E.ON Rides High on Solid First-Half Results, Increases
E.ON’s results for the first half of 2008 reflect significantly keener competition on Europe’s power and gas markets and continued high commodity and energy prices worldwide. In this increasingly difficult environment, E.ON’s results surpassed the high level of the prior-year period. E.ON increased sales by 16 percent year on year to EUR41.2 billion (prior year: EUR35.6 billion), while adjusted EBIT of EUR5.8 billion was 6 percent above the prior-year figure (EUR5.4 billion). E.ON’s adjusted net income climbed 8 percent to EUR3.3 billion. The implementation of the largest investment program in E.ON’s history—EUR63 billion for 2007-2010—resulted in the economic value of its investments in fixed assets and shareholdings increasing sharply to EUR15.8 billion.
Fierce competition adversely affects E.ON UK and gas business
The Central Europe market unit’s adjusted EBIT of EUR2,713 million surpassed the prior-year figure (EUR2,544 million) by 7 percent. Positive price effects in the wholesale business were partially mitigated by the substantial adverse effects of the shutdowns at Krümmel and Brunsbüttel nuclear power stations (which have been offline since July 2007) and higher fuel and electricity procurement costs.
Pan-European Gas’s adjusted EBIT rose by 3 percent year on year, from EUR1,631 million to EUR1,679 million. Midstream’s adjusted EBIT was lower. Despite a weather-driven increase in sales volume and higher earnings from storage valuations, adjusted EBIT at midstream’s operating business declined. Gas procurement costs rose significantly due to the indexing of gas prices to heating oil prices. This adversely affected midstream’s earnings because procurement prices reflect changes in heating oil prices faster than sales prices do. Competitive pressure on sales prices was another negative factor. In addition, price factors prevented the recording of earnings on portfolio optimization between Continental European and U.K. gas markets, as was done in the prior-year period. By contrast, upstream’s adjusted EBIT was higher year on year, mainly because of higher energy prices and increased production of oil and natural gas.
U.K.'s adjusted EBIT fell significantly, declining by 24 percent to EUR563 million (EUR741 million). The key reasons for the decline included significantly lower retail margins which were only partially offset by earnings improvements at the generation business. The appreciation of the euro resulted in an adverse earnings effect of more than EUR80 million.
Nordic's adjusted EBIT rose by 9 percent to EUR517 million (EUR475 million). U.S. Midwest's adjusted EBIT declined by 15 percent in reporting currency due to the strong euro but was in line with the prior year in local currency.
Energy Trading recorded an adjusted EBIT of EUR99 million, of which EUR42 million was in the optimization segment and EUR57 million in the proprietary trading segment. Adjusted EBIT shown under Corporate Center/New Markets amounted to EUR39 million, with the Climate & Renewables, Italy, and Russia market units contributing EUR29 million, EUR75 million, and -EUR37 million, respectively.
Investments significantly higher
E.ON's adjusted net income surpassed the prior-year figure by 8 percent. The economic value of E.ON's investments again increased sharply. E.ON invested EUR15.8 million in the first half of 2008, EUR13.2 billion more than in the prior-year period. E.ON's cash provided by operating activities in the first six months of 2008 was 1 percent higher than the prior-year figure.
Outlook for adjusted net income adjusted upward
E.ON continues to expect adjusted EBIT for full year 2008 to again surpass the high prior-year figure and to increase by 5 to 10 percent. E.ON now also expects adjusted net income for 2008 to surpass the prior-year figure by 5 to 10 percent.
E.ON CEO Wulf H. Bernotat said, "Our solid first-half results show that we’ve positioned E.ON well in a tough competitive environment. By acquiring assets in Italy, Spain, and France, we’re continuing E.ON's rapid internationalization. We now have a European platform for profitable, primarily organic growth that's unmatched by any other company in our industry. Our investments in new power plants across Europe will enable us to systematically seize the earnings and growth opportunities of European energy markets."
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