dec. 31, | ||
| 2011 | 2010 | +/- % | |
| Generation | 10,766 | 10,997 | - 2 |
| Renewables | 1,751 | 1,737 | +1 |
| Global Gas | 3,192 | 3,189 | – |
| Trading | 1,018 | 1,062 | -4 |
| Germany | 21,569 | 21,084 | +2 |
| Other EU Countries | 32,346 | 37,403 | -14 |
| Russia | 4,595 | 4,812 | -5 |
| Group Management/Other2 | 3,921 | 4,821 | -19 |
| Total | 79,158 | 85,105 | -7 |
| 1Does not include board members, managing directors, or apprentices. 2Includes E.ON IT Group. |
The headcount at Generation was lower mainly because of the sale of a power station in Poland.
The decline in the number of employees at Trading is attributable to the expiration of temporary secondments and employment contracts as part of this unit's centralization and to fluctuations.
The headcount at the Germany unit was higher due to the expansion of service companies. This effect was partially offset by the transfer of employees to the Group Management/Other segment as part of the greater centralization of functions.
The decline in the number of employees at Other EU Countries is mainly attributable to disposals at the U.K. and Sweden regional units.
At Russia, the expansion of a newly created central repair shop was more than offset by the deconsolidation of two companies.
The increase in Group Management/Other segment's headcount due to the implementation of E.ON's new organizational setup was more than offset by the outsourcing of the IT infrastructure and a deconsolidation at E.ON IT Group.
In the normal course of business, we are subject to a number of risks that are inseparably linked to the operation of our businesses.
Our units operate in an international market environment that is characterized by general risks relating to the business cycle. In addition, the entry of new suppliers into the marketplace along with more aggressive tactics by existing market participants has created a keener competitive environment for our electricity business in and outside Germany which could reduce our margins. E.ON Ruhrgas continues to face considerable competitive pressure in the gas marketplace. Competition in the gas market and increasing trading volumes at virtual trading points and gas exchanges could result in considerable risks for natural gas purchased under long-term takeor-pay contracts. In addition, substantial price risks result from the fact that gas procurement prices are predominantly indexed to oil prices, whereas sales prices are increasingly guided by wholesale prices. Generally, contracts between producers and importers are subject to periodic adjustments to the current market situation. E.ON Ruhrgas is conducting intensive negotiations with producers. After unsuccessful negotiations with Gazprom, E.ON Ruhrgas exercised its contractual option of opening an arbitration process against Gazprom in which it seeks the adjustment of the prices to a level that reflects market developments.
The demand for electric power and natural gas is seasonal, with our operations generally experiencing higher demand during the cold-weather months of October through March and lower demand during the warm-weather months of April through September. As a result of these seasonal patterns, our sales and results of operations are higher in the first and fourth quarters and lower in the second and third quarters. Sales and results of operations for all of our energy operations can be negatively affected by periods of unseasonably warm weather during the autumn and winter months. Our units in Scandinavia could be negatively affected by a lack of precipitation, which could lead to a decline in hydroelectric generation. We expect seasonal and weather-related fluctuations in sales and results of operations to continue.
We use a comprehensive sales management system and intensive customer management to minimize these risks.
The E.ON Group's business operations are exposed to commodity price risks. In order to limit our exposure to these risks, we conduct systematic risk management. The key elements of our risk management are, in addition to binding Group-wide guidelines and a Group-wide reporting system, the use of quantitative key figures, the limitation of risks, and the strict separation of functions between departments. To limit commodity price risks, we utilize derivative financial instruments that are commonly used in the marketplace. These instruments are transacted with financial institutions, brokers, power exchanges, and third parties whose creditworthiness we monitor on an ongoing basis. The Trading unit aggregates and consistently manages the price risks we face on Europe's liquid commodity markets.
We mainly use electricity, gas, coal, carbon allowance, and oil price hedging transactions to limit our exposure to risks resulting from price fluctuations, to optimize systems and load balancing, and to lock in margins. We also engage in proprietary commodity trading in accordance with detailed guidelines and within narrowly defined limits.
The international nature of E.ON's business operations exposes E.ON to risks from currency fluctuation. One form of this risk is transaction risk, which occurs when payments are made in a currency other than E.ON's functional currency. Another form of risk is translation risk, which occurs when currency fluctuations lead to accounting effects when assets/liabilities and income/expenses of E.ON companies outside the eurozone are translated into euros and entered into our Consolidated Financial Statements. We limit currency risk by conducting systematic currency management involving derivative and underlying financial instruments. Currency-translation risk results mainly from transactions denominated in U.S. dollars, pounds sterling, Swedish kroner, Norwegian kroner, and Hungarian forints.
E.ON faces earnings risks from financial liabilities, accounts payable, short-term financing with variable interest rates, and interest derivatives that are based on variable interest rates.
We also use systematic risk management to manage our interest-rate and currency risks. Here, E.ON AG plays a central role by aggregating risk positions through intragroup transactions and hedging these risks on the market. Due to its intermediary role, E.ON AG's risk position is largely closed.
E.ON's operating activities and use of derivative financial instruments expose E.ON to credit-default risks. We use a Groupwide credit risk management system to systematically monitor the creditworthiness of our business partners on the basis of Group-wide minimum standards. We manage our creditdefault risk by taking appropriate measures, which include obtaining collateral and setting limits. The E.ON Group's Risk Committee is regularly informed about all material creditdefault risks.
E.ON could face liquidity risks due to margin calls resulting from adverse price developments of derivative financial instruments.
In addition, E.ON also faces risks from price changes and losses on the current and non-current investments it makes to cover its non-current obligations, particularly pension and asset-retirement obligations. The foundation of our risk management in this area is a conservative investment strategy and a broadly diversified portfolio.
Further risks could result from the European Commission's plans to change the regulation of derivatives traded over the counter ("OTC") and possibly to rescind energy-trading companies' exemption from the Markets in Financial Instruments Directive ("MiFID"). The Commission is considering introducing mandatory clearing of energy OTC trades that exceed an amount that has yet to be determined. This would increase the margin requirements for such transactions, which could lead to an increased liquidity risk. It could also have a negative impact on E.ON's economic net debt. Rescinding the MiFID exemption for energy-trading companies would have effects similar to the regulation of OTC transactions. These changes could also result in increased capital requirements and disclosure obligations for E.ON's energy-trading companies.
Our business strategy involves acquisitions and investments in our core business as well as disposals. This strategy depends in part on our ability to successfully identify, acquire, and integrate companies that enhance, on acceptable terms, our energy business. In order to obtain the necessary approvals for acquisitions, we may be required to divest other parts of our business or to make concessions or undertakings that materially affect our business. In addition, there can be no assurance that we will be able to achieve the returns we expect from any acquisition or investment. For example, we may fail to retain key employees; may be unable to successfully integrate new businesses with our existing businesses; may incorrectly judge expected cost savings, operating profits, or future market trends and regulatory changes; or may spend more on the acquisition, integration, and operation
of new businesses than anticipated. Furthermore, investments and acquisitions in new geographic areas or lines of business require us to become familiar with new sales markets and competitors and expose us to commercial and other risks.
We have comprehensive processes in place to manage potential risks relating to acquisitions and investments. These processes include, in addition to the relevant company guidelines and manuals, comprehensive due diligence, legally binding contracts, a multi-stage approvals process, and shareholding and project controlling. Comprehensive post-acquisition integration projects also contribute to successful integration.
In the case of planned disposals, E.ON faces the risk, which is not assessable, of disposals not taking place or being delayed and the risk that E.ON receives lower-than-anticipated disposal proceeds. In such projects, it is not possible to determine the likelihood of these risks. If planned disposals do not take place or are significantly delayed, this would have a negative impact on the planned development of our debt factor.
Technologically complex production facilities are involved in the production and distribution of energy. Significant parts of Europe and the United States have experienced major power outages in recent years. The reasons for these outages vary, although generally they involved a locally or regionally inadequate balance between power production and consumption, with single failures triggering a cascade-like shutdown of lines and power plants following overload or voltage problems. The likelihood of this type of problem has increased in recent years following the liberalization of EU electricity markets, partly due to an emphasis on unrestricted cross-border physically settled electricity trading that has resulted in a substantially higher load on the international network, which was originally designed mainly for purposes of mutual assistance and operational optimization. As a result, there are transmission bottlenecks at many locations in Europe, and the high load has resulted in lower levels of safety reserves in the network, creating the need for additional network expansion. Furthermore, some regions have seen an increase in decentralized feed-in, which has shifted load flows. In Germany, where power plants are located in closer proximity to population centers than in many other countries, the risk of blackouts is
lower so far due to shorter transmission paths and a strongly meshed network. Nevertheless, our operations in and outside Germany could experience unanticipated operational or other problems leading to a power failure or shutdown. Operational failures or extended production stoppages of facilities or components of facilities, including new-build projects, could negatively impact our earnings.
