Press Conference on the Release of E.ON SE s Interim Report for the First Half Year of 2015

Transcription

1 Press Conference on the Release of E.ON SE s Interim Report for the First Half Year of 2015 Düsseldorf, August 12, 2015 Statement by: Dr. Johannes Tey ssen, CEO, E.ON SE Michael Sen, CFO, E.ON SE Please check against delivery.

2 2 [Speaker: Johannes Teyssen] Good morning, everyone. Welcome to the release of our interim report for the first half of As usual, I ll start by giving you a brief overview of the recent developments at our businesses and in our market environment. Then Michael Sen, who joined us in June as CFO, will provide you with a detailed look at our first-half numbers. Afterward Michael and I would be happy to answer your questions. Shortly before the summer legislative break, the German federal government issued a Ten-Point Energy Agenda and a White Paper, which revise its energy policy in a number of areas. The agenda, for example, includes the announcement of long overdue amendments to the Reservekraftwerksverordnung (Ordinance on Reserve Power Plants). Currently, if a power plant is deemed crucial to network stability, it can be required to continue to operate even though the compensation it receives doesn t cover all of its actual costs, such as depreciation and cost of capital. For the operators of these plants, this situation is unacceptable and untenable. The proposed modifications must therefore be swiftly enacted in an amended ordinance in a way that s acceptable for operators. For E.ON, the changes will be particularly important for our technologically advanced combined-cycle gas turbines at Irsching power station. An amended Ordinance on Reserve Power Plants is a step in the right direction. But it isn t a substitute for a long-term solution. The crucial issue is what the future design of Germany s electricity market will be. But on this issue German policymakers have yet to think outside the box. The government s proposed Electricity Market 2.0 is supposed to be based on free-market principles and to allow prices to fluctuate without government intervention. But the truth is, Germany s electricity market is already so distorted by government intervention that technologically advanced and highly efficient gas-fired power plants in particular barely have a chance. In other words, precisely the most operationally flexible plants which are urgently needed to provide climate-friendly backup for the energy transition have effectively been crowded out of the market. I continue to believe that Germany s market design requires fundamental changes. The new design must clarify the role to be played by highly efficient, climatefriendly reserve generating capacity, which consists primarily of gas-fired power plants. These plants continue to be face the prospect of being driven completely out of the market. The changes to the electricity market proposed by the government such as allowing price spikes and setting up an emergency capacity reserve don t go far enough. At any rate, they don t establish a reliable regulatory environment for the medium and long term. It s worth pointing out that other countries are adopting a more realistic approach to securing their electricity supply. The United Kingdom, France, Italy, and Belgium have already established or will soon establish capacity mechanisms. E.ON has already placed 6 gigawatts of generating capacity in the United Kingdom s new capacity market.

3 3 The Ten-Point Energy Agenda also indicates the German government s intention to move forward on the issue of nuclear energy. We welcome this development, just as we do the proposal to create a commission. We d be happy to support this process constructively by offering the commission the benefit of our expertise and experience. The public debate about provisions for nuclear asset-retirement obligations resurfaces periodically, particularly during these news-starved summer months. I don t wish to comment on the various expert reports and their trustworthiness beyond saying that they not infrequently consist of speculation and scenarios rather than reasoned argument. We have no intention of participating in this debate. But I d like to take this opportunity to emphasize again that each and every year E.ON s provisions are not only calculated by us but also reviewed and certified by independent auditors. As of year-end 2014, E.ON had set aside 16.6 billion in provisions for nuclear asset retirement obligations in Germany. This compares very well with the provisions recorded by operators of nuclear power stations in other countries. On the basis of publicly available figures, we can say with some confidence that Germany is right at the top of European countries in terms of provisions relative to nuclear generating capacity. We believe that the challenges of nuclear-waste disposal can be solved if we adopt a responsible and cost-conscious approach. I want to emphasize again: we intend to ensure that Uniper is fully capable of meeting all of its nuclear asset-retirement obligations. Other independent auditors are currently conducting so-called stress tests on behalf of the German government. The results of these tests will be announced in a few weeks. It goes without saying that we ve provided all the necessary information. We have nothing to hide. According to our understanding, by the end of November the commission announced by the German government will use the results of the tests to design recommendations for how to proceed. This process offers a significant opportunity. In the wake of Germany s decision to phase out nuclear energy, we can now find a joint solution for the dismantling of nuclear power stations and the disposal of nuclear waste. The operators of nuclear power stations will bear their full share of the responsibility. But the German state has a special responsibility as well; namely, to make a final storage facility available in a timely manner. Until now, in other words, the responsibilities have been divided among several parties. But I believe that the idea of creating a shared responsibility has a lot of merit, although at this time I don t wish to speculate on what this might look like in practice. I ll simply say that we re definitely open to discussing these issues and finding joint solutions. The German Ministry for Economic Affairs and Energy is apparently now preparing draft legislation that would alter corporate liability regulations. We don t see how this fits with the process I just described. Obviously, we d like to learn what these possible new rules would mean for our company. We therefore intend to talk with the German federal government to obtain clarity.

