Quarterly Report • Aug 10, 2018
Quarterly Report
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| First half | |||
|---|---|---|---|
| € in millions | 2018 | 2017 | +/- % |
| Sales1 | 17,043 | 19,583 | -13 |
| Adjusted EBITDA1, 2 | 2,799 | 2,715 | +3 |
| Adjusted EBIT1, 2 | 1,942 | 1,767 | +10 |
| Net income/Net loss | 2,908 | 4,034 | -28 |
| Net income/Net loss attributable to shareholders of E.ON SE | 2,704 | 3,872 | -30 |
| Adjusted net income1, 2 | 1,052 | 881 | +19 |
| Investments1 | 1,414 | 1,314 | +8 |
| Cash provided by operating activities1 | 1,420 | 4,879 | -71 |
| Cash provided by operating activities before interest and taxes1 | 2,068 | 5,260 | -61 |
| Economic net debt (June 30 and December 31)1 | 15,876 | 19,248 | -18 |
| Employees (June 30 and December 31)1 | 42,738 | 42,699 | – |
| Earnings per share3, 4 (€) | 1.25 | 1.85 | -32 |
| Adjusted net income per share1, 3, 4 (€) | 0.49 | 0.42 | +17 |
| Shares outstanding (weighted average; in millions) | 2,167 | 2,091 | +4 |
1Includes the discontinued operations in the Renewables segment (see Note 4 to the Condensed Consolidated Financial Statements). 2Adjusted for non-operating effects (see Glossary).
3Based on shares outstanding (weighted average). 4Attributable to shareholders of E.ON SE.
Adjusted EBIT Adjusted EBIT (earnings before interest and taxes) is our most important earnings figure for the purpose of internal management control and as an indicator of our businesses' long-term earnings power. It is adjusted to exclude certain items, mainly non-operating income and expenses. In line with our internal management control, it includes the E.ON Group's continuing operations as well as the discontinued operations in the Renewables segment.
Adjusted EBITDA Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is adjusted to exclude certain items, mainly non-operating income and expenses. For the purpose of internal management control, it includes the E.ON Group's continuing operations as well as the discontinued operations in the Renewables segment.
Adjusted net income An earnings figure after interest income, income taxes, and non-controlling interests that has been adjusted to exclude non-operating items. For the purpose of internal management control, it includes the E.ON Group's continuing operations as well as the discontinued operations in the Renewables segment.
Economic net debt A key figure that supplements net financial position with pension obligations and asset-retirement obligations. In the case of material provisions affected by negative real interest rates, we use the actual amount of the obligation instead of the balance-sheet figure to calculate our economic net debt.
Investments Cash-effective investments as shown in the Consolidated Statements of Cash Flows. For the purpose of internal management control, it includes the E.ON Group's continuing operations as well as the discontinued operations in the Renewables segment.
At the end of the first half of the current financial year, your E.ON is on course. Adjusted for the effect of a new accounting standard, our first-half sales of €17 billion were at the prior-year level. Our adjusted EBIT of €1.9 billion exceeded the weak prior-year figure by about 10 percent. Our adjusted net income rose by 19 percent to just under €1.1 billion. Our results are in line with our forecast for full-year 2018, which we affirm: we expect to record adjusted EBIT of €2.8 to €3 billion and adjusted net income of €1.3 to €1.5 billion.
We're pleased that first-half adjusted EBIT in our core business—Energy Networks, Customer Solutions, and Renewables—surpassed the prior-year figure by €156 million, or 10 percent. In the fiercely competitive German market, we achieved five-digit customer growth on a net basis in the first half of the year, and Focus Money, a weekly business magazine, named us the country's energy supplier with the best customer service for the third time. These are gratifying accomplishments. But competition remains keen. We're actively responding to these challenges with new products, new solutions, and even better, more efficient processes, particularly for our customers. We're also making good progress with the digitization of our business: in less than a year, we've developed a more digital, cloud-based IT platform for our customer business to the point of being able to test it live. It will play a big role in making our customer experience even better and in reducing service costs.
We completed the sale of our Uniper stake to Fortum in June, thereby substantially strengthening our balance sheet and reducing our economic net debt by 18 percent to just €15.9 billion. As we announced, this gives us the flexibility to further enhance your E.ON's strategic position. We'll use this flexibility to implement the transaction we agreed on with RWE in March, whose centerpiece is our acquisition of innogy. When the necessary regulatory approvals are obtained, this will create a new E.ON and an even more powerful company, a company focusing on smart grids and innovative customer solutions and fully dedicated to serving its customers. This will open up outstanding prospects for E.ON and enable us to play a key role in shaping Europe's energy transition. This, in turn, will benefit you, our shareholders, as well as E.ON and innogy's employees and enterprise partners.
Since announcing the transaction with RWE, we've already taken important steps toward the planned integration. Together with RWE and innogy, we reached a collective-bargaining Agreement in Principle with ver.di and IGBCE. In July we and the E.ON SE Works Council and Group Works Council concluded a Framework Agreement on important social aspects of the planned integration. Both agreements establish reliability for the changes ahead as we move toward a new E.ON—for our employees and also for innogy's. In July we also reached an agreement with innogy to work together in planning the integration. To the degree permitted by law, innogy will therefore play a constructive role in this process. This is good news for all of us and for you, our shareholders.
In late July we successfully completed our voluntary public takeover offer to innogy's minority shareholders. Through the end of the extended offer period, 9.4 percent of innogy stock was tendered to us. Together with RWE's 76.8 percent stake, this results in 86.2 percent of the innogy shares. We're very satisfied with this result. Although the conclusion of the agreed-on acquisition of RWE's majority stake alone will enable us to integrate innogy into E.ON, we're very pleased that many other innogy shareholders accepted our offer.
Overall, the first half of 2018 was satisfactory. Now we've entered into what promises to be a both exciting and strenuous second half, one that I'm certain will take us closer to a new and even more powerful E.ON.
Best wishes,
Dr. Johannes Teyssen
At the end of the second quarter of 2018, E.ON stock (including reinvested dividends) was 4 percent above its year-end closing price for 2017. It thereby slightly outperformed its peer index, the STOXX Utilities (+2 percent), and the broader European stock market as measured by the EURO STOXX 50 index (-1 percent).
Despite a lower number of shares traded, E.ON's first-half trading volume rose by 17 percent year on year to €15.4 billion because of higher average share prices in the first half of 2018.
Visit eon.com for the latest information about E.ON stock.
| June 30, 2018 |
Dec. 31, 2017 |
|
|---|---|---|
| Shares outstanding (millions) | 2,167 | 2,167 |
| Closing price (€) | 9.15 | 9.06 |
| Market capitalization (€ in billions)1 | 19.8 | 19.6 |
1Based on shares outstanding.
| First half | 2018 | 2017 |
|---|---|---|
| High (€)1 | 9.54 | 9.06 |
| Low (€)1 | 7.89 | 6.64 |
| Trading volume2 Millions of shares € in billions |
1,733 15.4 |
1,766 13.2 |
1Xetra.
2Source: Bloomberg (all German stock exchanges).
12/29/17 1/12/18 1/26/18 2/9/18 2/23/18 3/9/18 3/23/18 4/6/18 4/20/18 5/4/18 5/18/18 6/1/18 6/15/18 6/29/18
1Based on the performance index.
January – June 2018
E.ON is an investor-owned energy company. Led by Group Management in Essen, our operations are segmented into three operating units: Energy Networks, Customer Solutions, and Renewables. Our non-strategic operations are reported under Non-Core Business.
The main task of Group Management is to lead the E.ON Group. This involves charting E.ON's strategic course and managing and funding its existing business portfolio. Group Management's tasks include optimizing E.ON's overall business across countries and markets from a financial, strategic, and risk perspective and conducting stakeholder management.
This segment consists of our power and gas distribution networks and related activities. It is subdivided into three regional markets: Germany, Sweden, and East-Central Europe/Turkey (which consists of the Czech Republic, Hungary, Romania, Slovakia, and Turkey). This segment's main tasks include operating its power and gas networks safely and reliably, carrying out any necessary maintenance and repairs, and expanding its networks, which frequently involves adding customer connections.
This segment serves as the platform for working with our customers to actively shape Europe's energy transition. This includes supplying customers in Europe (excluding Turkey) with power, gas, and heat as well as with products and services that enhance their energy efficiency and autonomy and provide other benefits. Our activities are tailored to the individual needs of customers across all segments: residential, small and medium-sized enterprises, large commercial and industrial, and public entities. E.ON's main presence in this business is in Germany, the United Kingdom, Sweden, Italy, the Czech Republic, Hungary, and Romania. E.ON Connecting Energies, which provides customers with turn-key distributed-energy solutions, is also part of this segment.
This segment consists of Onshore Wind/Solar and Offshore Wind/Other. We plan, build, operate, and manage renewable generation assets. We market their output in several ways: in conjunction with renewable incentive programs, under long-term electricity supply agreements with key customers, and directly to the wholesale market. Substantially all of the operations in this segment are classified as discontinued operations effective June 30, 2018 (see page 9 for more information and Note 4 to the Condensed Consolidated Interim Financial Statements).
This segment consists of our non-strategic activities. This applies to the operation of our nuclear power stations in Germany (which is managed by our PreussenElektra unit) and the generation business in Turkey.
On March 12, 2018, E.ON SE and RWE AG reached an agreement under which E.ON will acquire RWE's 76.8-percent stake in innogy SE as part of an extensive asset swap. As part of this swap, E.ON will transfer to RWE substantially all of its renewables business as well as the minority stakes, held by its subsidiary PreussenElektra, in Emsland und Gundremmingen nuclear power stations, which are operated by RWE. However, the E.ON Group will retain certain assets reported in its Renewables segment, namely: businesses operated by e.disnatur in Germany and Poland as well as a 20-percent stake in Rampion offshore wind farm. The transaction will take place in several steps and is subject to the usual antitrust approvals.
Pursuant to IFRS 5, the operations in the Renewables segment that will be transferred are reported as discontinued operations effective June 30, 2018 (for more information, see Note 4 to the Condensed Consolidated Interim Financial Statements). Until their final transfer to RWE, however, the Renewables segment will be managed as before. For the purpose of internal management control, its results will therefore be fully included in the relevant key performance indicators. In addition, the scheduled depreciation charges required by IFRS 5 and the carrying amount of these discontinued operations will be recorded in equity and disclosed accordingly.
The Interim Group Management Report's presentation of the key performance indicators relevant for management control therefore includes the results of discontinued operations in the Renewables segment. Pages 13 to 15 of the Interim Group Management Report and Note 12 to the Condensed Consolidated Interim Financial Statements contain reconciliations of these indicators to the disclosures in the E.ON SE and Subsidiaries Consolidated Statements of Income, Consolidated Balance Sheets, and Consolidated Statements of Cash Flows.
Under the agreement with E.ON, RWE will acquire not only substantially all of E.ON's renewables business but also its minority stakes in Lippe-Ems GmbH and Gundremmingen GmbH nuclear power stations, which are operated by RWE. These minority stakes and the associated debt, which had previously been reported at Non-Core Business, are reclassified as a disposal group effective June 30, 2018.
Following approval of the offer documents by the German Federal Financial Supervisory Authority, on April 27, 2018, E.ON published its voluntary public takeover offer ("PTO") for innogy SE stock. The extended acceptance period for the PTO ended on July 25, 2018. In addition to the 76.8-percent stake to be acquired from RWE, 9.4 percent of innogy stock was tendered under the PTO.
To finance the PTO, E.ON secured a €5 billion acquisition facility, which will fund the acquisition of innogy stock not held by RWE. Considering the tender ratio under the PTO, E.ON partially cancelled the facility down to €2 billion.
In September 2017 E.ON and Fortum Corporation of Espoo, Finland, concluded an agreement under which E.ON had the right to sell its 46.65-percent stake in Uniper to Fortum in early 2018. Until the end of September 2017 we classified this stake as an associated company and accounted for it using the equity method. We then reclassified it as an asset held for sale. In January 2018 E.ON decided to exercise its option to tender its Uniper stake. After the necessary antitrust approvals were obtained, the transaction closed on June 26, 2018, with E.ON receiving liquid funds totaling €3.8 billion. The disposal of the stake and the derecognition of the associated derivative financial instruments resulted in income totaling €1.1 billion. Note 4 to the Condensed Consolidated Interim Financial Statements contains more information.
At the beginning of 2018 we made a number of reclassifications. The generation business in Turkey is now reported under Non-Core Business. Customer Solutions' heat business in Germany is no longer reported at its Germany unit but rather at its Other unit. In addition, costs for the ongoing expansion of our business of providing new digital products and services as well as innovative projects, which were previously allocated to Corporate Functions/Other, are now allocated to the appropriate operating units at Customer Solutions. We adjusted the prior-year figures accordingly. These reclassifications were already factored into the earnings forecast for 2018 contained in our 2017 Annual Report.
We apply IFRS 9, "Financial Instruments," and IFRS 15, "Revenue from Contracts with Customers," for the first time effective the start of 2018. The impact of the initial application of these standards on E.ON SE and Subsidiaries Consolidated Interim Financial Statements as of June 30, 2018—in particular, on sales, costs of materials, and a reduction in the value of financial assets—is explained in detail in Note 2 to the Condensed Consolidated Interim Financial Statements.
The E.ON Group closed the sale of E.ON Gas Sverige AB, its gas distribution network company in Sweden, on April 25, 2018. The buyer was the European Diversified Infrastructure Fund II. The transaction closed with retroactive economic effect.
In 2017 E.ON agreed to sell its 74.9-percent stake in Hamburg Netz GmbH to the Free and Hanseatic City of Hamburg. The transaction closed on January 1, 2018. The payment was received in 2017.
A 20-percent stake (E.ON's share: 10 percentage points) of Enerjisa Enerji A.Ş. was successfully placed on the stock market on February 8, 2018. The issuance price was TRY 6.25 per 100 shares. Enerjisa Enerji A.Ş. continues to be a joint venture between E.ON and Sabanci, each of which holds 40 percent. The book gain on this transaction was more than offset by cumulative adverse currency-translation effects.
The German federal government, which has been in office since March 2018, agreed on a range of energy- and climate-policy proposals. In particular, these proposals include changes to the regulatory regime for distribution grids, a target of renewables to provide 65 percent of the country's electricity by 2030, the simplification and collation of energy-efficiency regulations, the development of a plan for the future of mobility, the codification of the proposals contained in the climate-protection plan in a Climate-Protection Law, and more latitude for digital business models with due consideration for data protection. In addition, a commission for "Growth, Structural Transformation, and Employment" will develop a plan for Germany to phase out coal-fired power generation.