A number of countries in Europe are discussing whether liberalized energy markets provide enough incentives for the supply of generating capacity or whether additional mechanisms—such as capacity markets—might be necessary. This could result in market-design risks for E.ON, which face a competitive disadvantage, particularly if there is a focus on specific generating technologies or if some existing assets are not included.
We could also be subject to environmental liabilities associated with our power generation operations that could materially and adversely affect our business. In addition, new or amended environmental laws and regulations may result in material increases in our costs.
The following are among the comprehensive measures we take to address these risks:
Should an accident occur despite the measures we take, we have a reasonable level of insurance coverage.
In addition, there are currently certain risks relating to legal proceedings resulting from the E.ON Group's operations. These in particular include legal actions and proceedings concerning price increases, alleged market-sharing agreements, and anticompetitive practices. The above-mentioned legal proceedings include legal actions to demand repayment of the increase differential in conjunction with court rulings that price-adjustment clauses of years past are invalid in the special-customer segment. In July 2010, the Federal Court of Justice issued a ruling against EWE AG pertaining to the validity
of gas-price adjustments and the legal status of uncontested payments. At this time, we cannot conclusively evaluate this ruling's possible consequences for E.ON Group companies, in part because of inconsistencies in the rulings of different state superior courts.
On July 8, 2009, the European Commission fined E.ON Ruhrgas and E.ON (as joint debtor) €553 million for an alleged marketsharing agreement with GdF Suez. In September 2009, E.ON Ruhrgas and E.ON filed an appeal with the European Court of First Instance to have the ruling overturned. Filing an appeal did not suspend the fine, which was paid, by the deadline, in October 2009. We cannot rule out the possibility of subsequent lawsuits.
E.ON is building a hard-coal-fired power plant in Datteln, Germany. The plant is designed to have a net electric capacity of about 1,055 MW. E.ON has invested about €1 billion in the project so far. The Münster Superior Administrative Court ("SAC") issued a decision on September 3, 2009, that declares void the City of Datteln's Development Plan (No. 105 E.ON Kraftwerk). The SAC criticized errors in judgment and, in particular, that the Development Plan did not sufficiently take into consideration binding state-level planning rules. On March 16, 2010, the Federal Administrative Court in Leipzig upheld the SAC's ruling, rendering the ruling legally binding. However, the SAC's ruling does not forbid the construction of a hard-coalfired power plant at the planned site. On March 17, 2010, the Datteln City Council passed a resolution to begin the process of designing a new Development Plan. On December 13, 2010, the Ruhr Regional Association ("RRA") passed a resolution to institute a regional plan-alteration process which in May 2011 was confirmed by an expert legal opinion solicited by the RRA. On June 20, 2011, the RRA passed a resolution to continue the regional plan-alteration process and began the public consultation process. The new planning process must address and resolve the SAC's objections in order to reestablish a secure planning foundation for the Datteln power plant. In view of the planning processes under way, we currently anticipate that the Datteln plant will enter service later than originally planned. To ensure the supply of district heating and of electricity to the federal rail service, E.ON therefore took the precautionary measure of withdrawing its notification of the closure of Datteln units 1 to 3 and Shamrock generating unit effective December 31, 2012. The district governments in Münster and Arnsberg, which have jurisdiction over the matter, rejected the withdrawal. As a matter of sound business practice and to secure the supply of district heating and of electricity to the federal rail service, we filed a lawsuit against the Münster and Arnsberg rulings. However, we remain convinced that the plant will be successfully completed. In
principle, these types of risks attend our other power and gas new-build projects. We strive to identify such risks early and to minimize them by conducting appropriate project management.
There are also lawsuits pending against E.ON AG and U.S. subsidiaries in connection with the disposal of VEBA Electronics in 2000. In addition, court actions, governmental investigations, and proceedings, and other claims could be instituted or asserted in the future against companies of the E.ON Group. We attempt to minimize the risks of current and future legal proceedings by managing these proceedings appropriately and by designing appropriate contracts prior to agreements being concluded.
E.ON Ruhrgas currently obtains about one fourth of its total natural gas supply from Russia pursuant to long-term supply contracts with Gazprom. In addition, E.ON Ruhrgas currently obtains natural gas from five other supply countries, giving it one of the most diversified gas procurement portfolios in Europe. Certain past events in some Eastern European countries have heightened concerns in parts of Western Europe about the reliability of Russian gas supplies, even though Russia has always been a very reliable supplier. Economic or political instability or other disruptive events in any transit country through which Russian gas must pass before it reaches its final destination in Western Europe can have a material adverse effect on the supply of such gas, and all such events are completely outside E.ON Ruhrgas's control.
The political, legal, and regulatory environment in which the E.ON Group does business is also a source of external risks. Changes to this environment can lead to considerable uncertainty with regard to planning.
The reactor accident in Fukushima has led the political parties in Germany's coalition government to reverse their policy regarding nuclear energy. After extending the operating lives of nuclear power plants ("NPPs") last fall in line with the stipulations of the coalition agreement, the federal government rescinded the extensions in the thirteenth amended version of Germany's Nuclear Energy Act. The report prepared by the Reactor Safety Commission in the wake of the moratorium did not bring to light any safety defects, particularly with reference to the events in Japan, that would justify an earlier shutdown of German NPPs. Nevertheless, the federal government—with the support of the Ethics Commission—concluded that it would not be responsible for Germany to use nuclear energy after 2022. Together with the opposition (with the exception of the Left party), the government therefore established a non-partisan consensus. The amended Nuclear
Energy Act calls for a gradual phaseout of nuclear power to end in 2022, although the seven NPPs that entered service before year-end 1980 (which had already been temporarily shut down by the moratorium) and Krümmel NPP will remain permanently shut down. There is a risk that the remaining NPPs may not be able to make full use of their assigned production volumes before their respective operating lifetimes expire. E.ON is implementing the political majority's decision on an earlier phaseout of nuclear energy. At the same time, we expect appropriate compensation for the billions of euros in stranded assets created by this decision and are preparing to take legal action on this matter. In view of the curtailment of operating lifetimes, all four NPP operators in Germany have suspended prepayments of their contributions to the Energy and Climate Fund. The federal government's resolutions retain the nuclear-fuel tax at its original level. Even at the time of the agreement on operating-life extensions, E.ON believed that the nuclear-fuel tax contravened Germany's constitution and European law. Retaining the tax despite the significant reduction in operating lives raises additional legal questions. E.ON is therefore taking legal action against the tax. The lawsuits regarding Gundremmingen B, Grohnde, Grafenrheinfeld, and Emsland NPPs began in June/July 2011.
As established in its coalition agreement, the German federal government began the process of lifting the Gorleben moratorium. The study of Gorleben will now continue in a multi-stage, open-ended process. The Federal Ministry of the Environment does not expect the preparatory phase (which will determine whether Gorleben is suitable and end, if such a determination is made, with the drafting of new nuclear-energy legislation) to be completed before the end of the next legislative period.
European regulatory agencies have been putting together recommendations for a legally binding set of rules on how gas transmission system operators ("TSOs") manage gas capacity and bottlenecks in their systems. The rules will apply to crossborder transfer points between member states and to transfer points between different gas TSOs within a single member state. Market participants had an opportunity to take part in an official consultation concerning the recommendations, which may create risks for existing supply contracts and for intraday flexibility. In parallel, the Federal Network Agency (known by its German acronym, "BNetzA") issued a ruling at the start of the year on capacity rules and auction procedures. This ruling will have a particular impact on the allocation of cross-border and cross-market-area transport capacity, which in the future will be allocated by an auction mechanism.
In late 2009, the BNetzA instituted formal proceedings against all E.ON Energie regional distribution companies ("RDCs") in Germany that have implemented the new regional structure and against E.ON Energie for allegedly not complying with
unbundling requirements. The BNetzA plans to treat the proceedings against E.ON Bayern and E.ON Energie as model-case proceedings and to suspend the proceedings against the other RDCs. E.ON Energie along with E.ON Bayern and E.ON edis (which is an RDC with minority municipal shareholders) have filed a detailed statement relating to the formal proceedings initiated against them. Initial hearings about these issues took place in May 2011. At the hearings and in a written statement from E.ON Energie/E.ON Bayern, we criticized the BNetzA's breach of sound legal practice and again explained how our RDC structure conforms with the requirements of operational unbundling. The BNetzA did not put forward any new legal arguments to refute our position.
