E.ON making good progress implementing its strategy: retaining its nuclear

This will not affect E.ON’s strategic transformation. From today’s perspective, the division of the Group into two companies will take place on schedule. A Management Board resolution stating this intention was unanimously approved Wednesday evening by the company’s Supervisory Board. E.ON currently operates three nuclear power stations in Germany and has minority stakes in three others. E.ON’s nuclear power assets in Germany currently account for 8 percent of its generation portfolio.

 “This decision safeguards us against risks to the implementation of our corporate strategy. We cannot and will not wait for possible policymaking decisions that could delay the spinoff of Uniper,” E.ON CEO Johannes Teyssen said, adding that the company therefore had to take prompt action. Alluding to the current discussion in Germany about a proposed new liability law, Teyssen said that in particular the risk of legislation that separates liability for assets from management control of the assets is unacceptable. A responsible management board cannot recommend to its shareholders that they accept unlimited liability for the actions taken by another independent company. “Nowhere in the world is there a comparable precedent for separating asset ownership from liability and making this liability unlimited in duration and scope. Nevertheless, Germany seems determined to adopt this singular approach,” Teyssen emphasized. Although such a law would likely be unconstitutional, E.ON’s planned transformation cannot await the outcome of years of litigation.

“This decision will enable us to implement our corporate strategy and complete the spinoff process on schedule. It will create good prospects for our employees and establish a new, value-oriented organization for our shareholders,” Teyssen said. He added that the decision also addresses any concerns that E.ON somehow intended to shirk the responsibility for its nuclear operations. “This concern was and is unfounded. Nuclear energy was never a key factor in the development of our corporate strategy, which foresees the separation of E.ON into two companies,” Teyssen explained. Since German policymakers decided to phase out nuclear energy by 2022, E.ON has ceased to view its nuclear power business as a strategic asset.

 E.ON’s nuclear power business in Germany will be managed by a separate, Hanoverbased operating unit called “PreussenElektra.” This reintroduces an earlier company brand: E.ON predecessor entity VEBA built and operated nuclear power stations under the name PreussenElektra. To a large degree, PreussenElektra will not be integrated into E.ON’s management structure. In particular, E.ON will not market PreussenElektra’s products to its customers. “Our decision to retain our nuclear power business in Germany has no implications for our fundamental strategy. E.ON will focus on the new energy world. PreussenElektra will operate our remaining three nuclear operation stations in Germany competently and responsibly and fully meet our asset-retirement and waste-management obligations,” Teyssen said. As a result of the decision, around 2,300 employees will not be assigned to Uniper.

 E.ON believes that German policymakers should now focus their attention on the important unresolved issues surrounding the country’s phaseout of nuclear energy. “We remain open to constructive solutions,” Teyssen said. “Germany’s peaceful use of nuclear energy began as a joint endeavor between the state and energy companies. Now they share the responsibility for ending it.” E.ON will therefore support the work of the government-appointed nuclear energy commission in any way it can.

 E.ON’s new setup takes effect on January 1, 2016. Essen-based E.ON and its roughly 43,000 employees worldwide will focus, as planned, on renewables, energy networks, and customer solutions. Düsseldorf-based Uniper will start with nearly 14,000 employees and consists of power generation in and outside Europe and global energy trading. “We intend to stand by our existing spinoff timetable. It’s ambitious but, from today’s perspective, feasible,” Teyssen emphasized.

 E.ON CFO Michael Sen reaffirmed the company’s intention that E.ON’s rating will remain at BBB+/Baa1 and that Uniper will have a comfortable investment-grade rating.

In addition, Sen referred to persistently low wholesale prices for electricity and other commodities as well as the insufficient policy and regulatory environment and its impact on profitability. The price of oil is half of what it was last year. Coal prices have dropped sharply, and electricity prices in Europe are at historic lows. “This needs to be reflected in our long-term price assumptions, which have the greatest impact on valuation. This obviously has considerable implications for our conventional energy businesses,” Sen said. E.ON will therefore have to record impairment charges expected in the higher single-digit billion euro range in the current quarter. A not inconsiderable portion of the impairment charges is on goodwill.

Regardless of this, E.ON will continue its reliable dividend policy. “Our dividend for the current year will not change. At 50 cents per share, the dividend will be stable relative to the prior year,” Sen emphasized.