At the end of 2017 European institutions agreed on a reform of the EU Emissions Trading Scheme. One of the main reforms is the establishment of a market stability reserve, under which
surplus emission allowances will be temporarily or permanently removed from the market from 2019 onward. In June 2018 European institutions agreed on the EU's climate- and energypolicy targets for 2030: carbon emissions are to be reduced by at least 40 percent, renewables' share of gross energy consumption increased to 32 percent, and energy efficiency raised by 32.5 percent.
In July 2018 the United Kingdom passed a law that requires Ofgem, its energy regulatory agency, to introduce price caps for residential customers on the standard variable and default tariffs for electricity and gas. The price caps will be in place from the end of 2018 to 2020 and can be extended to 2023. Ofgem must review the level of the price caps every six months.
E.ON's operating business continued to deliver a positive performance in the first half of 2018. Nevertheless, our sales of €17 billion were €2.5 billion below the prior-year figure. The decline resulted largely from changes in the accounting treatment of certain levies pursuant to IFRS 15, which was applied for the first time in 2018. These levies are no longer reported in full but rather are netted against the corresponding costs of materials (for more information, see Note 2 to the Condensed Consolidated Interim Financial Statements).
First-half adjusted EBIT in our core businesses of €1.7 billion was 10 percent above the weak prior-year figure of €1.6 billion. First-half adjusted EBIT for the E.ON Group of €1.9 billion was also 10 percent higher. Adjusted net income of €1,052 million surpassed the likewise weak prior-year figure of €881 million by €171 million, or 19 percent.
We recorded sales of €17 billion in the first half of 2018, about €2.5 billion less than the prior-year figure. The initial application of IFRS 15 reduced sales by €2.7 billion.
Energy Networks' sales of €6.1 billion were 30 percent below the prior-year figure of €8.6 billion. This is primarily attributable to netting effects in conjunction with IFRS 15 in Germany and the Czech Republic.
Customer Solutions' sales were at the prior-year level. Increases in the United Kingdom and the Other unit were partially offset by a decline in Germany.
Renewables' sales rose year on year, primarily because of an increase in output due to the commissioning of new onshore and offshore wind farms. This was partially offset by unfavorable wind conditions (particularly offshore) and by the expiration of support mechanisms.
Sales at Non-Core Business declined significantly year on year, mainly because of lower sales prices and the absence of one-off items at PreussenElektra.
| Sales1 | |||
|---|---|---|---|
| Second quarter | First half | |||||
|---|---|---|---|---|---|---|
| € in millions | 2018 | 2017 | +/- % | 2018 | 2017 | +/- % |
| Energy Networks | 3,099 | 4,428 | -30 | 6,053 | 8,627 | -30 |
| Customer Solutions | 4,734 | 4,652 | +2 | 11,479 | 11,201 | +2 |
| Renewables | 340 | 334 | +2 | 741 | 710 | +4 |
| Non-Core Business | 323 | 527 | -39 | 601 | 891 | -33 |
| Corporate Functions/Other | 156 | 195 | -20 | 318 | 392 | -19 |
| Consolidation | -939 | -1,033 | +9 | -2,149 | -2,238 | +4 |
| E.ON Group | 7,713 | 9,103 | -15 | 17,043 | 19,583 | -13 |
1Includes the discontinued operations in the Renewables segment. Sales from continuing operations amounted to €16.8 billion in the first half of 2018 (prior year: €19.2 billion).
Own work capitalized of €144 million was 24 percent below the prior-year level and primarily reflected the completion of IT projects.
Other operating income declined by 29 percent, from €5,384 million to €3,807 million, mainly because of the refund of €2,850 million in nuclear-fuel taxes recorded in the prioryear period. In addition, the sale of securities resulted in lower income than in the prior-year period. Income from currencytranslation effects of €1,323 million was at the prior-year level of €1,319 million, whereas income from derivative financial instruments rose from €441 million by €663 million to €1,104 million. Corresponding amounts resulting from currency-translation effects and derivative financial instruments are recorded under other operating expenses. Current-year income from derivative financial instruments also includes the derecognition of derivative financial instruments marked to market in conjunction with
the disposal of our Uniper stake. The sale of equity interests yielded income of €892 million, which includes €593 million from the sale of our remaining Uniper stake to Fortum.
Costs of materials of €12,910 million were significantly below the prior-year level of €15,715 million. The decline is mainly attributable to the aforementioned initial application of IFRS 15 in 2018.
Personnel costs of €1,273 million were €138 million below the figure from the first half of 2017, primarily because of our Phoenix reorganization plan, which has been under way since the start of 2017.
Depreciation charges declined from €760 million to €704 million. A reduction in depreciation charges on capitalized dismantling costs at PreussenElektra was the principal factor.
Other operating expenses declined by 22 percent, from €3,488 million to €2,713 million. This is chiefly because expenditures relating to derivative financial instruments decreased from €1,012 million to €310 million. By contrast, expenditures relating to currency-translation effects rose from €1,102 million to €1,262 million. The prior-year figure was adversely affected by our obligation to pass on a portion of the refunded nuclearfuel tax to the minority shareholders of our jointly owned power stations (€327 million).
Income from companies accounted for under the equity method of €146 million was substantially below the prior-year figure of €650 million. The decline resulted primarily from the absence of the earnings from our Uniper stake. Effective the end of September 2017, when we reclassified this stake as an asset held for sale, we no longer record its book value in equity. This effect was partially counteracted by higher equity earnings, particularly from our equity investments in Turkey.
For the purpose of internal management control and as an indicator of our businesses' long-term earnings power, we use earnings before interest and taxes that have been adjusted to exclude non-operating effects ("adjusted EBIT"). It includes the discontinued operations in the Renewables segment (see the commentary in Note 12 to the Condensed Consolidated Interim Financial Statements).
First-half adjusted EBIT in our core business was €156 million above the weak prior-year figure. Energy Networks' adjusted EBIT was at the prior-year level. Adjusted EBIT at Customer Solutions rose by about €37 million. The principal factor was a wider gross margin in the power and gas sales business in Germany. By contrast, adjusted EBIT in the United Kingdom declined because price increases were more than offset by higher procurement costs, regulatory effects, and lower power sales volume.
Renewables' adjusted EBIT rose by €31 million, primarily because of an increase in output due to the commissioning of new onshore and offshore wind farms. This was partially offset by unfavorable wind conditions (particularly offshore) and by the expiration of support mechanisms.
Adjusted EBIT reported under Corporate Functions/Other improved by €98 million year on year, owing in part to lower costs for personnel and materials as a result of our Phoenix reorganization program.
The E.ON Group's adjusted EBIT surpassed the prior-year figure by €175 million. In addition to the aforementioned factors affecting adjusted EBIT in our core businesses, adjusted EBIT at Non-Core Business was higher. The positive effect of the increase in the carrying amount of the generation business in Turkey was partially offset by a decline in earnings at PreussenElektra.
| Second quarter | First half | |||||
|---|---|---|---|---|---|---|
| € in millions | 2018 | 2017 | +/- % | 2018 | 2017 | +/- % |
| Energy Networks | 428 | 409 | +5 | 1,070 | 1,087 | -2 |
| Customer Solutions | 85 | 121 | -30 | 477 | 440 | +8 |
| Renewables | 65 | 45 | +44 | 236 | 205 | +15 |
| Corporate Functions/Other | -38 | -67 | +43 | -66 | -164 | +60 |
| Consolidation | 3 | -8 | – | 1 | -6 | – |
| Adjusted EBIT from core business | 543 | 500 | +9 | 1,718 | 1,562 | +10 |
| Non-Core Business | 115 | 229 | -50 | 224 | 205 | +9 |
| E.ON Group adjusted EBIT | 658 | 729 | -10 | 1,942 | 1,767 | +10 |
We recorded first-half net income attributable to shareholders of E.ON SE of €2.7 billion and corresponding earnings per share of €1.25. In the prior-year period we recorded net income of €3.9 billion and earnings per share of €1.85.
Pursuant to IFRS, income/loss from discontinued operations, net, is reported separately in the Consolidated Statements of Income and, for the first half of 2018, includes the earnings from the discontinued operations at Renewables (Note 4 to the Condensed Consolidated Interim Financial Statements contains more information).
We had a tax expense on continuing operations of €203 million compared with €494 million in the prior-year period. Our tax rate on net income from continuing operations declined from
11 percent to 7 percent, mainly because of higher income subject to tax exposure and one-off effects from prior tax years. Our tax rate for the prior-year period mainly reflected one-off items relating to the refund of the nuclear-fuel tax, which was subject to a minimum tax.
First-half net book gains were substantially above the prior-year figure, mainly because of the disposal of our Uniper stake, Hamburg Netz, and E.ON Gas Sverige. Overall, the initial public offering of Enerjisa Enerji in Turkey resulted in a book loss. In addition, book gains on the sale of securities were significantly below the prior-year figure.
| Second quarter | First half | |||
|---|---|---|---|---|
| € in millions | 2018 | 2017 | 2018 | 2017 |
| Net income/loss Attributable to shareholders of E.ON SE Attributable to non-controlling interests |
1,875 1,824 51 |
3,299 3,245 54 |
2,908 2,704 204 |
4,034 3,872 162 |
| Income/Loss from discontinued operations, net | -21 | -7 | -96 | -126 |
| Income/Loss from continuing operations | 1,854 | 3,292 | 2,812 | 3,908 |
| Income taxes | -19 | 384 | 203 | 494 |
| Financial results | 57 | -459 | 243 | -311 |
| Income/Loss from continuing operations before financial results and income taxes | 1,892 | 3,217 | 3,258 | 4,091 |
| Income/Loss from equity investments | 47 | 35 | 51 | 20 |
| EBIT | 1,939 | 3,252 | 3,309 | 4,111 |
| Non-operating adjustments Net book gains (-)/losses (+) Restructuring expenses Marking to market of derivative financial instruments Impairments (+)/Reversals (-) Other non-operating earnings |
-1,343 -751 – -627 – 35 |
-2,565 -221 82 3 – -2,429 |
-1,594 -855 26 -840 – 75 |
-2,542 -273 176 346 – -2,791 |
| Reclassified businesses of Renewables (adjusted EBIT) | 62 | 42 | 227 | 198 |
| Adjusted EBIT | 658 | 729 | 1,942 | 1,767 |
| Impairments (+)/Reversals (-) | – | – | – | 19 |
| Scheduled depreciation and amortization | 344 | 379 | 700 | 753 |
| Reclassified businesses of Renewables (scheduled depreciation and amortization) | 82 | 90 | 157 | 176 |
| Adjusted EBITDA | 1,084 | 1,198 | 2,799 | 2,715 |
Restructuring expenses declined substantially year on year. The decrease is in part attributable to considerably lower expenditures in conjunction with Group-wide cost-reduction programs.
At June 30, 2018, the marking to market of the derivatives we use to shield our operating business from price fluctuations as well as other derivatives resulted in a positive effect of €840 million (prior year: -€346 million), mainly because of derivative financial instruments in conjunction with contractual rights and obligations relating to the sale of our Uniper stake. As in the prior-year period, there were also effects resulting from hedging against price fluctuations, in particular at Customer Solutions.
We recorded no impairment charges or reversals at continuing operations in the first half of 2018 or the prior-year period.
The substantial decline in other non-operating earnings is chiefly attributable to our receipt of the refund of the nuclear-fuel tax in the prior-year period, which also includes the equity earnings on our Uniper stake. This stake was reclassified as an asset held for sale as of September 30, 2017. Since this date, its book value is no longer recorded in equity.
Like EBIT, net income also consists of non-operating effects, such as the marking to market of derivatives. Adjusted net income is an earnings figure after interest income, income taxes, and non- controlling interests that has been adjusted to exclude nonoperating effects. In addition to the marking to market of derivatives, the adjustments include book gains and book losses on disposals, restructuring expenses, other material non-operating income and expenses (after taxes and non-controlling interests), and interest expense/income not affecting net income, which consists of the interest expense/income resulting from nonoperating effects. Adjusted net income includes the earnings (adjusted to exclude non-operating effects) of the discontinued operations at Renewables as if they had not been reclassified pursuant to IFRS 5. For more information, see page 9 of the Interim Group Management Report and Notes 4 and 12 to the Condensed Consolidated Interim Financial Statements.
As a rule, the E.ON Management Board uses this figure in conjunction with its consistent dividend policy and aims for E.ON to have a payout ratio that is on par with its relevant peer companies. In view of the planned acquisition of innogy as part of an extensive asset swap with RWE, we intend to propose to the Annual Shareholders Meeting that E.ON pay a dividend of €0.43 per share for the 2018 financial year.
| Second quarter | First half | ||||
|---|---|---|---|---|---|
| € in millions | 2018 | 2017 | 2018 | 2017 | |
| Income/Loss from continuing operations before financial results and income taxes | 1,892 | 3,217 | 3,258 | 4,091 | |
| Income/Loss from equity investments | 47 | 35 | 51 | 20 | |
| EBIT | 1,939 | 3,252 | 3,309 | 4,111 | |
| Non-operating adjustments | -1,343 | -2,565 | -1,594 | -2,542 | |
| Reclassified businesses of Renewables (adjusted EBIT) | 62 | 42 | 227 | 198 | |
| Adjusted EBIT | 658 | 729 | 1,942 | 1,767 | |
| Net interest income/loss | -104 | 424 | -294 | 291 | |
| Non-operating interest expense (+)/income (-) | -17 | -596 | 21 | -632 | |
| Reclassified businesses of Renewables (operating interest expense (+)/income (-)) | -32 | -17 | -57 | -43 | |
| Operating earnings before taxes | 505 | 540 | 1,612 | 1,383 | |
| Taxes on operating earnings | -119 | -129 | -361 | -307 | |
| Operating earnings attributable to non-controlling interests | -51 | -46 | -145 | -152 | |
| Reclassified businesses of Renewables (taxes and minority interests on operating earnings) | -10 | -9 | -54 | -43 | |
| Adjusted net income | 325 | 356 | 1,052 | 881 |
E.ON presents its financial condition using, among other financial measures, economic net debt and operating cash flow.
For the purpose of internal management control, economic net debt includes the discontinued operations at Renewables as well as the waste-disposal and dismantling obligations associated with our stakes in Emsland and Gundremmingen nuclear power stations, which are classified as a disposal group at PreussenElektra (see Note 4 to the Condensed Consolidated Interim Financial Statements).
Compared with the figure recorded at December 31, 2017 (€19.2 billion), our economic net debt declined by €3.3 billion to €15.9 billion, in particular because of the proceeds on the sale of our Uniper stake.