The BNetzA has stipulated that IT-based billing systems must have a firewall between data on sales customers and data on network customers. Some companies encountered technical difficulties implementing this requirement. The BNetzA therefore extended the compliance deadline to October 1, 2010. E.ON also encountered some technical delays, while system migrations resulted in a number of residual errors. Following complaints from traders, the BNetzA fined E.ON edis twice for non-compliance (once for €650,000, once for €1.3 million). E.ON is currently working to migrate all the IT systems of its RDCs and to eliminate any remaining residual errors. It is also conducting talks with the BNetzA. Four RDCs were successfully migrated to the new IT system in 2010. E.ON Bayern and E.ON Hanse are offering the billing solution approved by the BNetzA until their systems are migrated.
Open Grid Europe ("OGE," formerly E.ON Gastransport) is supposed to have been subject to incentive-based regulation since the start of 2010. In mid-2011, OGE made available to the BNetzA documents the agency will use to set OGE's initial revenue cap for the second regulatory period (2013–2017). We anticipate that the BNetzA's cost analysis, including the process of seeking clarifications from OGE, will last until the summer of 2012. It will be followed by a new efficiency benchmarking of an as-yet-to-be-determined group of gas TSOs, which are very heterogeneous. The BNetzA will derive the revenue caps for 2013–2017 from the individual efficiency factor it calculates for each TSO.
In August 2009, the European Commission, the European Parliament, and the member states approved the third internalmarket package. In addition to the complete legal unbundling of electricity and gas TSOs, the third internal-market package gives member states the option of establishing an independent transmission operator ("ITO") or an independent system operator ("ISO"). The third legislative package will affect the entire value chain and will grant national and European regulatory agencies far-reaching new authority to intervene in
markets. Risks result not only from the increased scope of intervention options, but also from the legislation that the member states enact to transpose the third legislative package into national law, which may not use the ISO or ITO option and which could go beyond the guidelines of the electricity and gas directives. The member states are currently transposing the directives into national law.
In addition, the European Commission, the European Parliament, and the Council passed the green legislative package whose purpose is to enable the EU to achieve its climate targets. By 2020, renewables are supposed to meet 20 percent of the EU's energy consumption, while greenhouse-gas emissions are to be reduced by 20 percent (and possibly by 30 percent) from 1990 levels. Emission allowances for the EU Emissions-Trading Scheme ("ETS") have so far been allocated at no cost. No-cost allocation will gradually be replaced by the auctioning of allowances. Starting in 2013, power producers will have to acquire all of their allowances through auctions. The number of allowances will be reduced each year. Industries not subject to the ETS will also have to reduce their emissions in accordance with national targets. A portion of the fuels for private users (heating, transport) must come from renewable sources. The EU will provide financial support for the development of carbon-capture-and-storage technology. The green package will have a profound impact on the future generation mix, network infrastructure, and market rules.
We try to manage these risks by engaging in an intensive and constructive dialog with government agencies and policymakers.
The operational and strategic management of the E.ON Group relies heavily on complex information technology. Our IT systems are maintained and optimized by qualified E.ON Group experts, outside experts, and a wide range of technological security measures. In addition, the E.ON Group has in place a range of technological and organizational measures to counter the risk of unauthorized access to data, the misuse of data, and data loss.
During the period under review, the risk situation of the E.ON Group's operating business did not change substantially compared with year-end 2010. Increasing gas-market competition and its effect on sales volumes and prices along with delays in power and gas new-build projects could also adversely affect our earnings situation. From today's perspective, however, we do not perceive any risks in the future that would threaten the existence of the E.ON Group or individual segments.
We expect the German federal government's recent decision to shut down nuclear power stations early and to transform the country's energy supply to have a substantial negative impact on our full-year earnings. Along with the existing adverse factors—Germany's nuclear-fuel tax, the full auctioning of EU carbon allowances starting in 2013, the altered market environment in the gas business, and narrower wholesale margins—this new policy environment presents our company with considerable business challenges. From today's perspective, we anticipate that our 2011 adjusted EBITDA will be between €9.1 billion and €9.8 billion. We expect our 2011 adjusted net income to be in a range from €2.1 billion to €2.6 billion. Due to the sharp reduction in our anticipated earnings, we are unable to stand by our previous forecast of a minimum dividend of €1.30 per share for the 2011 financial year. E.ON now plans to pay out a dividend of €1 per share for the 2011 financial year. As a rule, we are maintaining our dividend policy of paying out 50 to 60 percent of our adjusted net income.
Generation's 2011 adjusted EBITDA will reflect the adverse effects of the German federal government's decision to shut down nuclear power stations early and to transform the country's energy supply and will be substantially below the prior-year level. We expect Generation's 2011 adjusted EBITDA to be between €2 and €2.3 billion.
For Renewables we anticipate a 2011 adjusted EBITDA of between €1.4 and €1.6 billion. This segment will benefit from a significant increase in generating capacity, particularly in wind power.
Our forecast for Gas's 2011 adjusted EBITDA is unchanged at between €0.8 and €1.3 billion, well below the prior-year level. The reason for the decline is that the gas wholesale business is under considerable margin pressure due to the disconnect between oil-indexed procurement prices and achievable gas wholesale prices. Predictions on the outcome of negotiations with producers result in planning uncertainty and volatility in our earnings expectations. Despite the ongoing negotiations to reduce procurement costs, Gas's gas wholesale business will not record positive earnings in 2011. Earnings at the E&P business will be higher thanks to the positive development of commodity prices. The commissioning of new capacity will also enable the storage business to increase its earnings. Due to regulatory pressure, earnings at the transport business will be below the prior-year level.
We anticipate that Trading's 2011 adjusted EBITDA will be between -€0.4 and -€0.2 billion, mainly due to continued high transfer prices between Trading and the generation units. This effect is enhanced by declining achieved prices.
We expect the Germany segment's 2011 adjusted EBITDA to be between €2.1 and €2.3 billion. Earnings in 2010 benefited in particular from positive effects in the network business that will not be repeated in a similar magnitude in 2011.
We anticipate that Other EU Countries will post an adjusted EBITDA of €2.2 to €2.4 billion in 2011. A key factor will be the absence of an adverse earnings effect relating to renewables recorded at the Czech regional unit in 2010. Adjusted for portfolio measures, the forecast for this segment is unchanged.
We expect Russia's 2011 adjusted EBITDA to be between €0.5 and €0.7 billion. It will benefit the commissioning of new generating capacity along with higher margins at existing capacity.
Positive developments in foreign-currency rates and market prices for commodities such as electricity, natural gas, coal, oil, and carbon dioxide can create opportunities for our operations. Periods of exceptionally cold weather—very low average temperatures or extreme daily lows—in the fall and winter months can create opportunities for us to meet higher demand for electricity and natural gas.
The EU internal energy market is supposed to be completed by 2014 and serve as the first step towards a long-term European energy strategy. Nevertheless, many member states pursue their own agenda, aspects of which are not compatible with EU policy objectives. An example of this is the different approaches member states are taking with regard to capacity markets. We believe that an interconnected European market and nationally oriented markets will develop in parallel This could lead to a situation in which E.ON, which operates across Europe, will have to look for opportunities in a fragmented regulatory environment.
In the period under review, our opportunities did not change significantly relative to those described in our 2010 Annual Report.
We have reviewed the Condensed Consolidated Interim Financial Statements—comprising the balance sheet, income statement, statement of recognised income and expenses, condensed cash flow statement, statement of changes in equity and selected explanatory notes—and the Interim Group Management Report of E.ON AG, Düsseldorf, for the period from January 1 to June 30, 2011 which are part of the half-year financial report pursuant to § (Article) 37w WpHG ("Wertpapierhandelsgesetz": German Securities Trading Act). The preparation of the Condensed Consolidated Interim Financial Statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the Interim Group Management Report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company's Board of Managing Directors. Our responsibility is to issue a review report on the Condensed Consolidated Interim Financial Statements and on the Interim Group Management Report based on our review.
We conducted our review of the Condensed Consolidated Interim Financial Statements and the Interim Group Management Report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW) and additionally observed the International Standard on Review Engagements "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (ISRE 2410). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the Condensed Consolidated Interim Financial Statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted
by the EU and that the Interim Group Management Report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion.