4 4 We believe that the government should wait for the results presented by its commission and not draw conclusions without a clear picture of the situation. To reiterate: a joint solution based on an objective assessment is both necessary and possible. Wholesale power prices of course constitute another important factor in our business. Midway through 2015, prices still reflect the consequences of market dislocations and the sharp drop seen in Germany and neighboring countries. This is illustrated by the prices at which in prior years we sold forward and hedged our power production, primarily from nuclear and hydroelectric power stations. The average price we booked for deliveries in Germany 2015 was about 50 per megawatt-hour. The current wholesale price for this power is nearly 20 lower. No company with power plants in Germany can go unaffected by a decline of this magnitude. This is one of the reasons that our first-half results are extremely unsatisfactory, albeit in line with our expectations. We continue to expect our 2015 EBITDA to be between 7 and 7.6 billion and our 2015 underlying net income to be between 1.4 and 1.8 billion. I d like to emphasize the decline in our economic net debt, which in the first half of the year we reduced by more than 4 billion relative to year-end E.ON therefore generally performed pretty well in a business environment that remains difficult. In the weeks and months ahead, a number of our capital investments will come to fruition. In a few weeks an 800-megawatt lignite-fired generating unit will enter service at Berezovskaya power station in Krasnoyarsk Territory in Russia. In October a 1.1-gigawatt hard-coal-fired unit will enter service at Maasvlakte power station outside Rotterdam. Both of these major projects feature state-of-the-art generation technology. On the renewables side, Humber Gateway, a 219-megawatt offshore wind farm in the U.K. North Sea, is now fully operational. Amrumbank West, a 288-megawatt wind farm in the German North Sea, will follow this fall. In addition, in May we decided to go forward with Rampion, a wind farm that will be located off the south coast of England near Brighton. Our partner in the project, U.K. Green Investment Bank, is responsible for 25 percent of the capital expenditures. With 116 turbines and roughly 400 megawatts, Rampion will be capable of supplying electricity to about 300,000 households. The planning for our newest project Arkona Becken Südost, an offshore wind farm to be located northeast of Rügen island in the German Baltic Sea is moving forward as well. In June we selected a logistics base for the wind farm on Rügen island. But we ve yet to give the final go-ahead for the project. As you can see, we continue to make selective, disciplined investments in the markets of the future for both E.ON and Uniper. At our last Annual Shareholders Meeting this past May, I talked about how energy markets are undergoing radical change. I said that decades-old certainties and assumptions are no longer valid and that technological advances and customer expectations are revolutionizing energy markets. The result is the emergence of two energy worlds: a new, green, smart, and decentralized world, and the conventional world, which will continue to