Furthermore, our net financial position at the balance-sheet date was influenced mainly by the dissolution of Versorgungskasse Energie VVaG i.L. in the first quarter of 2018 and the transfer of these assets to other investment vehicles. Because most of these assets were transferred to our Contractual Trust Arrangement, this affected our economic net debt only slightly, since our provisions for pensions were reduced by the nearly same amount. The impact on our economic net debt of the transfer of the remaining assets to other share investments and third parties was offset by positive effects from the sale of Hamburg Netz GmbH.
| € in millions | June 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Liquid funds | 6,570 | 5,160 |
| Non-current securities | 1,733 | 2,749 |
| Financial liabilities | -10,889 | -13,021 |
| FX hedging adjustment | 118 | 114 |
| Net financial position | -2,468 | -4,998 |
| Provisions for pensions | -2,854 | -3,620 |
| Asset-retirement obligations1 | -10,554 | -10,630 |
| Economic net debt | -15,876 | -19,248 |
| Reclassified businesses of Renewables and PreussenElektra |
1,873 | – |
| Economic net debt (continuing operations) | -14,003 | -19,248 |
1This figure is not the same as the asset-retirement obligations shown in our Consolidated Balance Sheet from continuing and discontinued operations (€11,482 million at June 30, 2018; €11,673 million at December 31, 2017). This is because we calculate our economic net debt in part based on the actual amount of our obligations.
E.ON's creditworthiness has been assessed by Standard & Poor's (S&P) and Moody's with long-term ratings of BBB and Baa2, respectively. As a result of the agreement E.ON concluded with RWE on March 12, 2018, to acquire RWE's 76.8-percent stake in innogy SE and E.ON's voluntary public takeover offer, both S&P and Moody's anticipate an improvement in E.ON's business risk profile. On March 13, 2018, S&P therefore confirmed its rating with a stable outlook. After Moody's reviewed its rating for a possible downgrade, on May 17, 2018, Moody's confirmed its Baa2 rating with a stable outlook. S&P's and Moody's shortterm ratings are unchanged at A-2 and P-2, respectively.
The E.ON Group's first-half investments were above the prioryear level. A slight decline in investments in our core business was more than offset by higher investments at Non-Core Business. We invested about €1.2 billion in property, plant, and equipment and intangible assets (prior year: €1.2 billion). Share investments totaled €0.2 billion versus €0.1 billion in the prioryear period.
| First half € in millions |
2018 | 2017 | +/- % |
|---|---|---|---|
| Energy Networks | 580 | 545 | +6 |
| Customer Solutions | 209 | 209 | – |
| Renewables | 449 | 528 | -15 |
| Corporate Functions/Other | 16 | 27 | -41 |
| Consolidation | -3 | -2 | – |
| Investments in core business | 1,251 | 1,307 | -4 |
| Non-Core Business | 163 | 7 | – |
| E.ON Group investments | 1,414 | 1,314 | +8 |
Energy Networks' investments were €35 million above the prior- year level. Investments in maintenance and expansion in Sweden increased by €16 million to €163 million. Investments in East- Central Europe/Turkey were €19 million higher, in particular because of new network connections and maintenance in Hungary and upgrades to our power networks in Romania. Investments in Germany were at the prior-year level.
Customer Solutions invested €209 million, the same as in the prior-year period. Investments in the current-year period went principally toward the rollout of smart meters in the United Kingdom and the maintenance, upgrade, and expansion of existing assets and our heat distribution network in Sweden.
Investments at Renewables were €79 million lower. The decline reflects lower expenditures for new-build projects, whereas the prior-year figure includes expenditures for three such projects (Radford's Run, Bruenning's Breeze, and Rampion). By contrast, expenditures for equity investments were €25 million higher, due primarily to the Arkona project.
Investments at Non-Core Business were €156 million above the prior-year level, primarily because of a capital increase at Enerjisa Üretim in Turkey, which we account for using the equity method. The capital increase was covered by cash inflow from the initial public offering of Enerjisa Enerji.
Cash provided by operating activities of continuing and discontinued operations before interest and taxes of €2.1 billion was €3.2 billion below the prior-year level. The main factors in the decline were the refunded nuclear-fuel tax of €2.85 billion we received in June 2017 and positive working-capital effects in the prior-year period. Cash provided by operating activities of continuing and discontinued operations also declined owing to higher interest and tax payments.
| First half € in millions |
2018 | 2017 |
|---|---|---|
| Cash provided by (used for) operating activities (operating cash flow) |
1,420 | 4,879 |
| Operating cash flow before interest and taxes |
2,068 | 5,260 |
| Cash provided by (used for) investing activities |
3,656 | 511 |
| Cash provided by (used for) financing activities |
-2,659 | 1,941 |
1From continuing and discontinued operations.
Cash provided by investing activities of continuing and discontinued operations totaled approximately €3.7 billion versus €0.5 billion in the prior-year period. The sale of our stake in Uniper SE was the principal factor (+€3.8 billion), whereas the purchase and sale of securities and changes in restricted funds reduced cash provided by investing activities by €0.8 billion.
Cash provided by financing activities of continuing and discontinued operations of -€2.7 billion was €4.6 billion below the prior-year figure of +€1.9 billion. This is principally attributable to the issuance of €2 billion in bonds in the first half of 2017, the roughly €1.35 billion capital increase conducted in March 2017, and higher cash outflow to repay bonds in the currentyear period (€0.4 billion). In addition, E.ON SE's dividend payout was about €0.3 billion higher than in the prior-year period.
Our total assets and liabilities of €52.8 billion were about €3.2 billion, or 6 percent, below the figure from year-end 2017. Non-current assets of €29.2 billion were €11 billion lower than at year-end 2017, in particular because of the reclassification of operations at Renewables that are to be transferred to RWE. This resulted in the reclassification of non-current assets as assets held for sale, which are reported under current assets. This reclassification led, in particular, to a significant reduction in fixed assets.
Current assets increased by 50 percent, from €15.8 billion to €23.6 billion, mainly because of the aforementioned reclassification of assets at Renewables in the amount of €10.2 billion. The derecognition of our Uniper stake in the amount of €3 billion, which had been classified as an asset held for sale, had a countervailing effect.
Our equity ratio (including non-controlling interests) at June 30, 2018, was 16 percent, which is 4 percentage points higher than at year-end 2017. This change reflects our positive net income in the first half of the current year. The dividend payout
of €0.8 billion, which includes dividends to non-controlling interests, was a countervailing factor. Equity attributable to shareholders of E.ON SE was about €5.7 billion at June 30, 2018. Equity attributable to non-controlling interests was roughly €2.8 billion.
Non-current debt decreased by €3.6 billion, or 10 percent. This was likewise attributable to the aforementioned reclassification of operations at Renewables. In addition, the waste-disposal and dismantling obligations associated with our stakes in Emsland and Gundremmingen nuclear power stations, which are to be transferred to RWE, were reclassified as current debt. Provisions for pensions declined as well, primarily because of the transfer of pension assets formerly managed by Versorgungskasse Energie VVaG i.L. to our Contractual Trust Arrangement. This created additional plan assets within the meaning of IAS 19.
Current debt of €12.8 billion was 9 percent below the figure at year-end 2017, also due primarily to the aforementioned effects of the reclassification of debt at Renewables and PreussenElektra. By contrast, the repayment of a dollar-denominated bond in the amount of roughly €1.7 billion in April 2018 and a decline in operating liabilities served to reduce current debt.
| € in millions | June 30, 2018 |
% | Dec. 31, 2017 |
% |
|---|---|---|---|---|
| Non-current assets | 29,151 | 55 | 40,164 | 72 |
| Current assets | 23,616 | 45 | 15,786 | 28 |
| Total assets | 52,767 | 100 | 55,950 | 100 |
| Equity | 8,457 | 16 | 6,708 | 12 |
| Non-current liabilities | 31,551 | 60 | 35,198 | 63 |
| Current liabilities | 12,759 | 24 | 14,044 | 25 |
| Total equity and liabilities | 52,767 | 100 | 55,950 | 100 |
At June 30, 2018, the E.ON Group had 42,738 employees worldwide, nearly unchanged from year-end 2017. E.ON also had 702 apprentices in Germany and 132 board members and managing directors worldwide. As of the same date, 27,004 employees, or 63 percent of all employees, were working outside Germany, slightly higher than the 62 percent at year-end 2017.
| Headcount | June 30, 2018 |
Dec. 31, 20172 |
+/- % |
|---|---|---|---|
| Energy Networks | 17,361 | 17,379 | – |
| Customer Solutions | 19,709 | 19,519 | +1 |
| Renewables | 1,317 | 1,206 | +9 |
| Corporate Functions/Other3 | 2,457 | 2,683 | -8 |
| Core business | 40,844 | 40,787 | – |
| Non-Core Business | 1,894 | 1,912 | -1 |
| E.ON Group | 42,738 | 42,699 | – |
1Does not include board members, managing directors, or apprentices.
2The prior-year figures were adjusted to reflect the changes in our segment reporting (see page 9).
3Includes E.ON Business Services.
The decline in Energy Networks' headcount resulting from the sale of Hamburg Netz GmbH was offset by the transfer of employees from Customer Solutions in the Czech Republic and the filling of vacancies (in Germany, predominantly with apprentices who had successfully completed their training).
The increase in the number of employees at Customer Solutions mainly reflects the transfer of employees who were previously reported under Corporate Functions/Other and new hiring in the Czech Republic, Romania, and Sweden. The increase was partially offset by the impact of restructuring projects in Germany and the United Kingdom.
The expansion of support functions, particularly in the United States, led to an increase in Renewables' headcount.
The transfer of employees to other segments, in particular Customer Solutions, was the main reason for the significant decline in the number of employees at Corporate Functions/Other. The Phoenix reorganization program also led to staff reductions.
Non-Core Business currently consists of our nuclear energy business in Germany. Its headcount decreased because of the ongoing transition from power generation to asset dismantling, which requires less staff.
Our forecasts for the 2018 financial year continue to be influenced by the business environment in the energy industry. Examples include regulatory intervention in Germany and the United Kingdom. The current low interest-rate environment and increasingly fierce competition in our core markets continue to put downward pressure on achievable margins.
We continue to expect the E.ON Group's 2018 adjusted EBIT to be between €2.8 and €3 billion and its 2018 adjusted net income to be between €1.3 and €1.5 billion.
We expect Energy Networks' 2018 adjusted EBIT to be below the prior-year figure. Operating earnings in Germany will be stable. On balance, however, the positive regulatory one-off item recorded in 2017 relating to the delayed repayment of personnel costs along with the deconsolidation of Hamburg Netz will lead to a substantial decline in earnings. In addition, we expect a tariff-driven decline in earnings at our gas networks in Romania this year, which is the transition year to the next regulatory period. By contrast, improved power tariffs in Sweden will have a positive impact.
We anticipate that Customer Solutions' adjusted EBIT will be below the prior-year level. Earnings in the United Kingdom will be lower, primarily because of the intervention of the U.K. Competition and Markets Authority and restructuring expenses. Amid keen competition in the power and gas retail market, earnings in Germany will surpass the prior-year level owing to the non-recurrence of adverse items recorded in the prior year. In addition, restructuring expenses will have a negative impact.
We expect Renewables' adjusted EBIT to be above the prior- year level, in particular because of the addition of Rampion wind farm.
We anticipate that adjusted EBIT at Corporate Functions/Other will improve and thus significantly exceed the previous year's level, primarily because of cost savings delivered by the Phoenix reorganization program.
At Non-Core Business we expect PreussenElektra's adjusted EBIT to be significantly lower than the prior-year level, in particular because of declining sales prices and the absence of one-off items recorded in 2017.
The Forecast Report contained in our 2017 Annual Report presents our forecast for other key figures for the 2018 financial year. There are likewise no changes to these disclosures.
The Combined Group Management Report contained in our 2017 Annual Report describes in detail our management system for assessing risks and chances and the measures we take to limit risks.
In the normal course of business, we are subject to a number of risks that are inseparably linked to the operation of our businesses. The resulting risks and chances are described in detail in the 2017 Combined Group Management Report. The E.ON Group's risk and chance position described there remained essentially unchanged at the end of the first half of 2018.
At the end of the first half of 2018 the risk situation of the E.ON Group's operating business had not changed significantly compared with year-end 2017. From today's perspective, we do not perceive any risks that could threaten the existence of E.ON SE, the E.ON Group, or individual segments.
Below we report important non-financial key figures for this segment; namely, power and gas passthrough.
First-half power passthrough was at the prior-year level. Gas passthrough declined by 14 percent.
Power passthrough in Germany of 53.5 billion kWh was at the prior-year level. Gas passthrough declined by 17 percent to 49.1 billion kWh, owing primarily to the sale of Hamburg Netz.
Power passthrough in Sweden was at the prior-year level. Gas passthrough declined because of the sale of the gas distribution business in April 2018.
Power passthrough at East-Central Europe/Turkey was at the prior-year level. Weather factors in all countries were mainly responsible for the 1.2 billion kWh decline in gas passthrough.
| Germany Sweden |
East-Central Europe/ Turkey |
Total | ||||||
|---|---|---|---|---|---|---|---|---|
| Billion kWh | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Second quarter | ||||||||
| Power | 25.5 | 25.5 | 8.0 | 8.7 | 8.9 | 8.7 | 42.4 | 42.9 |
| Line loss, station use, etc. | 0.8 | 0.8 | 0.2 | 0.2 | 0.5 | 0.6 | 1.5 | 1.6 |
| Gas | 15.6 | 17.9 | – | 0.7 | 5.1 | 6.5 | 20.7 | 25.1 |
| First half | ||||||||
| Power | 53.5 | 54.0 | 19.7 | 19.3 | 19.0 | 18.7 | 92.2 | 92.0 |
| Line loss, station use, etc. | 1.9 | 1.9 | 0.6 | 0.6 | 1.4 | 1.5 | 3.9 | 4.0 |
| Gas | 49.1 | 59.5 | 1.5 | 2.1 | 24.6 | 25.8 | 75.2 | 87.4 |
1Includes passthrough not recorded in sales pursuant to IFRS 15 (for more information, see Note 2 to the Condensed Consolidated Interim Financial Statements).
Energy Networks' first-half sales declined by €2.6 billion year on year. Its adjusted EBIT was nearly unchanged.
Sales in Germany of €4.8 billion were 34 percent below the prior-year figure of €7.2 billion, primarily because of netting effects in conjunction with IFRS 15 (€2.5 billion) and the sale of Hamburg Netz GmbH, which took effect on January 1, 2018. By contrast, primarily a weather-driven increase in renewables feed-in had a positive impact on sales. First-half adjusted EBIT declined by €36 million to €565 million, in particular because of the non-recurrence of a positive one-off item relating to the delayed repayment of personnel costs due to regulatory reasons, the aforementioned sale of Hamburg Netz, and the beginning of the third gas regulatory period. This was partially offset by a one-off effect in the current year.
Sales in Sweden were below the prior-year level due to the transfer of the gas sales business to Customer Solutions and the sale of the gas distribution business in April 2018. Adjusted EBIT benefited from an improved gross margin in the power business, which resulted from tariff increases. This was partially offset by adverse currency-translation effects.