Based on our review, no matters have come to our attention that cause us to presume that the Condensed Consolidated Interim Financial Statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the Interim Group Management Report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports.
PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
Dr. Norbert Schwieters Michael Reuther Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditor) (German Public Auditor)
| E.ON AG and Subsidiaries Consolidated Statements of Income | |||||
|---|---|---|---|---|---|
| April 1–June 30 | January 1–June 30 | ||||
| € in millions | Note | 2011 | 2010 | 2011 | 2010 |
| Sales including electricity and energy taxes | 25,672 | 19,065 | 54,169 | 45,391 | |
| Electricity and energy taxes | -470 | -445 | -1,121 | -1,087 | |
| Sales | (12) | 25,202 | 18,620 | 53,048 | 44,304 |
| Changes in inventories (finished goods and work in progress) | 27 | 31 | 6 | 46 | |
| Own work capitalized | 75 | 160 | 255 | 257 | |
| Other operating income | 643 | 3,325 | 7,792 | 8,567 | |
| Cost of materials | -23,021 | -13,863 | -45,832 | -33,532 | |
| Personnel costs | -1,216 | -1,302 | -2,517 | -2,603 | |
| Depreciation, amortization and impairment charges | -1,144 | -901 | -2,137 | -1,797 | |
| Other operating expenses | -2,389 | -3,310 | -8,882 | -7,768 | |
| Income/Loss (-) from companies accounted for under the equity method | 63 | 162 | 245 | 343 | |
| Income/Loss (-) from continuing operations before financial results and income taxes |
-1,760 | 2,922 | 1,978 | 7,817 | |
| Financial results | (6) | -355 | -514 | -970 | -1,044 |
| Income/Loss (-) from equity investments | 42 | 92 | 57 | 92 | |
| Income from other securities, interest and similar income | 191 | 185 | 358 | 309 | |
| Interest and similar expenses | -588 | -791 | -1,385 | -1,445 | |
| Income taxes | 622 | -725 | -73 | -1,846 | |
| Income/Loss (-) from continuing operations | -1,493 | 1,683 | 935 | 4,927 | |
| Income/Loss (-) from discontinued operations, net | (4) | – | 41 | 13 | -758 |
| Net income | -1,493 | 1,724 | 948 | 4,169 | |
| Attributable to shareholders of E.ON AG | -1,576 | 1,633 | 691 | 3,911 | |
| Attributable to non-controlling interests | 83 | 91 | 257 | 258 | |
| in € | |||||
| Earnings per share (attributable to shareholders of E.ON AG)— | |||||
| basic and diluted | (7) | ||||
| from continuing operations | -0.83 | 0.83 | 0.35 | 2.45 | |
| from discontinued operations | 0.00 | 0.02 | 0.01 | -0.40 | |
| from net income | -0.83 | 0.85 | 0.36 | 2.05 |
| E.ON AG and Subsidiaries Consolidated Statements of Recognized Income and Expenses | ||||||
|---|---|---|---|---|---|---|
| April 1–June 30 | January 1–June 30 | |||||
| € in millions | 2011 | 2010 | 2011 | 2010 | ||
| Net income | -1,493 | 1,724 | 948 | 4,169 | ||
| Cash flow hedges | 77 | -82 | 166 | -68 | ||
| Unrealized changes | 155 | 68 | 290 | 142 | ||
| Reclassification adjustments recognized in income | -78 | -150 | -124 | -210 | ||
| Available-for-sale securities | -30 | -467 | -708 | -524 | ||
| Unrealized changes | -13 | -433 | 29 | -446 | ||
| Reclassification adjustments recognized in income | -17 | -34 | -737 | -78 | ||
| Currency translation adjustments | 549 | 24 | 743 | 882 | ||
| Unrealized changes | -6 | 243 | 188 | 1,101 | ||
| Reclassification adjustments recognized in income | 555 | -219 | 555 | -219 | ||
| Changes in actuarial gains/losses of defined benefit pension plans and similar obligations | 51 | -394 | 375 | -700 | ||
| Companies accounted for under the equity method | -42 | 12 | -13 | 46 | ||
| Unrealized changes | -42 | 12 | -13 | 46 | ||
| Reclassification adjustments recognized in income | – | – | – | – | ||
| Income taxes | 70 | 323 | -112 | 467 | ||
| Total income and expenses recognized directly in equity | 675 | -584 | 451 | 103 | ||
| Total recognized income and expenses (total comprehensive income) | -818 | 1,140 | 1,399 | 4,272 | ||
| Attributable to shareholders of E.ON AG | -900 | 1,062 | 1,100 | 3,913 | ||
| Attributable to non-controlling interests | 82 | 78 | 299 | 359 |
| E.ON AG and Subsidiaries Consolidated Balance Sheets | |||
|---|---|---|---|
| € in millions | Note | June 30, 2011 | Dec. 31, 2010 |
| Assets | |||
| Goodwill | 14,007 | 14,588 | |
| Intangible assets | 7,774 | 8,070 | |
| Property, plant and equipment | 56,361 | 60,870 | |
| Companies accounted for under the equity method | (8) | 6,181 | 6,343 |
| Other financial assets | (8) | 7,069 | 6,104 |
| Equity investments | 2,206 | 2,201 | |
| Non-current securities | 4,863 | 3,903 | |
| Financial receivables and other financial assets | 3,349 | 3,357 | |
| Operating receivables and other operating assets | 4,856 | 4,022 | |
| Income tax assets | 904 | 822 | |
| Deferred tax assets | 3,025 | 2,481 | |
| Non-current assets | 103,526 | 106,657 | |
| Inventories | 4,340 | 4,064 | |
| Financial receivables and other financial assets | 1,030 | 1,674 | |
| Trade receivables and other operating assets | 25,207 | 27,492 | |
| Income tax assets | 2,875 | 2,678 | |
| Liquid funds | 7,420 | 8,273 | |
| Securities and fixed-term deposits | 1,941 | 1,697 | |
| Restricted cash and cash equivalents | 116 | 433 | |
| Cash and cash equivalents | 5,363 | 6,143 | |
| Assets held for sale | (4) | 563 | 2,043 |
| Current assets | 41,435 | 46,224 | |
| Total assets | 144,961 | 152,881 | |
| Equity and Liabilities | |||
| Capital stock | 2,001 | 2,001 | |
| Additional paid-in capital | 13,747 | 13,747 | |
| Retained earnings | 27,127 | 29,026 | |
| Accumulated other comprehensive income | 568 | 410 | |
| Treasury shares | (9) | -3,531 | -3,531 |
| Equity attributable to shareholders of E.ON AG | 39,912 | 41,653 | |
| Non-controlling interests (before reclassification) | 4,524 | 4,532 | |
| Reclassification related to put options | -615 | -600 | |
| Non-controlling interests | 3,909 | 3,932 | |
| Equity | 43,821 | 45,585 | |
| Financial liabilities | 24,766 | 28,880 | |
| Operating liabilities | 7,125 | 6,506 | |
| Income taxes | 3,279 | 3,406 | |
| Provisions for pensions and similar obligations | (11) | 2,558 | 3,250 |
| Miscellaneous provisions | 20,777 | 20,381 | |
| Deferred tax liabilities | 7,008 | 7,157 | |
| Non-current liabilities | 65,513 | 69,580 | |
| Financial liabilities | 4,016 | 3,611 | |
| Trade payables and other operating liabilities | 24,083 | 26,357 | |
| Income taxes | 2,575 | 2,578 | |
| Miscellaneous provisions | 4,953 | 4,950 | |
| Liabilities associated with assets held for sale | (4) | – | 220 |
| Current liabilities | 35,627 | 37,716 | |
| Total equity and liabilities | 144,961 | 152,881 |
| 31 | |
|---|---|
| E.ON AG and Subsidiaries Consolidated Statements of Cash Flows | ||
|---|---|---|
| January 1–June 30 | ||
| € in millions | 2011 | 2010 |
| Net income | 948 | 4,169 |
| Income from discontinued operations, net | -13 | 758 |
| Depreciation, amortization and impairment of intangible assets and of property, plant and equipment | 2,137 | 1,797 |
| Changes in provisions | 115 | 155 |
| Changes in deferred taxes | -151 | 787 |
| Other non-cash income and expenses | 967 | 358 |
| Gain/Loss on disposal of intangible assets and property, plant and equipment, equity investments and securities (>3 months) |
-609 | -1,004 |
| Changes in operating assets and liabilities and in income taxes | -1,032 | -1,425 |
| Cash provided by operating activities of continuing operations (operating cash flow) | 2,362 | 5,595 |
| Cash provided by operating activities of discontinued operations | – | 247 |
| Cash provided by operating activities | 2,362 | 5,842 |
| Proceeds from disposal of | 5,647 | 1,121 |
| Intangible assets and property, plant and equipment | 198 | 73 |
| Equity investments | 5,449 | 1,048 |
| Purchases of investments in | -2,467 | -3,669 |
| Intangible assets and property, plant and equipment | -2,389 | -3,406 |
| Equity investments | -78 | -263 |