5 5 exist for decades to come and revolves primarily around security the energy supply. We want to be successful in both energy worlds and to focus on their respective and very different requirements. And we intend to do this as two companies: E.ON and Uniper. Our internal preparations for the spinoff are moving forward on schedule, and we re achieving our milestones. In the past few weeks we ve taken important steps to make the two companies operationally separate: we ve assigned about 1,300 entities either to E.ON or Uniper, designed both companies organizational setup, and selected the people to fill the two levels of management positions below the Management Boards. We re now putting together the teams for their various departments. Naturally, we re involving employee representatives in this process, in particular to agree on a fair reconciliation of interests. Our internal preparations have now reached a stage where we are, as planned, gradually involving outside entities. These include the tax authorities (who are evaluating the proposed transaction type from a tax perspective) and the court-appointed auditor of the spinoff (whose primarily role is to verify the spinoff contract). When all internal and external steps of the process have been successfully completed, the spinoff will result in E.ON focusing on renewables, energy networks, and customer solutions, Uniper on conventional energy businesses, global energy trading, and exploration and production. In other words, E.ON hasn t taken a summer break this year either. I m very proud of our employees, particularly those who often in addition to their regular functions are doing great work in the project teams to prepare for the spinoff. Happily, the fundamental changes affecting energy markets are accompanied by a growing realization of the need for climate protection. At E.ON as well. Relative to a 1990 baseline, we ve reduced the carbon intensity of our power generation in Europe by 35 percent. As you know, the revitalization of the EU Emissions Trading Scheme (ETS) is a particularly important issue to me. This is because I consider the ETS to be the best and most efficient mechanism for reducing Europe s carbon emissions. I m therefore very pleased that the European Union has already taken important steps to revitalize the ETS and plans to take more. This progress and the results of the G7 summit make me optimistic about the UN Climate Conference in December in Paris. The conference represents a real opportunity to agree on a global treaty to reduce greenhouse-gas emissions. If a treaty is reached, it would be big opportunity for everyone and for E.ON and Uniper. Greater emphasis on climate protection would be good for E.ON s growing renewables and distributed-energy solutions and for Uniper s technologically advanced gas-fired power plants and energystorage solutions, which will be needed for decades to come to support the energy system. Reinvigorated emissions trading at the European and,

6 6 eventually, global level would spur investment in efficient, low-carbon technologies. We re therefore moderately hopeful about COP 21 in Paris. And we remain committed to being part of the solution to tackle climate change, which is one of the most pressing problems of this century. With that I ll hand things over to Michael Sen. [Speaker: Michael Sen] Thanks, Johannes. I d also like to welcome you to our press conference. I m particularly pleased to be here today because it s my first opportunity as a member of the E.ON Management Board and CFO to speak to you and answer your questions. Although a few of you already know me, I d like to introduce myself briefly. As you know, I come from Siemens, where I held a number of management roles in operations and strategy, most recently as CFO of Siemens Healthcare. My experience in the capital-goods sector which is characterized by keen competition, dynamic global markets, and, at times, the radical transformation of entire industries has made a big impression on me. Going forward, I therefore intend to place a special emphasis on encouraging all our operating businesses and administrative departments to pay close attention to our markets our end-customer markets and capital markets alike. This morning we released our interim report for the first half of I d like to give you an overview of E.ON s earnings and financial situation. Johannes already spoke about the continued difficult situation in our European home market, particularly in Germany. Our long-term ambition needs to be to deliver a leading performance relative to our European industry peers. Our future setup in two sharply focused companies gives us the best chance of achieving this. This transformation will lead to a true division of E.ON into two new and operationally independent companies. To give you an idea of its scale and complexity, the transformation involves some 4,000 individual measures, of which about one third have already been completed. It s the top priority on our agenda. In view of weak power prices, lower oil prices, and volatile exchange rates, our market and regulatory environment isn t offering us any help right now. In this context I d describe our half-year results as solid. Our forecast for full-year 2015 remains unchanged. We continue to expect our EBITDA to be between 7 and 7.6 billion and our underlying net income to be between 1.4 and 1.8 billion.

7 7 Our first-half sales of 57.3 billion were 5 percent above the prior-year level, primarily because of a one-off increase in sales volume at Global Commodities gas business. Sales also benefited from favorable currencytranslation effects primarily against the U.S. dollar and the British pound and other positive developments at Renewables and in several of our European markets outside Germany. As anticipated, our first-half EBITDA was below the prior-year level. It declined by about 600 million, or 13 percent, to 4.3 billion. This decrease is primarily attributable to adverse price and volume effects in our power generation business, lower oil prices, and the weak ruble. These factors led to lower earnings at our Generation and Exploration & Production units. By contrast, our Global Commodities and Germany units recorded higher earnings. Going forward, the completion and commissioning of several large assets in the second half of the year create additional earnings streams. I ll say a few words about the main earnings effects: Generations earnings reflect low wholesale power prices, which were about 6 per megawatt-hour lower than in the prior-year period. Lower achieved prices for our nuclear output constituted a particularly adverse factor. Another was a reduction in operating hours at some of our nuclear power stations in Germany and Sweden. In addition, the decommissioning of Grafenrheinfeld nuclear power station this past June already began to have an impact on Generation s earnings in Germany. EBITDA at our Fossil reporting unit alone was 244 million lower, in part because of divestments. Exploration & Production s performance primarily reflected lower prices for oil from its fields in the North Sea. Despite production increases and favorable currency-translation effects, its EBITDA declined by 125 million year on year. A weak ruble was the main factor at our Russia unit, whose EBITDA declined by about 100 million, or 40 percent. EBITDA was down by 20 percent in local currency, chiefly because of an outage at Surgutskaya, one of our power stations in Russia. The decline in Renewables EBITDA is primarily attributable to a book gain on the sale of Rødsand offshore wind farm recorded in the prior-year period. This was partially offset by the good performance of our wind and solar business and the addition of new generating capacity. The increase in Global Commodities EBITDA relative to the prior-year period mainly reflects the optimization of procurement in the gas business. The Germany unit improved its EBITDA by 58 million year on year. Although earnings at its distribution-network business were