Sales at East-Central Europe/Turkey declined significantly. This is primarily attributable to netting effects in conjunction with the application of IFRS 15 in the Czech Republic (€0.1 billion). Adjusted EBIT was at the prior-year level.
| East-Central Europe/ | ||||||||
|---|---|---|---|---|---|---|---|---|
| Germany | Sweden | Turkey | Total | |||||
| € in millions | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Second quarter | ||||||||
| Sales | 2,537 | 3,782 | 218 | 265 | 344 | 381 | 3,099 | 4,428 |
| Adjusted EBITDA | 358 | 332 | 141 | 147 | 171 | 173 | 670 | 652 |
| Adjusted EBIT | 212 | 186 | 103 | 107 | 113 | 116 | 428 | 409 |
| First half | ||||||||
| Sales | 4,766 | 7,208 | 511 | 563 | 776 | 856 | 6,053 | 8,627 |
| Adjusted EBITDA | 848 | 891 | 331 | 320 | 368 | 358 | 1,547 | 1,569 |
| Adjusted EBIT | 565 | 601 | 254 | 239 | 251 | 247 | 1,070 | 1,087 |
Below we report important non-financial key figures for this segment; namely, power and gas sales volume.
This segment's first-half power and gas sales declined by 1.9 billion kWh and 4.6 billion kWh, respectively.
Power sales in Germany of 19.3 billion kWh were slightly (-3 percent) below the prior-year level. Power sales to residential and small and medium enterprise ("SME") customers were
lower due to keener competition. Power sales to industrial and commercial ("I&C") customers were at the prior-year level. Power sales to the wholesale market declined owing to lower sales volume on already-contracted deliveries to some Uniper wholesale customers relative to 2017. By contrast, buybacks through the direct marketing of output in conjunction with Germany's Renewable Energy Law were higher. Gas sales of 19 billion kWh were 26 percent below the prior-year level. The reason for the significant decline in gas sales to the wholesale market (7.4 billion kWh) is the same as for power. Residential and SME customers consumed less gas because of weather factors. Gas sales to I&C customers rose.
| Germany Sales | United Kingdom | Other2 | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Billion kWh | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Second quarter | ||||||||
| Residential and SME | 3.6 | 3.8 | 4.0 | 4.1 | 4.8 | 4.9 | 12.4 | 12.8 |
| I&C | 2.1 | 2.0 | 3.4 | 3.7 | 6.2 | 6.2 | 11.7 | 11.9 |
| Sales partners | – | – | – | – | 0.2 | 0.2 | 0.2 | 0.2 |
| Customer groups | 5.7 | 5.8 | 7.4 | 7.8 | 11.2 | 11.3 | 24.3 | 24.9 |
| Wholesale market | 3.0 | 2.8 | 0.2 | 0.2 | 1.9 | 2.4 | 5.1 | 5.4 |
| Total | 8.7 | 8.6 | 7.6 | 8.0 | 13.1 | 13.7 | 29.4 | 30.3 |
| First half | ||||||||
| Residential and SME | 8.6 | 9.1 | 9.6 | 9.9 | 11.5 | 11.3 | 29.7 | 30.3 |
| I&C | 4.2 | 4.1 | 7.2 | 7.5 | 12.9 | 13.0 | 24.3 | 24.6 |
| Sales partners | – | – | – | – | 0.4 | 0.5 | 0.4 | 0.5 |
| Customer groups | 12.8 | 13.2 | 16.8 | 17.4 | 24.8 | 24.8 | 54.4 | 55.4 |
| Wholesale market | 6.5 | 6.8 | 0.4 | 0.5 | 4.4 | 4.9 | 11.3 | 12.2 |
| Total | 19.3 | 20.0 | 17.2 | 17.9 | 29.2 | 29.7 | 65.7 | 67.6 |
1Includes passthrough not recorded in sales pursuant to IFRS 15 (for more information, see Note 2 to the Condensed Consolidated Interim Financial Statements). 2Excludes E.ON Connecting Energies.
First-half power sales in the United Kingdom were 0.7 billion kWh lower. Lower consumption was the principal factor for residential and SME customers. Power sales to I&C customers declined owing to lower average offtake per customer. By contrast, gas sales rose by 1.1 billion kWh. Gas sales to residential and SME customers increased mainly because of weather factors. Gas sales to I&C customers were at the prior-year level.
Power sales at the Other unit (Sweden, Hungary, the Czech Republic, Romania, and Italy) declined by 0.5 billion kWh. Power sales to residential and SME customers were at the prior-year level. Power sales to I&C customers in the Czech Republic declined owing to keener competition. This decline was almost completely offset by the acquisition of new I&C customers in
Italy. The expiration of a sales contract in the Czech Republic was the principal factor in the significant decline in power sales to the wholesale market.
Other's gas sales were 1.1 billion kWh higher. Gas sales to residential and SME customers declined owing to weather factors, particularly in Romania. Gas sales to I&C customers rose mainly because of the addition of the gas sales business in Sweden, which in the prior-year period was reported at Energy Networks. By contrast, gas sales to I&C customers were adversely affected by a weather-driven decline in sales volume and a slight decrease in customer numbers in Romania and the Czech Republic. The increase in gas sales to the wholesale market is attributable to weather-driven demand spikes in Romania and the advent of direct market access in Italy.
| Germany Sales | United Kingdom | Other2 | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Billion kWh | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Second quarter | ||||||||
| Residential and SME | 2.3 | 3.2 | 5.1 | 5.3 | 2.6 | 3.6 | 10.0 | 12.1 |
| I&C | 1.4 | 0.9 | 1.8 | 1.7 | 4.1 | 3.9 | 7.3 | 6.5 |
| Sales partners | – | – | – | – | 0.4 | 0.4 | 0.4 | 0.4 |
| Customer groups | 3.7 | 4.1 | 6.9 | 7.0 | 7.1 | 7.9 | 17.7 | 19.0 |
| Wholesale market | 1.7 | 5.6 | – | – | 0.9 | 0.3 | 2.6 | 5.9 |
| Total | 5.4 | 9.7 | 6.9 | 7.0 | 8.0 | 8.2 | 20.3 | 24.9 |
| First half | ||||||||
| Residential and SME | 12.9 | 13.2 | 21.2 | 20.2 | 16.6 | 17.4 | 50.7 | 50.8 |
| I&C | 3.4 | 2.5 | 4.2 | 4.1 | 11.8 | 10.9 | 19.4 | 17.5 |
| Sales partners | – | – | – | – | 0.8 | 0.8 | 0.8 | 0.8 |
| Customer groups | 16.3 | 15.7 | 25.4 | 24.3 | 29.2 | 29.1 | 70.9 | 69.1 |
| Wholesale market | 2.7 | 10.1 | – | – | 2.1 | 1.1 | 4.8 | 11.2 |
| Total | 19.0 | 25.8 | 25.4 | 24.3 | 31.3 | 30.2 | 75.7 | 80.3 |
1Includes passthrough not recorded in sales pursuant to IFRS 15 (for more information, see Note 2 to the Condensed Consolidated Interim Financial Statements). 2Excludes E.ON Connecting Energies.
Customer Solutions' first-half sales and adjusted EBIT increased by €278 million and €37 million, respectively.
Sales in Germany declined, primarily because of the expiration of procurement contracts for some Uniper wholesale customers. Lower sales volume to residential and SME customers also had an adverse impact on sales. These effects were partially offset by higher sales to I&C customers resulting from an increase in gas sales volume. Adjusted EBIT was significantly above the prioryear level, primarily because of a wider gross margin in power and gas sales. This led to a positive effect in the first half of 2018 that will flatten out as the year goes forward.
Sales were higher in the United Kingdom due to price increases and a weather-driven increase in gas sales volume. A reduction in power sales volume had an adverse impact on sales. Adjusted EBIT declined because of higher procurement costs, regulatory effects, and lower power sales. These effects were partially offset by the aforementioned price increases.
Other's sales rose by €148 million, primarily because of higher sales prices in Sweden, Italy, and Hungary. The aforementioned addition of the gas sales business in Sweden and higher sales volume in Italy also had a positive impact on sales. By contrast, sales in the Czech Republic declined, mainly because of netting effects pursuant to IFRS 15. Currency-translation effects in Sweden adversely affected sales as well. Adjusted EBIT was at the prior-year level.
| Germany Sales | United Kingdom | Other | Total | |||||
|---|---|---|---|---|---|---|---|---|
| € in millions | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Second quarter | ||||||||
| Sales | 1,542 | 1,528 | 1,590 | 1,572 | 1,602 | 1,551 | 4,734 | 4,651 |
| Adjusted EBITDA | 15 | 34 | 75 | 95 | 66 | 67 | 156 | 196 |
| Adjusted EBIT | 7 | 26 | 54 | 70 | 24 | 25 | 85 | 121 |
| First half | ||||||||
| Sales | 3,555 | 3,683 | 3,981 | 3,723 | 3,943 | 3,795 | 11,479 | 11,201 |
| Adjusted EBITDA | 150 | 78 | 244 | 279 | 225 | 234 | 619 | 591 |
| Adjusted EBIT | 135 | 64 | 202 | 230 | 140 | 146 | 477 | 440 |
Below we report important non-financial key figures for this segment; namely, power generation and power sales volume.
This segment's first-half owned generation rose by 1.2 billion kWh.
| Renewables | ||||
|---|---|---|---|---|
| Billion kWh | 2018 | 2017 | ||
| Second quarter | ||||
| Owned generation | 3.6 | 3.0 | ||
| Purchases Jointly owned power plants Third parties |
0.5 0.2 0.3 |
0.5 0.2 0.3 |
||
| Power sales | 4.1 | 3.5 | ||
| First half | ||||
| Owned generation | 7.8 | 6.6 | ||
| Purchases Jointly owned power plants Third parties |
1.4 0.4 1.0 |
1.1 0.4 0.7 |
||
| Power sales | 9.2 | 7.7 |
Owned generation was higher, in particular because of the commissioning of Bruenning's Breeze and Radford's Run onshore wind farms in the United States and Rampion offshore wind farm in the United Kingdom. Unfavorable wind conditions in nearly all countries in Europe had an adverse impact on owned generation.
Power procurement increased, principally because of existing power supply contracts at our onshore business in the United Kingdom. This was partially offset by a reduction in power procurement due to adverse wind conditions in Denmark.
Renewables' first-half sales and adjusted EBIT both increased by €31 million.
| € in millions | 2018 | 2017 |
|---|---|---|
| Second quarter | ||
| Sales | 340 | 334 |
| Adjusted EBITDA | 149 | 137 |
| Adjusted EBIT | 65 | 45 |
| First half | ||
| Sales | 741 | 710 |
| Adjusted EBITDA | 396 | 386 |
| Adjusted EBIT | 236 | 205 |
Sales and adjusted EBIT rose in particular because of an increase in output resulting from the commissioning of Bruenning's Breeze and Radford's Run onshore wind farms in December 2017 and Rampion offshore wind farm in April 2018. Unfavorable wind conditions (particularly offshore) and the expiration of support mechanisms had an adverse impact.
Below we report important non-financial key figures for this segment; namely, power generation and power procurement.
This segment's power procured (owned generation and purchases) of 18.2 billion kWh was at the prior-year level. The increase in owned generation is principally attributable to the unplanned outage of Brokdorf nuclear power station in 2017. Consequently, less power was purchased to meet delivery obligations than in the prior-year period.
| PreussenElektra | |||||
|---|---|---|---|---|---|
| 2018 | 2017 | ||||
| 7.2 | 5.9 | ||||
| 2.4 0.2 2.2 |
3.1 0.3 2.8 |
||||
| 9.6 | 9.0 | ||||
| -0.1 | – | ||||
| 9.5 | 9.0 | ||||
| 14.7 | 11.7 | ||||
| 3.5 0.6 2.9 |
6.2 0.6 5.6 |
||||
| 18.2 | 17.9 | ||||
| -0.1 | -0.1 | ||||
| 18.1 | 17.8 | ||||
Sales at Non-Core Business of €601 million were €290 million below the prior-year figure. Adjusted EBIT rose by €19 million to €224 million.
PreussenElektra's sales declined significantly, mainly because of lower sales prices and the absence of one-off items in conjunction with legal proceedings. The decline in adjusted EBIT is mainly attributable to lower sales prices and one-off items. This was partially offset by lower expenditures to procure power to cover delivery obligations due to the increase in owned generation.
By contrast, adjusted EBIT at the generation business in Turkey was higher because prior-year equity earnings on our stake in Enerjisa Üretim were adversely affected in particular by a book loss on the sale of a hydroelectric station.
| PreussenElektra | Generation Turkey | Total | |||||
|---|---|---|---|---|---|---|---|
| € in millions | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |
| Second quarter | |||||||
| Sales | 323 | 527 | – | – | 323 | 527 | |
| Adjusted EBITDA | 135 | 290 | -5 | -15 | 130 | 275 | |
| Adjusted EBIT | 120 | 244 | -5 | -15 | 115 | 229 | |
| First half | |||||||
| Sales | 601 | 891 | – | – | 601 | 891 | |
| Adjusted EBITDA | 294 | 364 | -20 | -66 | 274 | 298 | |
| Adjusted EBIT | 244 | 271 | -20 | -66 | 224 | 205 | |
We have reviewed the condensed consolidated interim financial statements—comprising the balance sheet, income statement, statement of recognized income and expenses, condensed cash flows statement, statement of changes in equity and selected explanatory notes—and the interim group management report of E.ON SE for the period from January 1 to June 30, 2018, which are part of the quarterly financial report pursuant to § (Article) 115 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.