| Changes in securities and fixed-term deposits | -685 | 93 |
| Changes in restricted cash and cash equivalents | 318 | -235 |
| Cash provided by (used for) investing activities of continuing operations | 2,813 | -2,690 |
| Cash provided by (used for) investing activities of discontinued operations | – | -208 |
| Cash provided by (used for) investing activities | 2,813 | -2,898 |
| Payments received/made from changes in capital | 13 | -350 |
| Payments for treasury shares, net | – | – |
| Cash dividends paid to shareholders of E.ON AG | -2,858 | -2,858 |
| Cash dividends paid to non-controlling interests | -171 | -188 |
| Changes in financial liabilities | -2,937 | -2,337 |
| Cash used for financing activities of continuing operations | -5,953 | -5,733 |
| Cash provided by financing activities of discontinued operations | – | 10 |
| Cash used for financing activities | -5,953 | -5,723 |
| Net increase/decrease in cash and cash equivalents | -778 | -2,779 |
| Effect of foreign exchange rates on cash and cash equivalents | -2 | 24 |
| Cash and cash equivalents at the beginning of the year | 6,143 | 4,210 |
| Cash and cash equivalents at the end of the quarter | 5,363 | 1,455 |
| Less: Cash and cash equivalents of discontinued operations at the end of the quarter | 0 | 8 |
| Cash and cash equivalents of continuing operations at the end of the quarter | 5,363 | 1,447 |
| Statement of Changes in Equity | |||||||
|---|---|---|---|---|---|---|---|
| Changes in accumulated | |||||||
| other comprehensive income | |||||||
| Additional | Retained | Currency translation |
Available-for | Cash flow | |||
| € in millions | Capital stock | paid-in capital | earnings | adjustments | sale securities | hedges | |
| Balance as of January 1, 2010 | 2,001 | 13,747 | 26,609 | -2,005 | 3,511 | 46 | |
| Change in scope of consolidation | |||||||
| Capital increase | |||||||
| Capital decrease | |||||||
| Dividends paid | -2,858 | ||||||
| Share additions | -118 | ||||||
| Net additions/disposals from reclassification related to put options |
|||||||
| Total comprehensive income | 3,476 | 1,041 | -544 | -60 | |||
| Net income Other comprehensive income |
3,911 -435 |
1,041 | -544 | -60 | |||
| Changes in actuarial gains/ | |||||||
| losses of defined benefit | |||||||
| pension plans and similar | |||||||
| obligations | -435 | ||||||
| Changes in accumulated other comprehensive income |
1,041 | -544 | -60 | ||||
| Balance as of June 30, 2010 | 2,001 | 13,747 | 27,109 | -964 | 2,967 | -14 | |
| Balance as of January 1, 2011 | 2,001 | 13,747 | 29,026 | -1,570 | 1,923 | 57 | |
| Change in scope of consolidation | |||||||
| Capital increase | |||||||
| Capital decrease | |||||||
| Dividends paid | -2,858 | ||||||
| Share additions | 17 | ||||||
| Net additions/disposals from | |||||||
| reclassification related to | |||||||
| put options | |||||||
| Total comprehensive income | 942 | 715 | -681 | 124 | |||
| Net income Other comprehensive income |
691 251 |
715 | -681 | 124 | |||
| Changes in actuarial gains/ | |||||||
| losses of defined benefit | |||||||
| pension plans and similar | |||||||
| obligations | 251 | ||||||
| Changes in accumulated other comprehensive income |
715 | -681 | 124 | ||||
| Balance as of June 30, 2011 | 2,001 | 13,747 | 27,127 | -855 | 1,242 | 181 |
| Equity | |||||
|---|---|---|---|---|---|
| attributable | Non-controlling | Reclassification | |||
| to shareholders | interests (before | related to | Non-controlling | ||
| Treasury shares | of E.ON AG | reclassification) | put options | interests | Total |
| -3,530 | 40,379 | 4,157 | -550 | 3,607 | 43,986 |
| 110 | 110 | 110 | |||
| 56 | 56 | 56 | |||
| -39 | -39 | -39 | |||
| -2,858 | -171 | -171 | -3,029 | ||
| -118 | -118 | ||||
| 4 | 4 | 4 | |||
| 3,913 | 359 | 359 | 4,272 | ||
| 3,911 | 258 | 258 | 4,169 | ||
| 2 | 101 | 101 | 103 | ||
| -435 | -36 | -36 | -471 | ||
| 437 | 137 | 137 | 574 | ||
| -3,530 | 41,316 | 4,472 | -546 | 3,926 | 45,242 |
| -3,531 | 41,653 | 4,532 | -600 | 3,932 | 45,585 |
| -105 | -105 | -105 | |||
| 32 | 32 | 32 | |||
| -29 | -29 | -29 | |||
| -2,858 | -175 | -175 | -3,033 | ||
| 17 | -30 | -30 | -13 | ||
| -15 | -15 | -15 | |||
| 1,100 | 299 | 299 | 1,399 | ||
| 691 | 257 | 257 | 948 | ||
| 409 | 42 | 42 | 451 | ||
| 251 | 14 | 14 | 265 | ||
| 158 | 28 | 28 | 186 | ||
| -3,531 | 39,912 | 4,524 | -615 | 3,909 | 43,821 |
The Interim Report for the six months ended June 30, 2011, has been prepared in accordance with all IFRS and International Financial Reporting Interpretations Committee ("IFRIC") interpretations effective and adopted for use in the European Union ("EU").
With the exception of the new regulations described in Note 2, this Interim Report was prepared using the accounting, valuation and consolidation policies used in the Consolidated Financial Statements for the 2010 fiscal year.
This Interim Report prepared in accordance with IAS 34 is condensed compared with the scope applied to the Consolidated Financial Statements for the full year. For further information, including information about E.ON's risk management system, please refer to E.ON's Consolidated Financial Statements for the year ended December 31, 2010, which provide the basis for this Interim Report.
In November 2009, the IASB issued a revised version of IAS 24 "Related Party Disclosures" ("IAS 24"). In particular, the revisions clarify the definition of a "related party" and simplify the disclosure requirements for entities deemed related by virtue of being controlled or significantly influenced by a particular government. Revised IAS 24 has been transferred by the EU into European law and its application is thus mandatory for fiscal years beginning on or after January 1, 2011. Earlier application is permitted. There was no material impact on E.ON's Consolidated Financial Statements.
In the context of its Annual Improvements Process, the IASB revises existing standards. In May 2010, the IASB published a corresponding omnibus standard, the third issued under this process. It contains changes to IFRS and their associated Bases for Conclusions. The omnibus standard has been transferred by the EU into European law. The endorsement has
resulted in two different first-time application dates. The amendments are to be applied either for fiscal years beginning on or after July 1, 2010, or for those beginning on or after January 1, 2011. There are no material changes for E.ON arising from the omnibus standard.
In January 2010, the IASB issued amendments to IFRS 1 and IFRS 7. The effect of amending the standards is that entities applying IFRS for the first time are now relieved from having to provide the comparative disclosures for fair-value measurement and for liquidity risk. The exemption applies in cases where the comparative periods end before December 31, 2009. The amendment has been transferred by the EU into European law and thus it is to be applied for fiscal years beginning on or after July 1, 2010. The new versions of the standards have no impact on the E.ON Consolidated Financial Statements, since they are already prepared in accordance with IFRS.
Presentation"—Classification of Rights Issues In October 2009, the IASB issued an amendment to IAS 32, "Financial Statements: Presentation," regulating in particular the classification of rights issues. This new amendment requires that certain subscription rights, options and warrants that are denominated in a foreign currency be recognized as equity by the issuer of the equity instrument to which the rights refer, rather than as a derivative liability, as was past practice. The amendment is to be applied for fiscal years beginning on or after February 1, 2010. Earlier application is permitted. The amendment has been transferred by the EU into European law. It has no impact on E.ON's Consolidated Financial Statements.