8 8 at the prior-year level, the colder winter led to a very positive earnings performance at its sales and heating businesses. Ladies and Gentlemen, our first-half underlying net income declined by 21 percent, from about 1.5 billion to 1.2 billion, mainly because of the decline in EBITDA I just described, although not all of this decline is reflected in underlying net income. This was partially counteracted by reductions in depreciation charges, interest expenses, and tax expenses relative to the prior-year period. Our first-half investments of roughly 1.6 billion were 109 million below the prior-year figure. This year the focus of our growth investments in Europe was again on renewables, particularly offshore wind. We invested 457 million in wind and solar assets. Generation invested 275 million, about 10 percent less than in the prior-year period. Among its major projects were the conversion of unit 4 to biomass at Provence power station outside Marseille and the new generating unit at Maasvlakte power station outside Rotterdam. Our investments of 256 million in Germany were significantly higher and went primarily toward our network business and distributed power generation. Cash is king: our cash provided by operating activities of continuing operations continued to develop well in the first half of the year, although it declined from about 5.5 to 4.2 billion owing to a nonrecurring effect. In prior-year period E.ON recorded the provisional nuclear-fuel tax refund following a favorable ruling by the Hamburg Fiscal Court. In January of this year, by contrast, E.ON had to repay about 400 million taxes. Absent these nonrecurring effects, we re satisfied with E.ON s cash flow performance in the first half of the year, including relative to the prior-year period. Seasonally driven improvements in working capital at Global Commodities constituted the principal positive factor in our cash flow performance this year. As for the solidity of our balance sheet, we ve tangibly reduced our debt. Compared with the figure recorded at year-end 2014, our economic net debt at the half-year mark declined by 4.1 billion to 29.3 billion. The main driver was our good operating cash flow, which I just spoke about. Proceeds of roughly 2.5 billion from our successful divestments were another positive factor. Most of these proceeds resulted from the sale of our operations in Spain, our solar business in Italy, and our remaining stake in E.ON Energy from Waste in Germany. Higher interest rates on the bond market led to an adjustment in actuarial interest rates, enabling us to reduce our provisions for pensions by 1.2 billion. All in all, our business environment remains challenging, and commodity prices and exchange rates have remained volatile. Nevertheless, we expect E.ON s full-year results to be within our forecast range.

9 9 That concludes my remarks on the first six months of In closing I d like to say a few words about my first few weeks here at E.ON. It s important to me that we keep our promises to the degree that it s in our control and to meet the expectations of investors, customers, and the general public. A solid balance sheet and strong cash flow are enabling us to continue to make targeted, disciplined investments in the energy businesses of tomorrow. Almost 2 gigawatts of new and efficient conventional generating capacity will enter service at E.ON power stations in the Netherlands and Russia in the second half of the year, along with more than 500 megawatts of offshore wind power in the North Sea. This will have a tangible positive effect in the quarters ahead. In addition, we plan to build two more large offshore wind farms, one off the U.K. coast, the other in the German Baltic Sea. I consider E.ON to be a strong company. E.ON is success-oriented, ambitious, and committed to achieving its objectives and keeping its promises particularly in a difficult market environment and during a period of corporate transformation. Thank you for listening. Johannes and I would now be happy to answer your questions. This presentation 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.