Düsseldorf, August 7, 2018
PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft
Markus Dittmann Aissata Touré Wirtschaftsprüfer Wirtschaftsprüferin (German Public Auditor) (German Public Auditor)
| Second quarter | First half | ||||
|---|---|---|---|---|---|
| € in millions | Note | 2018 | 2017 1 | 2018 | 2017 1 |
| Sales including electricity and energy taxes | 7,721 | 9,206 | 17,121 | 19,780 | |
| Electricity and energy taxes | -148 | -224 | -369 | -543 | |
| Sales 2 | (12) | 7,573 | 8,982 | 16,752 | 19,237 |
| Changes in inventories (finished goods and work in progress) | 7 | 3 | 9 | 4 | |
| Own work capitalized | 68 | 114 | 144 | 190 | |
| Other operating income 3 | 2,747 | 4,304 | 3,807 | 5,384 | |
| Cost of materials 2 | -5,955 | -7,567 | -12,910 | -15,715 | |
| Personnel costs | -650 | -711 | -1,273 | -1,411 | |
| Depreciation, amortization and impairment charges | -346 | -381 | -704 | -760 | |
| Other operating expenses | -1,626 | -1,759 | -2,713 | -3,488 | |
| Income from companies accounted for under the equity method | (7) | 74 | 232 | 146 | 650 |
| Income from continuing operations before financial results and income taxes | 1,892 | 3,217 | 3,258 | 4,091 | |
| Financial results Income/Loss from equity investments Income from other securities, interest and similar income Interest and similar expenses |
(5) | -57 47 122 -226 |
459 35 685 -261 |
-243 51 194 -488 |
311 20 885 -594 |
| Income taxes | 19 | -384 | -203 | -494 | |
| Income from continuing operations | 1,854 | 3,292 | 2,812 | 3,908 | |
| Income/Loss from discontinued operations, net | (4) | 21 | 7 | 96 | 126 |
| Net income Attributable to shareholders of E.ON SE Attributable to non-controlling interests |
1,875 1,824 51 |
3,299 3,245 54 |
2,908 2,704 204 |
4,034 3,872 162 |
|
| in € | |||||
| Earnings per share (attributable to shareholders of E.ON SE)—basic and diluted 4 |
(6) | ||||
| from continuing operations | 0.83 | 1.50 | 1.21 | 1.79 | |
| from discontinued operations | 0.01 | 0.00 | 0.04 | 0.06 | |
| from net income | 0.84 | 1.50 | 1.25 | 1.85 | |
| Weighted-average number of shares outstanding (in millions) | 2,167 | 2,162 | 2,167 | 2,091 |
1The comparative prior-year figures have been adjusted to account for the reporting of discontinued operations (see also Note 4).
2The presentation of our sales and costs of materials in 2018 was substantially affected by the initial application of IFRS 15, "Revenue from Contracts with Customers" (see the commentary on Note 2). 3The decrease in other operating income is mainly due to the refund of the nuclear-fuel tax (€2.85 billion) included in the previous year. This was partially offset by income from the disposal and derecognition of derivative financial instruments in connection with the sale of the Uniper stake (total €1.1 billion) (see also Note 4).
4Based on weighted-average number of shares outstanding.
| Second quarter | First half | ||||
|---|---|---|---|---|---|
| € in millions | 2018 | 2017 | 2018 | 2017 | |
| Net income | 1,875 | 3,299 | 2,908 | 4,034 | |
| Remeasurements of defined benefit plans | 10 | 178 | 12 | 149 | |
| Remeasurements of defined benefit plans of companies accounted for under the equity method | – | 46 | -1 | 47 | |
| Income taxes | -4 | -52 | -10 | -51 | |
| Items that will not be reclassified subsequently to the income statement | 6 | 172 | 1 | 145 | |
| Cash flow hedges Unrealized changes—hedging reserve 1 Unrealized changes—reserve for hedging costs 1 Reclassification adjustments recognized in income |
4 18 26 -40 |
55 -219 17 257 |
-5 36 -31 -10 |
185 -52 -41 278 |
|
| Fair value measurement of financial instruments Unrealized changes Reclassification adjustments recognized in income |
-36 -1 -35 |
-193 -66 -127 |
-52 -13 -39 |
-178 -15 -163 |
|
| Currency—translation adjustments Unrealized changes—hedging reserve 1/other Unrealized changes—reserve for hedging costs 1 Reclassification adjustments recognized in income |
-43 -58 2 13 |
60 57 2 1 |
-179 -196 4 13 |
85 84 1 – |
|
| Companies accounted for under the equity method Unrealized changes Reclassification adjustments recognized in income |
92 -125 217 |
-332 -332 – |
78 -251 329 |
-266 -266 – |
|
| Income taxes | 30 | 2 | 7 | -31 | |
| Items that might be reclassified subsequently to the income statement | 47 | -408 | -151 | -205 | |
| Total income and expenses recognized directly in equity | 53 | -236 | -150 | -60 | |
| Total recognized income and expenses (total comprehensive income) Attributable to shareholders of E.ON SE Continuing operations Discontinued operations Attributable to non-controlling interests |
1,928 1,893 1,933 -40 35 |
3,063 3,005 2,977 28 58 |
2,758 2,568 2,517 51 190 |
3,974 3,801 3,641 160 173 |
1IFRS 9, which we are applying for the first time in 2018, requires us to divide the unrealized change in cash flow hedges and in the currency-translation adjustments into two categories. We adjusted the prior-year figures accordingly.
| € in millions | Note | June 30, 2018 |
Dec. 31, 2017 |
|---|---|---|---|
| Assets | |||
| Goodwill | 2,061 | 3,337 | |
| Intangible assets | 2,133 | 2,243 | |
| Property, plant and equipment | 17,018 | 24,766 | |
| Companies accounted for under the equity method | (7) | 2,605 | 3,547 |
| Other financial assets | (7) | 2,350 | 3,541 |
| Equity investments | 671 | 792 | |
| Non-current securities | 1,679 | 2,749 | |
| Financial receivables and other financial assets | 445 | 452 | |
| Operating receivables and other operating assets | 1,388 | 1,371 | |
| Deferred tax assets | 1,138 | 907 | |
| Income tax assets | 13 | – | |
| Non-current assets | 29,151 | 40,164 | |
| Inventories | 641 | 794 | |
| Financial receivables and other financial assets | 238 | 236 | |
| Trade receivables and other operating assets | 5,543 | 5,781 | |
| Income tax assets | 353 | 514 | |
| Liquid funds Securities and fixed-term deposits |
6,467 645 |
5,160 670 |
|
| Restricted cash and cash equivalents | 751 | 1,782 | |
| Cash and cash equivalents | 5,071 | 2,708 | |
| Assets held for sale | (4) | 10,374 | 3,301 |
| Current assets | 23,616 | 15,786 | |
| Total assets | 52,767 | 55,950 | |
| Equity and Liabilities | |||
| Capital stock | 2,201 | 2,201 | |
| Additional paid-in capital | 9,862 | 9,862 | |
| Retained earnings | -2,496 | -4,552 | |
| Accumulated other comprehensive income 1 | -2,735 | -2,378 | |
| Treasury shares | (8) | -1,126 | -1,126 |
| Equity attributable to shareholders of E.ON SE | 5,706 | 4,007 | |
| Non-controlling interests (before reclassification) | 3,230 | 3,195 | |
| Reclassification related to put options | -479 | -494 | |
| Non-controlling interests | 2,751 | 2,701 | |
| Equity | 8,457 | 6,708 | |
| Financial liabilities | 9,274 | 9,922 | |
| Operating liabilities | 4,662 | 4,690 | |
| Income tax liabilities | 852 | 969 | |
| Provisions for pensions and similar obligations | (10) | 2,840 | 3,620 |
| Miscellaneous provisions | 12,460 | 14,381 | |
| Deferred tax liabilities | 1,463 | 1,616 | |
| Non-current liabilities | 31,551 | 35,198 | |
| Financial liabilities | 843 | 3,099 | |
| Trade payables and other operating liabilities | 6,310 | 8,099 | |
| Income tax liabilities | 390 | 673 | |
| Miscellaneous provisions | 2,008 | 2,041 | |
| Liabilities associated with assets held for sale | (4) | 3,208 | 132 |
| Current liabilities | 12,759 | 14,044 | |
| Total equity and liabilities | 52,767 | 55,950 | |
1Thereof relating to discontinued operations (June 30, 2018): €25 million.
| First half € in millions |
2018 | 2017 1 |
|---|---|---|
| Net income | 2,908 | 4,034 |
| Income/Loss from discontinued operations, net | -96 | -126 |
| Depreciation, amortization and impairment of intangible assets and of property, plant and equipment | 704 | 760 |
| Changes in provisions | -159 | 118 |
| Changes in deferred taxes | 93 | -11 |
| Other non-cash income and expenses | 316 | -197 |
| Gain/Loss on disposal of intangible assets and property, plant and equipment, equity investments and securities (>3 months) | -907 | -310 |
| Changes in operating assets and liabilities and in income taxes | -1,774 | 394 |
| Cash provided by (used for) operating activities of continuing operations | 1,085 | 4,662 |
| Cash provided by (used for) operating activities of discontinued operations | 335 | 217 |
| Cash provided by (used for) operating activities (operating cash flow) | 1,420 | 4,879 |
| Proceeds from disposal of Intangible assets and property, plant and equipment Equity investments |
4,204 63 4,141 |
106 83 23 |
| Purchases of investments in Intangible assets and property, plant and equipment Equity investments |
-966 -806 -160 |
-799 -788 -11 |
| Changes in securities, financial receivables and fixed-term deposits | -157 | 1,510 |
| Changes in restricted cash and cash equivalents | 1,030 | 211 |
| Cash provided by (used for) investing activities of continuing operations | 4,111 | 1,028 |
| Cash provided by (used for) investing activities of discontinued operations | -455 | -517 |
| Cash provided by (used for) investing activities | 3,656 | 511 |
| Payments received/made from changes in capital 2 | 6 | 1,360 |
| Cash dividends paid to shareholders of E.ON SE | -650 | -345 |
| Cash dividends paid to non-controlling interests | -156 | -199 |
| Changes in financial liabilities | -1,874 | 842 |
| Cash provided by (used for) financing activities of continuing operations | -2,674 | 1,658 |
| Cash provided by (used for) financing activities of discontinued operations | 15 | 283 |
| Cash provided by (used for) financing activities | -2,659 | 1,941 |
| Net increase/decrease in cash and cash equivalents | 2,417 | 7,331 |
| Effect of foreign exchange rates on cash and cash equivalents | -6 | -3 |
| Cash and cash equivalents at the beginning of the year 3 | 2,762 | 5,574 |
| Cash and cash equivalents at the end of the period | 5,173 | 12,902 |
| Less: Cash and cash equivalents of discontinued operations at the end of the period | -102 | -69 |
| Cash and cash equivalents of continuing operations at the end of the period | 5,071 | 12,833 |
1The comparative prior-year figures have been adjusted to account for the reporting of discontinued operations (see also Note 4).
2No material netting has taken place in either of the years presented here.
3Cash and cash equivalents of continuing operations at the beginning of 2018 also include the holdings of €54 million in Hamburg Netz GmbH, which was deconsolidated in the first quarter of 2018.
| Changes in accumulated other comprehensive income | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Currency—translation adjustments |
Fair value measure |
Cash flow hedges | |||||||
| € in millions | Capital stock |
Additional paid-in capital |
Retained earnings |
Hedging reserve 1/ other |
Reserve for hedging costs 1 |
ment of financial instruments |
Hedging reserve 1 |
Reserve for hedging costs 1 |
|
| Balance as of January 1, 2017 | 2,001 | 9,201 | -8,495 | -1,156 | 6 | 353 | -1,114 | -137 | |
| Change in scope of consolidation | |||||||||
| Treasury shares repurchased/sold | -478 | -3 | |||||||
| Capital increase | 200 | 1,139 | |||||||
| Capital decrease | |||||||||
| Dividends | -452 | ||||||||
| Share additions/reductions | 8 | ||||||||
| Net additions/disposals from reclassification related to put options |
|||||||||
| Total comprehensive income Net income/loss |
3,998 3,872 |
-216 | -1 | -172 | 151 | 41 | |||
| Other comprehensive income Remeasurements of defined benefit plans |
126 126 |
-216 | -1 | -172 | 151 | 41 | |||
| Changes in accumulated other comprehensive |
|||||||||
| income | -216 | -1 | -172 | 151 | 41 | ||||
| Balance as of June 30, 2017 | 2,201 | 9,862 | -4,944 | -1,372 | 5 | 181 | -963 | -96 | |
| Balance as of December 31, 2017 | 2,201 | 9,862 | -4,552 | -1,663 | 8 | 293 | -943 | -73 | |
| IFRS 9, IFRS 15 adjustment | – | – | -17 | – | – | -203 | – | – | |
| Balance as of January 1, 2018 | 2,201 | 9,862 | -4,569 | -1,663 | 8 | 90 | -943 | -73 | |
| Change in scope of consolidation | |||||||||
| Treasury shares repurchased/sold | |||||||||
| Capital increase | |||||||||
| Capital decrease | |||||||||
| Dividends | -650 | ||||||||
| Share additions/reductions | 1 | ||||||||
| Net additions/disposals from reclassification related to put options |
|||||||||
| Total comprehensive income Net income/loss |
2,722 2,704 |
-67 | -4 | -25 | -89 | 31 | |||
| Other comprehensive income Remeasurements of defined benefit plans |
18 18 |
-67 | -4 | -25 | -89 | 31 | |||
| Changes in accumulated other comprehensive |
|||||||||
| income | -67 | -4 | -25 | -89 | 31 | ||||
| Balance as of June 30, 2018 | 2,201 | 9,862 | -2,496 | -1,730 | 4 | 65 | -1,032 | -42 |
1IFRS 9, which we are applying for the first time in 2018, requires us to divide the unrealized change in cash flow hedges and in net investment hedges into two categories. We adjusted the prior-year figures accordingly.
| Treasury shares | Equity attributable to shareholders of E.ON SE |
Non-controlling interests (before reclassification) |
Reclassification related to put options |
Non-controlling interests |
Total |
|---|---|---|---|---|---|
| -1,714 | -1,055 | 2,896 | -554 | 2,342 | 1,287 |
| 0 | |||||
| 588 | 107 | 107 | |||
| 1,339 | 137 | 137 | 1,476 | ||
| 0 | |||||
| -452 | -219 | -219 | -671 | ||
| 8 | 13 | 13 | 21 | ||
| 4 | 4 | 4 | |||
| 3,801 | 173 | 173 | 3,974 | ||
| 3,872 | 162 | 162 | 4,034 | ||
| -71 | 11 | 11 | -60 | ||
| 126 | 19 | 19 | 145 | ||
| -197 | -8 | -8 | -205 | ||
| -1,126 | 3,748 | 3,000 | -550 | 2,450 | 6,198 |
| -1,126 | 4,007 | 3,195 | -494 | 2,701 | 6,708 |
| – | -220 | – | – | – | -220 |
| -1,126 | 3,787 | 3,195 | -494 | 2,701 | 6,488 |
| -43 | -43 | -43 | |||
| 0 | |||||
| 58 | 58 | 58 | |||
| 0 | |||||
| -650 | -176 | -176 | -826 | ||
| 1 | 6 | 6 | 7 | ||
| 15 | 15 | 15 | |||
| 2,568 | 190 | 190 | 2,758 | ||
| 2,704 | 204 | 204 | 2,908 | ||
| -136 | -14 | -14 | -150 | ||
| 18 | -17 | -17 | 1 | ||
| -154 | 3 | 3 | -151 | ||
| -1,126 | 5,706 | 3,230 | -479 | 2,751 | 8,457 |
The Interim Report for the six months ended June 30, 2018, has been prepared in accordance with those International Financial Reporting Standards ("IFRS") and IFRS Interpretations Committee interpretations ("IFRS IC") effective and adopted for use in the European Union ("EU"). In accordance with Section 115 of the German Securities Trading Act, it comprises interim financial statements and an interim management report.