In November 2009, an amendment to IFRIC 14 was published. The amendment relates to entities that are subject to minimum funding requirements and make prepayments of contributions. According to the amendment, such an entity is now permitted to present the benefit of such a prepayment as an asset where applicable. The amendment has been transferred by the EU into European law and thus it is to be applied for fiscal years beginning on or after January 1, 2011. Early application is permitted. This will have no impact on E.ON's Consolidated Financial Statements.
IFRIC 19, "Extinguishing Financial Liabilities with Equity Instruments" ("IFRIC 19"), was published in November 2009. IFRIC 19 clarifies the accounting treatment of financial liabilities that are settled through the transfer of equity instruments. The financial instruments issued are deemed part of the "consideration paid" as defined by IAS 39.41. The borrower must therefore fully or partially derecognize the liability. Any difference between the carrying amount of the financial liability thus (partially) extinguished and the initial measurement amount of the equity instruments issued is recognized in income. IFRIC 19 is effective for fiscal years beginning on or after July 1, 2010. Earlier application is permitted. The interpretation has been transferred by the EU into European law. IFRIC 19 has no impact on E.ON's Consolidated Financial Statements.
The number of consolidated companies changed as follows during the reporting period:
| Scope of Consolidation | |||
|---|---|---|---|
| Domestic | Foreign | Total | |
| Consolidated companies as of December 31, 2010 |
146 | 334 | 480 |
| Additions | 1 | 6 | 7 |
| Disposals/Mergers | 1 | 20 | 21 |
| Consolidated companies as of June 30, 2011 |
146 | 320 | 466 |
As of June 30, 2011, 103 companies were accounted for under the equity method (December 31, 2010: 106).
In line with the strategy to divest €15 billion in assets by the end of 2013, E.ON sold its U.K. power distribution network operator to PPL Corporation ("PPL"), Allentown, Pennsylvania, U.S., effective April 1, 2011. The purchase price for the equity and for the assumption of certain liabilities is approximately £4.1 billion (equivalent to €4.6 billion as of April 1, 2011). In addition, provisions for pensions of about £0.1 billion were also transferred. As negotiations had already reached an advanced stage by March 1, 2011, the activities had been presented as a disposal group as of that date. The disposal gain before foreign exchange translation differences amounts to about £0.4 billion. Held in the United Kingdom regional unit, Central Networks had net assets before consolidation effects of approximately £2.0 billion (equivalent to €2.3 billion) as of April 1, 2011. Its major balance sheet line items were non-current assets (€5.0 billion), operating receivables (€0.4 billion) intragroup liabilities (€1.2 billion) and financial liabilities to non-Group third parties (€0.6 billion), as well as pension and other provisions (€0.7 billion) and liabilities (€0.6 billion). OCI as of April 1, 2011, consisted primarily of foreign exchange translation differences totaling -€0.2 billion.
In mid-December 2010, the contractual agreements to sell all of the shares of E.ON Rete S.r.l., Milan, Italy, the company operating the Italian gas distribution network for the former Italy market unit, to a consortium consisting of Italian investment fund F2i SGR S.p.A. and AXA Private Equity at a sales price of approximately €0.3 billion, were finalized. These activities have been presented as a disposal group since December 31, 2010. The major balance sheet line items were €0.1 billion and €0.2 billion, respectively, in intangible assets and property plant and equipment, as well as €0.2 billion in liabilities. The transaction closed at the beginning of April 2011 with a minor book gain on the disposal.
Following the disposal of the Thüga group, the shareholdings in Stadtwerke Karls ruhe GmbH (10 percent), Karlsruhe, Germany, and in Stadtwerke Duisburg Aktiengesellschaft (20 percent), Duisburg, Germany, both accounted for in the former Pan-European Gas market unit, were classified as assets held for sale as of December 31, 2010. The sales closed at the beginning of 2011 and in July 2011, respectively.
Following the disposal of the Thüga group, a concrete stage in negotiations on the disposal of the 40-percent shareholding in HEAG Südhessische Energie AG, Darmstadt, Germany, accounted for in the Pan-European Gas market unit, was reached in the third quarter of 2010. Accordingly, the ownership interest was reclassified as an asset held for sale at the end of August 2010. The carrying amount of the ownership interest is approximately €0.3 billion. The transaction is expected to close in the third quarter of 2011.
In the context of portfolio streamlining, E.ON made the decision to dispose of its approximately 21-percent shareholding in BKW FMB Energie AG ("BKW"), Bern, Switzerland. The first stage of the transaction, in which BKW itself and Groupe E SA, Fribourg, Switzerland, paid a purchase price of approximately €0.3 billion for a roughly 14-percent stake, was completed in July 2010. The carrying amount of all the shares, accounted for in the Central Europe market unit using the equity method, was approximately €0.6 billion as of June 30, 2010; foreign exchange translation differences recognized in equity amounted to approximately €0.1 billion. The transaction closed in July 2010. A material net book gain was not realized. The remaining approximately 7 percent of the shares, on which BKW has a purchase option until September 2011, continue to be reported as an asset held for sale and are measured at fair value. The carrying amount as of June 30, 2011, is approximately €0.2 billion.
The portfolio streamlining efforts also included the disposal in the fourth quarter of 2010 of most of E.ON's interest in OAO Gazprom ("Gazprom"), Moscow, Russian Federation, sold to Russia's state-owned Vnesheconombank ("VEB"), Moscow, Russian Federation. The proceeds from this transaction totaled approximately €2.6 billion, resulting in a book gain of approximately €2.0 billion. The remaining stake, held in the Gas global unit, was classified as held for sale with a carrying amount of approximately €0.9 billion as of December 31, 2010. This remainder was sold in the first quarter of 2011. The gain on disposal amounted to approximately €0.6 billion.
At the end of April 2010, E.ON and PPL signed agreements on the sale of the power and gas business in the United States, bundled in the U.S. Midwest market unit. The agreed purchase price for the equity and for the assumption of certain liabilities was approximately \$7.6 billion (equivalent to approximately €5.5 billion as of November 1, 2010). We also transferred pension obligations in the amount of approximately \$0.8 billion. The increased probability of the intended sale taking place necessitated a reexamination of the measurement of the U.S. businesses, taking into account the expected proceeds on disposal. The result of this examination, taken together with the purchase price actually agreed, resulted in goodwill impairment of approximately €0.9 billion, which already had to be recognized in the first quarter of 2010. The transaction closed on November 1, 2010. Amounts totaling -€0.2 billion that were carried in OCI had to be transferred to the income statement in connection with this disposal.
The table below provides selected financial information, including the 2010 goodwill impairment and subsequent effects at U.S. Midwest.
| Selected Financial Information— U.S. Midwest (Summary) |
||
|---|---|---|
| January 1–June 30 € in millions |
2011 | 2010 |
| Sales | – | 1,013 |
| Other income/expenses, net | 18 | -1,681 |
| Income/Loss (-) from continuing operations before income taxes and |
||
| non-controlling interests | 18 | -668 |
| Income tax benefit | -6 | -80 |
| Income/Loss (-) from discontinued operations |
12 | -748 |
As part of a series of portfolio optimizations, E.ON sought to sell its 50-percent stake in Europgas a.s., Prague, Czechia; accordingly, the holding was reported as an asset held for sale as of June 30, 2010. Accounted for in the Pan-European Gas market unit using the equity method, the holding had a carrying amount of approximately €0.2 billion. The transaction closed at the end of July 2010.
In December 2008, E.ON's commitment to the European Commission to sell a variety of generating capacity and the ultrahigh-voltage network in Germany took effect. The total of approximately 5 GW in capacity to be sold, including associated assets and liabilities, has been presented as a disposal group since the end of 2008. The net carrying amounts of the disposal group related exclusively to the Central Europe market unit and initially amounted to approximately €0.4 billion. The disposal of significant portions of the capacity to be sold took place in several transactions during 2009. The first quarter of 2010 saw the closing of the contract with Stadtwerke Hannover AG, Hanover, Germany, on the sale of a further 0.3 GW in capacity with a gain on disposal of approximately €0.2 billion. The disposal of the remaining 0.3 GW of generating capacity closed in April 2010.
