European Utility, E.ON, Posts €8 Billion Loss

By Mack Wilowski, International Business Writer

On Wednesday March 15, German energy giant, E.ON SE, reported the largest monetary loss in its seventeen-year history.  The company, based in the industrialized North Rhine – Westphalia province of Germany, runs one of the world’s largest electric utility service providers and is a component of the Euro Stoxx 50 market index. The significant loss of the firm’s profits is a reflection of Germany’s clean-energy revolution and nuclear phase-out, which has been well underway for several years now. On Wednesday, E.ON reported a net loss of €8.45 billion for the fiscal year 2016, a 21 percent decline in operating income on a year-over-year basis. In total, corporate losses over the past two years now total roughly €16 billion, as the company currently faces a restructuring crisis and decreased demand for its key products. At the same time, sales fell 11 percent from €42.6 to €38.2 billion. Similarly, the company’s share price has not fared well over the past decade. Following a pre-crisis peak of 148 euros/share, E.ON’s share price bottomed out at just above 6 euros/share in November 2016, representing a drop of more than 95 percent over six-and-a-half years. As of this Friday, the price stood at 7.08 euros/share.

Because of the contractions and other delinquencies, E.ON plans to shed a significant portion of its assets and cut 1,300 jobs to reduce its accumulated debt load of €26 billion. The Wednesday announcement signaled one of the biggest losses in German corporate history, and significant changes in the structure of the company will have to be made, according to a report by E.ON. The company stated that its multi-billion euro loss for 2016 was mainly due to impairments and technical problems at conventional power plants that have been transferred to Uniper Corporation, a spin-off firm of E.ON. The company incurred several restructuring costs last year when it transferred conventional coal and power plants to Uniper while shifting its focus toward investing in alternative energy such as wind and solar power. However, E.ON has not been successful in restructuring efforts and shedding liabilities, among which are massive costs linked to storing used uranium rods from its nuclear power plants. This, combined with a massive €10 billion transfer to assist with Germany’s nuclear management fund, has left the company in dire financial straits. E.ON will require a minimum of €2 billion from capital market contributions to cover this contribution alone.

E.ON currently holds a 46 percent stake in its offshoot company, Uniper. As part of ongoing efforts to pay off debt and restructure finances, the parent company is considering selling off portions of its stake in Uniper, and is planning to lay off about 5 percent of its 17,000-strong German workforce. Chief Executive Officer Johannes Teyssen announced: “a new culture based n the spirit of optimism” is now driving the company’s decisions. German-based electrical supply companies such as E.ON have encountered low earnings in the past few years due to the country’s low wholesale energy prices, as well as efforts by the public sector to promote solar and wind technologies. This has caused an oversupply in the wind technology sector, causing prices to plummet. E.ON, a company heavily invested in wind technologies has felt the impact of lower prices and decreased revenue for every sale. Despite these challenges, the executives at E.ON have confidence in the company’s future and are seeking to reform E.ON’s financial and asset base as effectively as possible.

A version of this article appeared in the Tuesday, March 21st print edition.

Contact Mack at

maceij.wilowski@student.shu.edu

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