With the exception of the changes described in Note 2, this Interim Report was prepared using the accounting, valuation and consolidation policies used in the Consolidated Financial Statements for the 2017 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, 2017, which provide the basis for this Interim Report.
Since January 1, 2018, E.ON has applied IFRS 9, "Financial Instruments," (IFRS 9) and IFRS 15, "Revenue from Contracts with Customers" (IFRS 15). IFRS 9 replaces the accounting for financial instruments previously regulated in IAS 39, "Financial Instruments: Recognition and Measurement." In accordance with the transition provisions of IFRS 9, E.ON has applied the standard retrospectively without changing the prior-year figures, with the exception of certain aspects of hedge accounting.
IFRS 15 replaces the previous standards and interpretations IAS 11, "Construction Contracts," IAS 18, "Revenue", IFRIC 13 "Customer Loyalty Programmes," IFRIC 15, "Agreements for the Construction of Real Estate," IFRIC 18, "Transfers of Assets from Customers," and SIC-31, "Revenue—Barter Transactions Involving Advertising Services." The E.ON Group applies IFRS 15 using the modified retrospective method.
The transition effects from the first-time application of IFRS 9 and IFRS 15 were recognized directly in equity. The effects of the transition on the balance sheet, retained earnings and accumulated other comprehensive income are shown in the following tables:
| € in millions | Dec. 31, 2017 |
Effects from IFRS 9 |
Effects from IFRS 15 |
Jan. 1, 2018 |
|---|---|---|---|---|
| Non-current assets | 40,164 | -35 | 80 | 40,209 |
| of which intangible assets | 2,243 | – | 6 | 2,249 |
| of which property, plant and equipment | 24,766 | – | -14 | 24,752 |
| of which equity investments | 792 | -46 | – | 746 |
| of which financial receivables and other financial assets | 452 | -1 | – | 451 |
| of which operating receivables and other operating assets | 1,371 | – | 39 | 1,410 |
| of which deferred tax assets | 907 | 12 | 49 | 968 |
| Current assets | 15,786 | -66 | 31 | 15,751 |
| of which trade receivables and other operating assets | 5,781 | -66 | 31 | 5,746 |
| Total assets | 55,950 | -101 | 111 | 55,960 |
| Equity | 6,708 | -101 | -119 | 6,488 |
| of which retained earnings | -4,552 | 102 | -119 | -4,569 |
| of which accumulated other comprehensive income | -2,378 | -203 | – | -2,581 |
| of which non-controlling interests (before reclassification) | 3,195 | – | – | 3,195 |
| Non-current liabilities | 35,198 | – | 199 | 35,397 |
| of which operating liabilities | 4,690 | – | 196 | 4,886 |
| of which deferred tax liabilities | 1,616 | – | 3 | 1,619 |
| Current liabilities | 14,044 | – | 31 | 14,075 |
| of which trade payables and other operating liabilities | 8,099 | – | 31 | 8,130 |
| Total equity and liabilities | 55,950 | -101 | 111 | 55,960 |
| € in millions | |
|---|---|
| Retained earnings, December 31, 2017 | -4,552 |
| Effects from IFRS 9 | 102 |
| Reclassification from accumulated other comprehensive | |
| income (fair value measurement of financial instruments) | 196 |
| Allocation to provisions for expected future credit losses | -67 |
| Deferred tax liabilities | -27 |
| Non-controlling interests | – |
| Effects from IFRS 15 | -119 |
| Retained earnings, January 1, 2018 | -4,569 |
| € in millions | |
|---|---|
| Fair value measurement of financial instruments, December 31, 2017 |
293 |
| Reclassification to retained earnings | -196 |
| Revaluation due to change in scope | -46 |
| Deferred tax liabilities | 39 |
| Non-controlling interests | – |
| Fair value measurement of financial instruments, January 1, 2018 |
90 |
The first-time application of IFRS 9 and IFRS 15 had no material effect on earnings per share under IAS 33.
IFRS 9 introduces new regulations for the classification and measurement of financial assets. E.ON has replaced the previous categories under IAS 39 of financial assets held for trading (HfT), available-for-sale securities (AfS) and loans and receivables (LaR) with the new categories under IFRS 9 of financial assets measured at amortized cost (AmC), financial assets measured at fair value through other comprehensive income (FVOCI) and financial assets measured at fair value through profit and loss (FVPL). The classification of financial assets is based on the business model and the characteristics of the cash flows.
If a financial asset is held for the purpose of collecting contractual cash flows and the cash flows of the financial asset represent exclusively interest and principal payments, then the financial asset is measured at amortized cost (AmC).
A financial asset is measured at fair value through other comprehensive income (FVOCI) if it is used both to collect contractual cash flows and for sales purposes and the cash flows of the financial asset consist exclusively of interest and principal payments.
Derivatives and debt instruments that do not exclusively serve to collect contractual cash flows or to both generate contractual cash flows and sales revenue, or whose cash flows do not exclusively consist of interest and principal payments are measured at fair value through profit and loss (FVPL). For equity instruments that are not held for trading purposes, E.ON has uniformly exercised the option of recognizing changes in fair value through profit and loss (FVPL). Changes in fair value previously recognized in accumulated other comprehensive income were reclassified to retained earnings at the date of transition. The classification into different measurement categories for certain financial instruments resulted in particular from the reassessment of business models.
The following table presents a reconciliation of the carrying amounts of financial assets and the corresponding measurement categories from IAS 39 to IFRS 9 at the date of first-time adoption.
| € in millions | Carrying amounts, December 31, 2017 |
IAS 39 mea surement category |
Revaluation due to change in scope |
Revaluation due to the application of the impair ment model |
Carrying amounts, January 1, 2018 |
IFRS 9 mea surement category |
|---|---|---|---|---|---|---|
| Equity investments Other share investments Equity investments that fall within the scope of IFRS 10 and IFRS 11 and are accounted for at cost on materiality |
792 | AfS | 746 154 |
FVPL | ||
| grounds | -46 | 592 | n/a | |||
| Financial receivables and other financial assets Receivables from finance leases |
688 329 |
n/a | -1 -1 |
687 328 |
n/a | |
| Other financial receivables and financial assets | 359 | LaR | 359 241 118 |
AmC n/a 1 |
||
| Trade receivables and other operating assets Trade receivables |
7,152 3,879 |
LaR | -66 -66 |
7,086 3,813 3,757 56 |
AmC n/a 1 |
|
| Derivatives with no hedging relationships Derivatives with hedging relationships Other operating assets |
1,401 279 1,593 846 747 |
HfT n/a LaR n/a |
1,401 279 1,593 820 773 |
FVPL n/a AmC n/a |
||
| Securities and fixed-term deposits | 3,419 | AfS | 3,419 991 2,225 203 |
FVPL FVOCI AmC |
||
| Cash and cash equivalents | 2,708 | LaR | 2,708 2,192 516 |
AmC FVPL |
||
| Restricted cash and cash equivalents | 1,782 | LaR | 1,782 | AmC | ||
| Assets held for sale | 3,301 | n/a | 3,301 | n/a | ||
| Total financial assets | 19,842 | -46 | -67 | 19,729 | ||
1Relates to receivables from equity investments that fall within the scope of IFRS 10 and IFRS 11 and are accounted for at cost on materiality grounds.
The first-time application of IFRS 9 had no effect on financial liabilities.
According to IFRS 9, impairments of financial assets must no longer be recognized only for losses already incurred, but also for expected future credit defaults. E.ON takes into account expected future credit losses on initial recognition of financial assets carried at amortized cost, financial assets measured at fair value through other comprehensive income, and receivables from finance leases.
The expected future credit loss is calculated by multiplying the probability of default by the carrying amount of the financial asset (exposure at default) and the expected loss ratio (loss given default). The probability of default describes the probability that a debtor will not meet their payment obligations and the receivable will therefore default. Exposure at default is the amount of the financial asset to be allocated to E.ON at the time of default. Loss given default is the expectation of what portion of a financial asset is no longer recoverable in the event of default and is determined taking into account guarantees, other loan collateral and, if appropriate, insolvency ratios.
For trade receivables, expected credit losses are recognized over their entire residual term using the simplified method. For other financial assets, E.ON first determines the credit loss expected within the first twelve months. In derogation of this, in the event of a significant increase in the default risk, the expected credit loss over the entire residual term of the respective instrument is recognized. A significant increase in the default risk is assumed if the internally determined counterparty risk has been downgraded by at least three levels since initial recognition. If external or internal rating information is available, the expected credit loss is determined on the basis of this data. If no rating information is available, E.ON determines default ratios on the basis of historical default rates, taking into account forward-looking information on economic developments. In the E.ON Group, a default or the classification of a receivable as uncollectible is assumed after 180 or 360 days, depending on the region.
The effects of determining expected future credit losses in connection with the initial application of the new impairment model are shown in the following table:
| Change in valuation allow | |||
|---|---|---|---|
| € in millions | Accumulated valuation allowances under IAS 39 as of December 31, 2017 |
ances due to the application of the new impairment model in accordance with IFRS 9 |
Accumulated valuation allowances as of January 1, 2018 |
| Trade receivables | -737 | -66 | -803 |
| Financial receivables and other financial assets | -99 | -1 | -100 |
All derivative financial instruments in place as of December 31, 2017, which were used as hedging transactions in a cash flow hedge or in a hedge of a net investment, meet the requirements of IFRS 9 for hedge accounting and are therefore being carried forward unchanged, taking into account a change in designation. However, in accordance with IFRS 9, the currency basis spread (hedging costs) will from now on be separated from the hedging instrument and reported separately as an excluded component in accumulated other comprehensive income in the reserve for hedging costs as a component of equity.
This change was applied retrospectively to all foreign currency derivatives that are part of cash flow hedges or hedges of a net investment and resulted in a reclassification of €73 million from the hedging reserve to the hedging cost reserve as of January 1, 2018. The corresponding prior-year figures were restated retrospectively.
The amended revision criteria for principal/agent relationships result in a material change in the income statement for certain passthroughs for the promotion of Renewables. These passthroughs are no longer recognized as sales revenues with an offsetting entry in cost of materials, but instead are netted directly. The netting effects led to a €2.7 billion reduction in the income statement in the first half of 2018. The change has no impact on earnings. Other conversion effects from IFRS 15 related primarily to the divergence of cash flows and revenue recognition, which led to the recognition of contract assets (€20 million) and contract liabilities (€227 million), as well as the compulsory capitalization of directly attributable costs of contract acquisition, which are expected to be amortized over the term of the contract (€50 million). This reduced retained earnings by €119 million as of January 1, 2018, taking deferred taxes into account.
The E.ON Group recognizes the majority of its revenue from contracts with customers over time and not point in time. Revenue is broken down in detail in the information by segment (see pages 50 and 51 of the interim report) into external and internal revenue per segment, as well as by material regions and technologies. The overview also shows how sales are reflected in operating cash flow.
In addition to the new standards described in detail above, other standards and interpretations are to be applied that do not have a material impact on E.ON's Consolidated Financial Statements as of June 30, 2018:
In January 2016, the IASB published the accounting standard IFRS 16, "Leases," which replaces the previous standard IAS 17, "Leases," and IFRIC 4, "Determining Whether an Arrangement Contains a Lease." In particular, the new standard amends the accounting treatment of leases with the lessee. In the future, the lessee will regularly be required to capitalize an asset for the right of use in connection with the leasing arrangement and recognize a corresponding leasing liability.
Excluded from this standard are low-value assets and leasing arrangements with a term of less than twelve months if the corresponding options are exercised. The lessor will continue to differentiate between finance leases and operating leases. IFRS 16 also contains a number of other provisions relating to recognition, disclosures and sale and leaseback transactions. The application of IFRS 16 is required for fiscal years beginning on or after January 1, 2019. It has been adopted by the EU into European law.
E.ON has launched a Group-wide project to implement IFRS 16. The analysis phase was completed in the first quarter of 2018, and the contract is currently being drawn up. Based on current knowledge, the implementation of IFRS 16 is expected to have the greatest impact in the areas of land and buildings and vehicle fleets. The qualitative effects will be determined at the end of 2018.
The number of consolidated companies is as follows:
| Domestic | Foreign | Total | |
|---|---|---|---|
| Consolidated companies as of December 31, 2017 |
84 | 148 | 232 |
| Additions | 3 | – | 3 |
| Disposals/Mergers | 2 | 2 | 4 |
| Consolidated companies as of June 30, 2018 |
85 | 146 | 231 |
As of June 30, 2018, 29 companies were accounted for under the equity method (December 31, 2017: 30) and one company was presented pro rata as a joint operation (December 31, 2017: 1).
On March 12, 2018, E.ON SE entered into an agreement with RWE AG to acquire the 76.8-percent stake in innogy SE held by RWE. The acquisition is to take place within the framework of a comprehensive exchange of business activities and investments. In this context, E.ON will transfer to RWE most of its Renewables business and the minority interests held by E.ON subsidiary PreussenElektra in the Emsland and Gundremmingen nuclear power plants operated by RWE. However, certain Renewables' business activities of e.disnatur, in Germany and Poland, and a 20-percent interest in the Rampion offshore wind farm will remain with the E.ON Group. The entire transaction will be completed in multiple steps and is subject to the usual antitrust approvals.
The parts of the Renewables business to be transferred to RWE have been presented as discontinued operations since June 30, 2018. The expenses and income attributable to this were reported separately on the face of the Group's income statement under income/loss from discontinued operations, net. The prior-year figures were adjusted accordingly. The relevant assets and liabilities are reported in a separate line on the balance sheet; prioryear figures are not to be adjusted. The cash flows of the parts of the Renewables business to be transferred are also reported separately in the cash flow statement. As in the income statement, the previous year's figures were adjusted accordingly in the cash flow statement.
All intragroup receivables, payables, expenses and income between the companies of the discontinued operation and the remaining E.ON Group companies will be eliminated. For deliveries, goods and services that were previously intragroup in nature, but which after the deconsolidation will be continued either between the companies to be transferred or with third parties, the elimination entries required for the consolidation of income and expenses were allocated entirely to the discontinued operation.
The key figures presented in the segment reporting also include the business activities in the Renewables segment which are to be transferred to RWE. These figures are presented as if the transferred operation had not been reclassified in accordance with IFRS 5. Note 12 provides additional information and the corresponding reconciliations.
Pursuant to IFRS 5.18, the carrying amounts of all of the discontinued operation's assets and liabilities must be measured in accordance with applicable IFRS immediately before their reclassification. In the course of this measurement, no material impairments or need for reversals were recognized. In addition, the carrying amount of the discontinued operation as a whole must be tested for impairment by comparing it with the fair value less costs to sell. The fair value less costs to sell is determined from the transaction price agreed with RWE for the parts of the Renewables business to be transferred less the expected transaction costs. The comparison did not result in the recognition of any additional impairment as of June 30, 2018.
