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German Utility EON Cuts 11,000 Workers, Slashes Dividend After Profit Falls

Wednesday, 10 August 2011 08:58 AM

EON AG, Germany’s largest utility, will eliminate more than 10 percent of its workforce and cut dividend payments after first-half profit plunged because of the government’s decision to shut down all reactors by 2022.

Adjusted net income, the profit gauge the company uses to calculate its dividend, fell to 933 million euros ($1.29 billion) from 3.26 billion euros a year earlier, Dusseldorf- based EON said today. The company, which said it will cut as many as 11,000 jobs, reported its first quarterly loss in 10 years of 382 million euros.

A public backlash following the meltdowns and radiation escapes at Japan’s Fukushima Dai-Ichi plant drove Germany to announce plans to close all its reactors. Even before the costs of shutting reactors, EON and RWE AG, the country’s two largest nuclear operators, were facing a tax on atomic power intended to net the government about 2.3 billion euros to trim the budget deficit.

The results were “mainly driven by significantly higher charges due to the nuclear exit,” Bernhard Jeggle, an analyst at Landesbank Baden-Wurttemberg, said in a note to clients. “As a consequence of political interventions and extremely difficult economic situation, E.ON cut the outlook.”

The utility said it plans to cut 9,000 to 11,000 jobs, more than 10 percent of its workforce, to counter falling earnings and reduce spending by 1.5 billion euros a year by 2015. The company slashed its full-year dividend target to 1 euro from a promised payout of at least 1.30 euros for 2011 and 2012. Full- year adjusted net income in 2011 will be 2.1 billion euros to 2.6 billion euros, it said.

‘Quicker and Leaner’

“My objective is to create a new EON which is quicker and leaner, and which successfully operates globally with considerably lower costs,” Chief Executive Officer Johannes Teyssen said in the statement. “We cannot afford -- not only, but particularly in Germany -- any unnecessary management levels, processes and duplication of work.”

Permanent closure of nuclear facilities and the nuclear fuel tax will cut earnings before interest, tax, depreciation and amortization by about 1.9 billion, the company said. EON is also struggling to stem losses from long-term gas procurement agreements and lower profits from its power trading business.

RWE, scheduled to close the first of five reactors in 2016, said yesterday that costs of earlier-than-expected closures, as well as the expense of a recently imposed nuclear-fuel tax, reduced profit by about 900 million euros in the first half. Profits in the first six months of the year plunged 39 percent to 1.67 billion euros.

Selling Assets

Teyssen, who took over as E.ON’s chief executive officer in May last year, is trying to cut the company’s debt by selling assets. Net debt amounted to about 33.6 billion euros as of June 30, compared with 37.7 billion in 2010, and financial liabilities were almost half of what they were a year earlier at about 16 billion euros, EON said.

EON increased debt after buying power plants from Spain to Siberia as national energy markets began to open. E.ON completed purchases of 11.5 billion euros from Enel SpA and Acciona SA in 2008 and 4.1 billion euros in Russia in 2007.

‘Growth Regions’

“We’re on schedule in identifying new growth regions in other parts of the world,” Teyssen said, “but the energy future has to be financed. So we need to be even more selective in our investments and even more aggressive in our efforts to cut costs.”

The company spent 2.5 billion euros on power plants and other energy assets in the first half, a cut of 1.2 billion euros from capital expenditures a year earlier.

Profits from EON’s gas division plunged because of lower sales at the company’s wholesale business. The utility has said oil-linked procurement contracts are putting pressure on margins because wholesale gas prices are so low. Weather also trimmed sales, the company said.

“Negotiations with producers to adjust procurement prices have been successful, but do not yet encompass the entire portfolio and in 2011 only partly offset negative margins,” EON said in the statement.

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EON AG, Germany s largest utility, will eliminate more than 10 percent of its workforce and cut dividend payments after first-half profit plunged because of the government s decision to shut down all reactors by 2022. Adjusted net income, the profit gauge the company uses...
Wednesday, 10 August 2011 08:58 AM
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