In November 2009, an agreement was reached with TenneT B.V., Arnhem, The Netherlands, on the disposal of the German ultrahigh-voltage network. The ultrahigh-voltage network was therefore reclassified as a disposal group in the fourth quarter of 2009 with a net carrying amount of approximately €0.8 billion. The major asset and liability items as of the disposal date were property, plant and equipment and current assets in the amount of €1.0 billion and €0.7 billion, respectively, as well as liabilities and deferred taxes in the amount of €0.9 billion and €0.2 billion, respectively. The relevant entity also had financial obligations from investing activities in the amount of approximately €2 billion. The agreed transaction closed at the end of February 2010. With purchase price allocations taken into account, the gain on disposal was €0.1 billion.
The commitment to the European Commission was thus fulfilled in its entirety in April 2010.
The E.ON Group's research and development costs amounted to €23 million in the first six months of 2011 (first six months of 2010: €24 million).
The following table provides details of financial results for the periods indicated:
| Financial Results | ||||
|---|---|---|---|---|
| April 1–June 30 | January 1–June 30 | |||
| € in millions | 2011 | 2010 | 2011 | 2010 |
| Income from companies in which equity investments are held | 50 | 100 | 63 | 110 |
| Impairment charges/reversals on other financial assets | -8 | -8 | -6 | -18 |
| Income/Loss (-) from equity investments | 42 | 92 | 57 | 92 |
| Income from securities, interest and similar income | 191 | 185 | 358 | 309 |
| Interest and similar expenses | -588 | -791 | -1,385 | -1,445 |
| Interest and similar expenses (net) | -397 | -606 | -1,027 | -1,136 |
| Financial results | -355 | -514 | -970 | -1,044 |
The computation of earnings per share ("EPS") for the periods indicated is shown below:
| Earnings per Share | ||||
|---|---|---|---|---|
| April 1–June 30 | January 1–June 30 | |||
| € in millions | 2011 | 2010 | 2011 | 2010 |
| Income/Loss (-) from continuing operations | -1,493 | 1,683 | 935 | 4,927 |
| less: Non-controlling interests | -83 | -91 | -257 | -258 |
| Income/Loss (-) from continuing operations (attributable to shareholders of E.ON AG) | -1,576 | 1,592 | 678 | 4,669 |
| Income/Loss (-) from discontinued operations, net | – | 41 | 13 | -758 |
| Net income attributable to shareholders of E.ON AG | -1,576 | 1,633 | 691 | 3,911 |
| in € | ||||
| Earnings per share (attributable to shareholders of E.ON AG) | ||||
| from continuing operations | -0.83 | 0.83 | 0.35 | 2.45 |
| from discontinued operations | 0.00 | 0.02 | 0.01 | -0.40 |
| from net income | -0.83 | 0.85 | 0.36 | 2.05 |
| Weighted-average number of shares outstanding (in millions) | 1,905 | 1,905 | 1,905 | 1,905 |
The computation of diluted EPS is identical to basic EPS, as E.ON AG has not issued any potentially dilutive common stock.
The following table shows the structure of financial assets:
| Companies Accounted for under the Equity Method and Other Financial Assets |
||
|---|---|---|
| Dec. 31, | ||
| € in millions | June 30, 2011 |
2010 |
| Companies accounted for under the | ||
| equity method | 6,181 | 6,343 |
| Equity investments | 2,206 | 2,201 |
| Non-current securities | 4,863 | 3,903 |
| Total | 13,250 | 12,447 |
Pursuant to a resolution from the Annual Shareholders Meeting of May 6, 2010, the Company is authorized to purchase own shares until May 5, 2015. The shares purchased, combined with other treasury shares in the possession of the Company, or attributable to the Company pursuant to Sections 71a et seq. AktG, may at no time exceed 10 percent of its capital stock. The Board of Management was authorized at the aforementioned Annual Shareholders Meeting to cancel treasury shares without requiring a separate shareholder resolution for the cancellation or its implementation. The total number of outstanding shares as of June 30, 2011, was 1,905,409,218 (December 31, 2010: 1,905,408,843).
As of June 30, 2011, E.ON AG and one of its subsidiaries held a total of 95,590,782 treasury shares (December 31, 2010: 95,591,157) having a consolidated book value of €3,531 million (equivalent to 4.78 percent or €95,590,782 of the capital stock).
At the Annual Shareholders Meeting on May 5, 2011, the shareholders voted to distribute a dividend of €1.50 for each dividend-paying ordinary share, unchanged from the previous dividend. The total dividend payout was €2,858 million.
Provisions for pensions and similar obligations decreased compared with year-end 2010 primarily due to net actuarial gains resulting mainly from higher discount rates and from employer contributions to plan assets. Provisions were further reduced by the derecognition of provisions for pensions at operating units that were sold, especially Central Networks.
| Discount Rate | ||
|---|---|---|
| June 30, | Dec. 31, | |
| Percentages | 2011 | 2010 |
| Germany | 5.25 | 5.00 |
| U.K. | 5.50 | 5.40 |
The funded status, which is equal to the difference between the present value of the defined benefit obligation and the fair value of plan assets, is reconciled to the amounts recognized on the Consolidated Balance Sheets as shown in the following table:
| Net Amount Recognized | ||
|---|---|---|
| June 30, | Dec. 31, | |
| € in millions | 2011 | 2010 |
| Present value of all defined benefit | ||
| obligations | 13,285 | 16,514 |
| Fair value of plan assets | -10,724 | -13,263 |
| Funded status | 2,561 | 3,251 |
| Unrecognized past service cost | -11 | -11 |
| Net amount recognized | 2,550 | 3,240 |
| Thereof presented as operating | ||
| receivables | -8 | -10 |
| Thereof presented as provisions for | ||
| pensions and similar obligations | 2,558 | 3,250 |
The change in the provisions is virtually replicated in the decrease of the funded status compared with year-end 2010. Taking into account the net periodic pension cost, net pension payments and currency-translation effects, it is primarily attributable to net actuarial gains in the present value of all defined benefit obligations and in the plan assets, and to employer contributions to plan assets. The derecognition of the present value of the defined benefit obligation and of the plan assets at units that were sold, especially Central Networks, also has the effect of reducing the funded status. The net periodic pension cost for defined benefit plans included in the provisions for pensions and similar obligations as well as in operating receivables breaks down as shown in the following table.
| Net Periodic Pension Cost for Defined Benefit Plans | ||||
|---|---|---|---|---|
| April 1–June 30 | January 1–June 30 | |||
| € in millions | 2011 | 2010 | 2011 | 2010 |
| Employer service cost | 57 | 59 | 119 | 116 |
| Interest cost | 171 | 210 | 380 | 417 |
| Expected return on plan assets | -135 | -169 | -304 | -335 |
| Past service cost | – | 2 | 2 | 4 |
| Total | 93 | 102 | 197 | 202 |
Led by its Group Management in Düsseldorf, Germany, the E. ON Group ("E.ON" or the "Group") is segmented into global and regional units, which are reported here in accordance with International Financial Reporting Standard ("IFRS") 8, "Operating Segments" ("IFRS 8"). The new structure took effect at the beginning of 2011. The prior-year comparative figures of the former market units have been reconciled to these new units:
The global units are reported separately in accordance with IFRS 8.
This global unit consists of the Group's conventional (fossil and nuclear) generation assets in Europe. It manages and optimizes these assets across national boundaries.
E.ON also takes a global approach to managing its carbonsourcing and renewables businesses. The objective at this unit is to extend the Group's leading position in the growing renewables market.
This global unit is responsible for gas procurement (including E. ON's own gas production) and for project and product development in gas storage, gas transport, liquefied natural gas and technical asset support.
This unit is responsible for E.ON's trading activities in power, gas, coal, oil and carbon allowances, and is active on all major European energy exchanges.
E.ON's distribution and sales operations in Europe are managed by twelve regional units in total.