In the first six months of 2018, E.ON generated revenues of €40 million (2017: €41 million), interest income of €37 million (2017: €33 million), no material interest expenses, and other income of €25 million (2017: €8 million) and other expenses of €448 million (2017: €328 million), with companies to be transferred in the Renewables segment.
The following table shows the main items of the income statement of the discontinued operation in the Renewables segment (after allocation of elimination entries):
| First half | ||
|---|---|---|
| € in millions | 2018 | 2017 |
| Sales | 291 | 346 |
| Other income | 70 | 110 |
| Other expense | -239 | -276 |
| Income/Loss from discontinued operations before income taxes |
122 | 180 |
| Income taxes | -26 | -54 |
| Income/Loss from discontinued | ||
| operations, net | 96 | 126 |
The following table shows major balance sheet line items for the discontinued operation in the Renewables segment:
| June 30, | |
|---|---|
| € in millions | 2018 |
| Intangible assets and goodwill | 1,507 |
| Property, plant and equipment | 7,269 |
| Miscellaneous assets | 1,433 |
| Assets held for sale | 10,209 |
| Liabilities | -1,621 |
| Provisions | -646 |
| Liabilities associated with assets held for sale | -2,267 |
The preceding figures do not include receivables from or liabilities to the E.ON Group.
Discontinued operations in the Renewables segment include financial assets of €94 million recognized at fair value as well as financial liabilities at fair value in the amount of €61 million.
The fair values of financial assets are derived from market values in the amount of €69 million and the fair values of financial liabilities in the amount of €47 million. The fair values of the remaining financial assets and financial liabilities are determined using valuation methods.
In addition to the transfer of the majority of the Renewables business, under the agreement RWE will acquire the minority interests held by E.ON in the nuclear power plants operated by RWE, Kernkraftwerke Lippe-Ems GmbH and Kernkraftwerk Gundremmingen GmbH. The minority interests included in the Non-Core Business segment and related liabilities are classified as a disposal group as of June 30, 2018. In total, assets in the amount of €0.2 billion, provisions in the amount of €0.7 billion and liabilities in the amount of €0.2 billion were reclassified to the disposal group.
E.ON and Finnish energy company Fortum Corporation, Espoo, Finland, entered into an agreement in September 2017 that enabled E.ON to decide to sell its 46.65-percent stake in Uniper to Fortum at a total value of €22 per share at the beginning of 2018. In this connection Fortum published a takeover offer for all of the shares of Uniper on November 7, 2017. In January 2018, E.ON decided to offer its shareholding in Uniper for sale in the framework of the takeover bid. After all regulatory approvals and conditions for the completion of the voluntary public takeover bid had been met, the sale of the stake in Uniper to Fortum was completed on June 26, 2018. The purchase price was €3.8 billion. This includes the dividends paid by Uniper to E.ON in 2018.
After derecognition of the Uniper shares of approximately €3.0 billion reported as assets held for sale prior to completion of the transaction and the recognition in income of effects from the equity valuation previously recognized in other comprehensive
income, the gain on disposal amounted to €0.6 billion. Upon completion of the transaction, derivative financial instruments with a negative fair value of €0.5 billion were also derecognized through profit and loss. The derivative financial instruments were related to the reciprocal rights and obligations arising from the agreement with Fortum.
On April 25, 2018, the E.ON Group completed the sale of its Swedish gas distribution company E.ON Gas Sverige AB, which is part of the Energy Networks segment. The buyer is the European Diversified Infrastructure Fund II (EDIF II). The transaction was completed with retroactive economic effect. The gain on deconsolidation amounted to around €0.1 billion.
In July 2017, the Hamburg Senate approved the exercise of a call option agreed in 2014 (following a corresponding referendum) with the Free and Hanseatic City of Hamburg on the previous E.ON majority stake in Hamburg Netz GmbH (74.9 percent, HHNG). E.ON held this stake in the Energy Networks segment through HanseWerk AG (E.ON's ownership interest: 66.5 percent). After the exercise of this option on October 20, 2017, the corresponding HHNG shares were transferred to the buyer effective January 1, 2018. As of December 31, 2017, the balance sheet items related to HHNG were classified as a disposal group in accordance with IFRS 5. The cash inflow of €0.3 billion that occurred in 2017 is recorded in the consolidated cash flow statement for 2017 under disposals and does not have an effect on economic net debt as of December 31, 2017. HHNG was deconsolidated in the first quarter of 2018.
In the first half of 2017, no corresponding material transactions or changes in presentation were made.
The following table provides details of financial results:
| Second quarter | First half | |||
|---|---|---|---|---|
| € in millions | 2018 | 2017 | 2018 | 2017 |
| Income/Loss from companies in which equity investments are held | 45 | 34 | 51 | 39 |
| Impairment charges/reversals on other financial assets | 2 | 1 | – | -19 |
| Income/Loss from equity investments | 47 | 35 | 51 | 20 |
| Income/Loss from securities, interest and similar income | 122 | 685 | 194 | 885 |
| Interest and similar expenses | -226 | -261 | -488 | -594 |
| Net interest income/loss | -104 | 424 | -294 | 291 |
| Financial results | -57 | 459 | -243 | 311 |
Income from securities, interest and similar income decreased by €0.7 billion to €0.2 billion. This is mainly due to the reimbursement of interest in connection with the repayment of the nuclearfuel tax, which was included in the previous year.
The computation of earnings per share is shown below:
| Second quarter | First half | |||
|---|---|---|---|---|
| € in millions | 2018 | 2017 | 2018 | 2017 |
| Income/Loss from continuing operations | 1,854 | 3,292 | 2,812 | 3,908 |
| Less: Non-controlling interests | -48 | -52 | -192 | -158 |
| Income/Loss from continuing operations (attributable to shareholders of E.ON SE) | 1,806 | 3,240 | 2,620 | 3,750 |
| Income/Loss from discontinued operations, net | 21 | 7 | 96 | 126 |
| Less: Non-controlling interests | -3 | -2 | -12 | -4 |
| Income/Loss from discontinued operations, net (attributable to shareholders of E.ON SE) | 18 | 5 | 84 | 122 |
| Net income/loss attributable to shareholders of E.ON SE | 1,824 | 3,245 | 2,704 | 3,872 |
| in € | ||||
| Earnings per share (attributable to shareholders of E.ON SE) | ||||
| from continuing operations | 0.83 | 1.50 | 1.21 | 1.79 |
| from discontinued operations | 0.01 | – | 0.04 | 0.06 |
| from net income/loss | 0.84 | 1.50 | 1.25 | 1.85 |
| Weighted-average number of shares outstanding (in millions) | 2,167 | 2,162 | 2,167 | 2,091 |
The computation of diluted earnings per share is identical to that of basic earnings per share because E.ON SE has issued no potentially dilutive ordinary shares.
The increase in the weighted-average number of shares outstanding resulted primarily from the capital increase carried out in March 2017. As a result, E.ON increased the share capital of €2,001,000,000 through the partial utilization of its authorized capital via the issue of 200,099,000 new, registered ordinary shares with no par value by €200,099,000 to €2,201,099,000.
The following table shows the structure of financial assets:
| June 30, 2018 | December 31, 2017 | |||||
|---|---|---|---|---|---|---|
| € in millions | E.ON Group | Associates 1 | Joint ventures 1 |
E.ON Group | Associates 1 | Joint ventures 1 |
| Companies accounted for under the equity method | 2,605 | 1,304 | 1,301 | 3,547 | 1,469 | 2,078 |
| Equity investments | 671 | 256 | 5 | 792 | 256 | 5 |
| Non-current securities | 1,679 | – | – | 2,749 | – | – |
| Total | 4,955 | 1,560 | 1,306 | 7,088 | 1,725 | 2,083 |
1The associates and joint ventures presented as equity investments are associated companies and joint ventures accounted for at cost on materiality grounds.
The net income of €146 million from companies accounted for under the equity method (first six months of 2017: €650 million) includes no impairments. The decrease is primarily due to the discontinuation of the equity valuation for the investment in Uniper SE at the end of September 2017, which was sold in June 2018.
Pursuant to a resolution by the Annual Shareholders Meeting of May 10, 2017, the Company is authorized to acquire treasury shares until May 9, 2022. 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 the Company's share capital. The Management Board 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, 2018, was 2,167,149,433 (December 31, 2017: 2,167,149,433).
As of June 30, 2018, E.ON SE held a total of 33,949,567 treasury shares (December 31, 2017: 33,949,567) with a Group carrying amount of €1,126 million (equivalent to 1.54 percent or €33,949,567 of the share capital).
At the Annual Shareholders Meeting on May 9, 2018, the shareholders voted to distribute a dividend of €0.30 (2017: €0.21) for each dividend-paying ordinary share, which corresponds to a total dividend amount of €650 million (2017: €452 million).
The decrease in provisions for pensions and similar obligations by €780 million relative to year-end 2017 was primarily the result of employer contributions to plan assets, which in Germany are largely attributable to the transfer of assets formerly managed by Versorgungskasse Energie VVaG i.L. (VKE) to the Contractual Trust Arrangement (CTA). The allocation of net periodic pension expenses partially offset this effect.
The following discount rates were applied for the computation of provisions for pensions and similar obligations in Germany and in the United Kingdom:
Discount Rates
| Percentages | June 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Germany | 2.00 | 2.10 |
| United Kingdom | 3.00 | 2.70 |
The net defined benefit liability, which is equal to the difference between the present value of the defined benefit obligations and the fair value of plan assets, is determined as shown in the following table:
| € in millions | June 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Present value of all defined benefit obligations | 15,405 | 15,713 |
| Fair value of plan assets | 12,565 | 12,093 |
| Net defined benefit liability Presented as provisions for pensions and similar obligations |
2,840 2,840 |
3,620 3,620 |
The net periodic pension cost for defined benefit plans included in the provisions for pensions and similar obligations breaks down as shown in the following table:
| Second quarter | First half | ||||
|---|---|---|---|---|---|
| € in millions | 2018 | 2017 | 2018 | 2017 | |
| Employer service cost | 38 | 40 | 72 | 76 | |
| Net interest on the net defined benefit liability | 15 | 21 | 31 | 41 | |
| Past service cost | 1 | 3 | 3 | 8 | |
| Total | 54 | 64 | 106 | 125 |
The value of financial instruments is determined on the basis of fair value measurement. The fair value of derivative financial instruments is sensitive to movements in underlying market rates and other relevant variables. The Company assesses and monitors the fair value of derivative instruments on a periodic basis. The fair value to be determined for each derivative financial instrument is the price at which one party can sell to a third party the rights and/or obligations embodied in that derivative. Fair values of derivatives are determined using customary market valuation methods, taking into account the market data available
on the measurement date and including a credit risk premium. The counterparty credit risk is recognized in the form of a credit value adjustment.
Derivative financial instruments are covered by market netting agreements. Master netting agreements based on those developed by the International Swaps and Derivatives Association (ISDA), and supplemented by appropriate schedules, are in place with banks. Commodity transactions are generally governed by master agreements developed by the European Federation of Energy Traders (EFET). The aforementioned netting agreements are taken into account when determining the fair values of the financial instruments. Portfolio-based credit risks are also used in the calculations.
The fair values of individual assets are determined using published exchange or market prices at the time of acquisition in the case of marketable securities, fixed-term deposits and equity investments, and are adjusted to current market prices as of the reporting dates. If exchange or market prices are unavailable for consideration, fair values are determined using the most reliable information available that is based on market prices for com parable assets or on suitable valuation techniques. In such cases, E.ON determines fair value using the discounted cash flow method by discounting estimated future cash flows by a weightedaverage cost of capital. Estimated cash flows are consistent with the internal mid-term planning data for the next three years, followed by two additional years of cash flow projections, which are extrapolated until the end of an asset's useful life using a growth rate based on industry and internal projections. The discount rate reflects the specific risks inherent in the activities.
The following table shows the carrying amounts of the financial assets and financial liabilities that are measured at fair value, classified by measurement source:
| € in millions | Carrying amounts within the scope of IFRS 7 |
Determined using market prices (Level 1) |
Derived from active mar ket prices (Level 2) |
Determined using valuation techniques (Level 3) |
|---|---|---|---|---|
| Assets | ||||
| Equity investments | 104 | 1 | 4 | 99 |
| Derivatives | 1,726 | 25 | 1,650 | 51 |
| Securities and fixed-term deposits | 2,233 | 2,041 | 192 | – |
| Cash and cash equivalents | 700 | 700 | – | – |
| Liabilities | ||||
| Derivatives | 2,327 | 27 | 2,300 | – |
| Carrying amounts within the scope of |
Determined using market prices |
Derived from active mar ket prices |
Determined using valuation techniques |
|
|---|---|---|---|---|
| € in millions | IFRS 7 | (Level 1) | (Level 2) | (Level 3) |
| Assets | ||||
| Equity investments | 792 | 6 | 259 | 527 |
| Derivatives | 1,680 | 29 | 1,519 | 132 |
| Securities and fixed-term deposits | 3,419 | 2,888 | 531 | – |
| Liabilities | ||||
| Derivatives | 2,956 | 14 | 2,915 | 27 |
The carrying amounts of cash and cash equivalents and of trade receivables are considered generally reasonable estimates of fair value because of their short maturity. Similarly, the carrying amounts of commercial paper, borrowings under revolving shortterm credit facilities and trade payables are used as the fair value due to the short maturities of these items. As of June 30, 2018, financial liabilities include bonds with a fair value of €11,295 million (December 31, 2017: €13,280 million) and promissory notes with a fair value of €281 million (December 31, 2017: €386 million). The carrying amount of the bonds as of June 30, 2018, is €9,020 million (December 31, 2017: €10,641 million). The carrying amount of the promissory notes
is €275 million (December 31, 2017: €370 million). The fair value of the remaining financial instruments largely corresponds to the carrying amount. At the end of each reporting period, E. ON assesses whether there might be grounds for reclassification between hierarchy levels. The proportion of fair values measured at Level 1 to those measured at Level 2 has not changed materially compared with December 31, 2017. There were no reclassifications between these two fair-value-hierarchy levels in the first six months of 2018. The fair values determined using valuation techniques for financial instruments carried at fair value are reconciled as shown in the following table:
| Gains/ | Transfers | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| € in millions | Dec. 31, 2017 |
Effects from IFRS 9 |
Jan. 1, 2018 |
Pur chases (including additions) |
Sales (including dispos als) |
Settle ments |
Losses in income state ment |
into Level 3 |
out of Level 3 |
Gains/ Losses in OCI |
June 30, 2018 |
| Equity investments | 527 | 380 | 147 | 3 | -53 | – | – | 2 | – | – | 99 |
| Derivative financial instruments |
105 | – | 105 | – | 12 | – | -66 | – | – | – | 51 |
| Total | 632 | 380 | 252 | 3 | -41 | 0 | -66 | 2 | 0 | 0 | 150 |
In the first half of 2018, only the minority interests in nuclear power plants reclassified to the disposal group and the derivative financial instruments of the discontinued operations in the Renewables segment are disclosed under sales (including disposals).
At the beginning of the year, a net loss of €68 million from the initial measurement of derivatives was deferred. In the first six months of 2018, deferred expenses decreased to €0 million. The reduction is mainly due to the recognition of the Renewables business as discontinued operations. Certain long-term energy contracts are valued with the aid of valuation models that use internal data if market prices are not available. A hypothetical 10-percent increase or decrease in these internal valuation parameters as of the balance sheet date would lead to a theoretical decrease or increase of €2 million.
To the extent possible, pledges of collateral are negotiated with counterparties for the purpose of reducing credit risk. Accepted as collateral are guarantees issued by the respective parent companies or evidence of profit-and-loss-pooling agreements
in combination with letters of awareness. To a lesser extent, the Company also requires bank guarantees and deposits of cash and securities as collateral to reduce credit risk. Risk-management collateral was accepted in the amount of €1,157 million as of June 30, 2018 (December 31, 2017: €864 million). Derivative transactions are generally executed on the basis of standard agreements that allow for the netting of all open transactions with individual counterparties. To further reduce credit risk, bilateral margining agreements are entered into with seleced counterparties. Limits are imposed on the credit and liquidity risk resulting from bilateral margining agreements. As of June 30, 2018, exchange-traded forward and option contracts, as well as exchange-traded emissions-related derivatives, bear no credit risk. For the remaining financial instruments, the maximum risk of default is equal to their carrying amounts.
Led by its Group Management in Essen, Germany, the E.ON Group comprises the seven reporting segments described below, as well as a segment for its Non-Core Business and Corporate Functions/Other, all of which are reported here in accordance with IFRS 8. The combined segments, which are not separately reportable, in the East-Central Europe/Turkey Energy Networks business and the Customer Solutions Other business are of subordinate importance and have similar economic characteristics with respect to customer structure, products and distribution channels.
In addition, changes were made to segment reporting in 2018. The generation business in Turkey is now reported in Non-Core Business. Within the Customer Solutions unit, the German heating business is no longer reported under Germany, but under Other. In addition, costs for the further development of the business with new digital products and services as well as innovative projects that were previously included under Group Management/ Other are allocated to the operating units in the Customer Solutions unit. The prior-year figures were adjusted accordingly.
This segment combines the electricity and gas distribution networks and all related activities in Germany.
This segment comprises the electricity and gas networks businesses in Sweden.
This segment combines the distribution network activities in the Czech Republic, Hungary, Romania, Slovakia and Turkey.
This segment consists of activities that supply our customers in Germany with electricity, gas and heating and the distribution of specific products and services in areas for improving energy efficiency and energy independence.
The segment comprises sales activities and customer solutions in the U.K.
This segment combines sales activities and the corresponding Customer Solutions in Sweden, Italy, the Czech Republic, Hungary and Romania and E.ON Connecting Energies as well as the heating business in Germany.
The Renewables segment combines the Group's activities for the production of wind power plants (onshore and offshore) as well as solar farms.
On March 12, 2018, E.ON SE entered into an agreement with RWE AG to acquire the 76.8-percent stake in innogy SE held by RWE. The acquisition is to take place within the framework of a comprehensive exchange of business activities and investments. In this context, E.ON will transfer the majority of its Renewables business to RWE. Since June 30, 2018, the transferred business has been reported as a discontinued operation in E.ON's consolidated financial statements in accordance with IFRS 5 (see Note 4 for further information).
However, until the final transfer to RWE, the activities in the Renewables business will continue unchanged. For internal management purposes, these activities will therefore continue to be fully included in the relevant key performance indicators. The presentation of key performance indicators in segment reporting therefore also includes the components attributable to discontinued operations in the Renewables business. Reconciliations of these figures to the information in the E.ON Group's consolidated income statement and consolidated statement of cash flows are provided on pages 50 to 52.
Held in the Non-Core Business segment are the non-strategic activities of the E.ON Group. This includes the operation of the German nuclear power plants, which are managed by the PreussenElektra operating unit, and the electricity generation business in Turkey.
Group Management/Other contains E.ON SE itself and the interests held directly by E.ON SE. Until June 26, 2018, the Uniper Group, which is accounted for in the consolidated financial statements using the equity method, was also allocated to this segment. Uniper's earnings were reported under non-operating earnings. Additional information regarding the Uniper Group is provided in Note 4.
| Energy Networks | Customer Solutions | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| First half | Germany | Sweden | ECE/Turkey | Germany Sales | United Kingdom | Other | |||||||
| € in millions | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |
| External sales | 4,059 | 6,321 | 502 | 544 | 290 | 360 | 3,502 | 3,668 | 3,952 | 3,690 | 3,769 | 3,622 | |
| Intersegment sales | 707 | 887 | 9 | 19 | 486 | 496 | 53 | 15 | 29 | 33 | 174 | 173 | |
| Sales 2 | 4,766 | 7,208 | 511 | 563 | 776 | 856 | 3,555 | 3,683 | 3,981 | 3,723 | 3,943 | 3,795 | |
| Depreciation and amortization 3 |
-283 | -290 | -77 | -81 | -117 | -111 | -15 | -14 | -42 | -49 | -85 | -88 | |
| Adjusted EBIT Equity-method earnings 4 |
565 33 |
601 41 |
254 – |
239 – |
251 68 |
247 48 |
135 – |
64 – |
202 – |
230 – |
140 4 |
146 7 |
|
| Operating cash flow before interest and taxes |
580 | 1,105 | 421 | 305 | 404 | 319 | -112 | -147 | 20 | 282 | 231 | 291 | |
| Investments | 231 | 231 | 163 | 147 | 186 | 167 | 10 | 9 | 92 | 97 | 107 | 103 |
1Because of the changes in our reporting, the prior-year figure was adjusted accordingly.
2The presentation of our sales in 2018 was substantially affected by the initial application of IFRS 15, "Revenue from Contracts with Customers" (see the commentary in Note 2). 3Adjusted for non-operating effects.
4Under IFRS, impairment charges on companies accounted for using the equity method and impairment charges on other financial assets (and any reversals of such charges) are included in income/ loss from companies accounted for using the equity method and financial results, respectively. These income effects are not part of adjusted EBIT.
5Operating business including the divisions in the Renewables segment reclassified as discontinued operations in accordance with IFRS 5.
The following table shows the reconciliation of the revenues reported in segment reporting to the revenues in the income statement:
| First half | E.ON Group | Reclassified businesses of Renewables |
E.ON Group (continuing operations) |
|||
|---|---|---|---|---|---|---|
| € in millions | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| External sales | 17,043 | 19,583 | -291 | -346 | 16,752 | 19,237 |
| Intersegment sales | – | – | – | – | – | – |
| Sales | 17,043 | 19,583 | -291 | -346 | 16,752 | 19,237 |
| Non-Core Business | Corporate Functions/ | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Renewables 5 | PreussenElektra | Generation Turkey | Other | Consolidation | E.ON Group 5 | ||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| 339 | 396 | 601 | 891 | – | – | 29 | 88 | – | 3 | 17,043 | 19,583 |
| 402 | 314 | – | – | – | – | 289 | 304 | -2,149 | -2,241 | 0 | 0 |
| 741 | 710 | 601 | 891 | – | – | 318 | 392 | -2,149 | -2,238 | 17,043 | 19,583 |
| -160 | -181 | -50 | -93 | – | – | -29 | -45 | 1 | 4 | -857 | -948 |
| 236 | 205 | 244 | 271 | -20 | -66 | -66 | -164 | 1 | -6 | 1,942 | 1,767 |
| 17 | 16 | 29 | 39 | -20 | -66 | 31 | 31 | 1 | – | 163 | 116 |
| 387 | 237 | 129 | 3,073 | – | – | 19 | -205 | -11 | – | 2,068 | 5,260 |
| 449 | 528 | 9 | 7 | 154 | – | 16 | 27 | -3 | -2 | 1,414 | 1,314 |
The following table shows the reconciliation of operating cash flow before interest and taxes to operating cash flow from continuing operations:
The following table shows the reconciliation of the investments shown in segment reporting to the investments of continuing operations. The latter correspond to payments for investments reported in the Consolidated Statements of Cash Flows.
| 2018 | 2017 |
|---|---|
| 5,260 | |
| -419 | -295 |
| -229 | -86 |
| 1,420 | 4,879 |
| -335 | -217 |
| 1,085 | 4,662 |
| 2,068 |
| First half € in millions |
2018 | 2017 |
|---|---|---|
| Investments | 1,414 | 1,314 |
| Reclassified businesses of Renewables | -448 | -515 |
| Investments from continuing operations | 966 | 799 |
Adjusted EBIT, a measure of earnings before interest and taxes ("EBIT") adjusted to exclude non-operating effects, is the most important key figure used at E.ON for purposes of internal management control and as an indicator of our business's sustainable earnings power.
The E.ON Management Board is convinced that adjusted EBIT is the most suitable key figure for assessing operating performance because it presents our business's operating earnings independently of non-operating factors, interest, and taxes.
Unadjusted EBIT represents the Group's income/loss reported in accordance with IFRS before financial results and income taxes, taking into account the net income/expense from equity investments. To improve its meaningfulness as an indicator of the sustainable earnings power of the E.ON Group's business, unadjusted EBIT is adjusted for certain non-operating effects.
Operating earnings also include income from investment subsidies for which liabilities are recognized.
The non-operating earnings effects for which EBIT is adjusted include, in particular, non-operating interest expense/income, income and expenses from the marking to market of derivative financial instruments used for hedging and, where material, book gains/losses, certain restructuring expenses, impairment charges and reversals recognized in the context of impairment tests on non-current assets, on equity investments in affiliated or associated companies and on goodwill, and other contributions to non-operating earnings. The refund of the nuclear-fuel tax in the previous year is also reported in non-operating earnings. In addition, starting from the 2017 fiscal year, effects from the valuation of certain provisions on the balance sheet date are disclosed in non-operating earnings. The change in recognition results in improved presentation of sustainable earnings power.
In addition, earnings from discontinued operations in the Renewables segment, adjusted for non-operating effects, are also included here. Pursuant to IFRS 5, equity carried forward from investments in discontinued operations is to be terminated. However, in the future, this will be continued within the framework of internal management and is then also included in adjusted EBIT. As with the treatment of the effects of the equity carried forward, depreciation in discontinued operations, which is generally to be deferred in accordance with IFRS 5, is then continued and carried forward in adjusted EBIT.
The following table shows the reconciliation of income before financial results and income taxes to adjusted EBIT and adjusted EBITDA, respectively:
| Second quarter | First half | ||||
|---|---|---|---|---|---|
| € in millions | 2018 | 2017 | 2018 | 2017 | |
| Income/Loss from continuing operations before financial results and income taxes | 1,892 | 3,217 | 3,258 | 4,091 | |
| Income/Loss from equity investments | 47 | 35 | 51 | 20 | |
| EBIT | 1,939 | 3,252 | 3,309 | 4,111 | |
| Non-operating adjustments Net book gains/losses Restructuring expenses Market valuation derivatives Impairments (+)/Reversals (-) Other non-operating earnings |
-1,343 -751 – -627 – 35 |
-2,565 -221 82 3 – -2,429 |
-1,594 -855 26 -840 – 75 |
-2,542 -273 176 346 – -2,791 |
|
| Reclassified businesses of Renewables (adjusted EBIT) | 62 | 42 | 227 | 198 | |
| Adjusted EBIT | 658 | 729 | 1,942 | 1,767 | |
| Impairments (+)/Reversals (-) | – | – | – | 19 | |
| Scheduled depreciation and amortization | 344 | 379 | 700 | 753 | |
| Reclassified businesses of Renewables (scheduled depreciation) | 82 | 90 | 157 | 176 | |
| Adjusted EBITDA | 1,084 | 1,198 | 2,799 | 2,715 |
Page 13 of the Interim Group Management Report provides a more detailed explanation of the reconciliation of adjusted EBIT to the net income/loss reported in the Consolidated Financial Statements.
On April 27, 2018, E.ON published the voluntary public takeover offer for the shares of innogy SE after approval of the offering document by the German Federal Financial Supervisory Authority. The further acceptance period for the takeover offer ended on July 25, 2018. In addition to the agreed purchase of RWE's 76.8-percent stake in innogy, 9.4 percent of innogy shares were tendered.
In the second quarter of 2018, E.ON concluded an acquisition financing agreement for €5 billion to finance the voluntary public takeover bid. This ensures the financing of the acquisition of innogy shares that are not held by RWE. Taking into account the acceptance rate of the voluntary public takeover offer, E.ON has partially cancelled the acquisition financing, which will then amount to €2.0 billion.
The entire transaction will be completed in multiple steps and is subject to the usual antitrust approvals.
On July 26, 2018, E.ON sold its interest in E.ON Elektrarne s.r.o. to Západoslovenská energetika a.s. (ZSE). The parties have agreed not to disclose the purchase price. The transaction also resulted in the repayment of shareholder loans. ZSE is owned by the Slovak state (51 percent) and the E.ON Group (49 percent in total). The assets of E.ON Elektrarne s.r.o. include, among other things, the Malženice gas and steam power plant. The final transfer of legal ownership is still subject to the registration of the transaction by the Slovakian commercial register, which is expected in due course.
To the best of our knowledge, and in accordance with applicable reporting principles for interim financial reporting, the Condensed Consolidated Interim Financial Statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and that 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.
Essen, Germany, August 7, 2018
The Board of Management
Teyssen
Birnbaum
König Spieker
Wildberger
| November 14, 2018 | Quarterly Statement: January – September 2018 |
|---|---|
| March 13, 2019 | Release of the 2018 Annual Report |
| May 13, 2019 | Quarterly Statement: January – March 2019 |
| May 14, 2019 | 2019 Annual Shareholders Meeting |
| August 7, 2019 | Half-Year Financial Report: January – June 2019 |
| November 13, 2019 | Quarterly Statement: January – September 2019 |
Further information E.ON SE
Brüsseler Platz 1 45131 Essen Germany
T +49 (0)201-184-00 [email protected] eon.com
Journalists T +49 (0)201-184-4236 [email protected]
Analysts and shareholders T +49 (0)201-184-2806 [email protected]
Bond investors T +49 (0)201-184-7230 [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 SE 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.
Brüsseler Platz 1 45131 Essen Germany T +49 201-184-00 [email protected]
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