For segment reporting purposes, the Germany, United Kingdom, Sweden, Czechia and Hungary regional units are reported separately. E.ON's power generation business in Russia is additionally reported as a special-focus region.
| Financial Information by Business Segment | |||||||
|---|---|---|---|---|---|---|---|
| January 1–June 30 € in millions |
2011 | Generation 2010 |
2011 | Renewables 2010 |
2011 | Gas 2010 |
|
| External sales | 1,901 | 2,220 | 378 | 322 | 2,711 | 2,716 | |
| Intersegment sales | 5,676 | 4,588 | 754 | 591 | 8,915 | 8,156 | |
| Sales | 7,577 | 6,808 | 1,132 | 913 | 11,626 | 10,872 | |
| Adjusted EBITDA | 558 | 1,763 | 753 | 608 | 578 | 1,478 | |
| Earnings from companies accounted for under the equity method1 | 9 | 11 | 8 | 4 | 240 | 211 | |
| Operating cash flow before interest and taxes | 2,098 | 2,755 | 575 | 745 | 574 | 908 | |
| Investments | 641 | 1,403 | 419 | 536 | 463 | 468 |
1Under IFRS, impairments on companies accounted for under the equity method and impairments on other financial assets (and any reversals of such charges) are included in income/loss (-) from companies accounted for under the equity method and financial results, respectively. These income effects are not part of adjusted EBITDA.
| Financial Information by Business Segment—Presentation of Other EU Countries | |||||||
|---|---|---|---|---|---|---|---|
| January 1–June 30 | UK | Sweden | Czechia | ||||
| € in millions | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| External sales | 4,328 | 4,411 | 1,519 | 1,514 | 1,369 | 1,095 | |
| Intersegment sales | 39 | 54 | 143 | 169 | 60 | 97 | |
| Sales | 4,367 | 4,465 | 1,662 | 1,683 | 1,429 | 1,192 | |
| Adjusted EBITDA Earnings from companies accounted for under the equity method1 |
228 – |
649 -6 |
371 5 |
353 16 |
256 21 |
226 22 |
|
| Operating cash flow before interest and taxes | -363 | 351 | 343 | 297 | 89 | 178 | |
| Investments | 154 | 264 | 137 | 137 | 64 | 60 |
1Under IFRS, impairments on companies accounted for under the equity method and impairments on other financial assets (and any reversals of such charges) are included in income/loss (-) from companies accounted for under the equity method and financial results, respectively. These income effects are not part of adjusted EBITDA.
Those units not reported separately are instead reported collectively as "Other regional units." They include the Italy, Spain, France, Netherlands, Slovakia, Romania and Bulgaria regional units.
Group Management/Consolidation contains E.ON AG itself ("E.ON" or the "Company"), the interests held directly by E.ON AG, as well as the consolidation effects that take place at Group level.
| Group Management/ | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Trading | Germany | Other EU Countries | Russia | Consolidation | E.ON Group | ||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| 18,285 | 9,907 | 17,556 | 17,361 | 11,408 | 11,063 | 780 | 630 | 29 | 85 | 53,048 | 44,304 |
| 12,207 | 11,419 | 1,172 | 1,461 | 498 | 560 | – | – | -29,222 | -26,775 | 0 | 0 |
| 30,492 | 21,326 | 18,728 | 18,822 | 11,906 | 11,623 | 780 | 630 | -29,193 | -26,690 | 53,048 | 44,304 |
| -151 | 830 | 1,276 | 1,312 | 1,255 | 1,713 | 252 | 172 | -196 | -6 | 4,325 | 7,870 |
| – | – | 31 | 61 | 62 | 78 | – | – | – | 1 | 350 | 366 |
| -61 | 862 | 742 | 578 | 354 | 1,048 | 228 | 130 | -924 | 238 | 3,586 | 7,264 |
| 7 | 5 | 306 | 319 | 495 | 631 | 111 | 252 | 25 | 55 | 2,467 | 3,669 |
| Hungary | Other regional units | Other EU Countries | ||||
|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| 1,045 | 1,053 | 3,147 | 2,990 | 11,408 | 11,063 | |
| 9 | 22 | 247 | 218 | 498 | 560 | |
| 1,054 | 1,075 | 3,394 | 3,208 | 11,906 | 11,623 | |
| 139 | 183 | 261 | 302 | 1,255 | 1,713 | |
| – | – | 36 | 46 | 62 | 78 | |
| 24 | 104 | 261 | 118 | 354 | 1,048 | |
| 72 | 70 | 68 | 100 | 495 | 631 | |
The following table shows the reconciliation of operating cash flow before interest and taxes to operating cash flow:
| Operating Cash Flow | |||
|---|---|---|---|
| January 1–June 30 € in millions |
2011 | 2010 | Differ ence |
| Operating cash flow before interest and taxes |
3,586 | 7,264 | -3,678 |
| Interest payments | -834 | -658 | -176 |
| Tax payments | -390 | -1,011 | 621 |
| Operating cash flow | 2,362 | 5,595 | -3,233 |
Effective January 1, 2011, adjusted EBITDA has replaced adjusted EBIT as the key measure at E.ON for purposes of internal management control and as an indicator of a business's longterm earnings power. Adjusted EBITDA is derived from income/ loss before interest, taxes, depreciation and amortization (including impairments and reversals) and adjusted to exclude certain special items. The adjustments include adjusted net interest income, net book gains, cost-management and restructuring expenses, as well as other non-operating income and expenses.
The investments presented here are the purchases of investments reported in the Consolidated Statements of Cash Flows.
Adjusted net interest income is calculated by taking the net interest income shown in the income statement and adjusting it using economic criteria and excluding certain special items, i.e., the portions of interest expense that are non-operating. Net book gains are equal to the sum of book gains and losses from disposals, which are included in other operating income and other operating expenses. Cost-management and restructuring expenses are non-recurring in nature. Other non-operating earnings encompass other non-operating income and expenses that are unique or rare in nature. Depending on the case, such income and expenses may affect different line items in the income statement. For example, effects from the marking to market of derivatives are included in other operating income and expenses, while impairment charges on property, plant and equipment are included in depreciation, amortization and impairments. Due to the adjustments, the key figures by segment may differ from the corresponding IFRS figures reported in the Consolidated Financial Statements.
The following table shows the reconciliation of adjusted EBITDA to net income as reported in the IFRS Consolidated Financial Statements:
| Net Income | ||
|---|---|---|
| January 1–June 30 | ||
| € in millions | 2011 | 2010 |
| Adjusted EBITDA | 4,325 | 7,870 |
| Depreciation and amortization | -1,960 | -1,792 |
| Impairments (-)/Reversals (+)1 | 8 | -2 |
| Adjusted EBIT | 2,373 | 6,076 |
| Adjusted interest income (net) | -846 | -1,171 |
| Net book gains/losses | 1,162 | 721 |
| Restructuring/cost-management expenses | -255 | -233 |
| Other non-operating earnings | -1,426 | 1,380 |
| Income/Loss (-) from continuing | ||
| operations before taxes | 1,008 | 6,773 |
| Income taxes | -73 | -1,846 |
| Income/Loss (-) from continuing | ||
| operations | 935 | 4,927 |
| Income/Loss (-) from discontinued | ||
| operations, net | 13 | -758 |
| Net income | 948 | 4,169 |
| Attributable to | ||
| shareholders of E.ON AG | 691 | 3,911 |
| Attributable to non-controlling interests | 257 | 258 |
| 1Impairments differ from the relevant amounts reported in accordance with IFRS |
due to impairments on companies accounted for under the equity method and impairments on other financial assets, and also due to impairments recognized in non-operating earnings.
The goodwill impairment of €0.9 billion recognized in the context of the U.S. Midwest disposal (see also Note 4) is included in the net income/loss from discontinued operations for the comparative period. The nuclear moratorium, the nuclear fuel tax and the amended Nuclear Energy Act, which calls for the early, unplanned shutdowns of the Unterweser, Isar 1, Krümmel and Brunsbüttel nuclear power plants in Germany, have combined to drive down adjusted EBITDA by €1.9 billion year on year.
Page 17 of the Interim Group Management Report provides a more detailed explanation of the reconciliation of adjusted EBITDA to net income.
To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the Interim Consolidated Financial Statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Interim Group Management Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group for the remaining months of the financial year.
Düsseldorf, August 8, 2011
The Board of Management
Teyssen Kildahl Maubach
Reutersberg Schenck Stachelhaus
| November 9, 2011 | Interim Report: January – September 2011 |
|---|---|
| March 14, 2012 | Release of the 2011 Annual Report |
| May 3, 2012 | 2012 Annual Shareholders Meeting |
| May 4, 2012 | Dividend Payout |
| May 9, 2012 | Interim Report: January – March 2012 |
| August 13, 2012 | Interim Report: January – June 2012 |
| November 13, 2012 | Interim Report: January – September 2012 |
| Further information | E.ON AG E.ON-Platz 1 40479 Düsseldorf Germany |
|---|---|
| T +49 211-4579-0 F +49 211-4579-501 [email protected] www.eon.com |
|
| Media Relations T +49 211-4579-453 [email protected] |
|
| Investor Relations T +49 211-4579-549 [email protected] |
|
| Creditor Relations T +49 211-4579-563 [email protected] |
This Interim Report 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.
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