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Eon pledges to cut costs after record €16bn loss

Eon, the German utility, recorded a net loss of €16bn for 2016 — the largest in his history — and unveiled ambitious measures to reduce debt by €7bn through asset sales and cutting 1,300 jobs.

The loss reflected impairments on Uniper, the new fossil fuel power company spun out of Eon last year, as well as payments Eon is having to make into a new state fund to cover the cost of disposing and storing Germany’s nuclear waste.

But it said its balance sheet for 2016 will be the “last to reflect the burdens of the past”, leaving the company free to focus on its three core businesses — energy networks, customer solutions and renewables.

“2016 was a transitional year,” said Johannes Teyssen, Eon’s chief executive. The impact on the company’s balance sheet from the Uniper spin-off and the nuclear deal with the government “marks a turning point and clears Eon’s way into the new energy world”, he said.

Eon’s results come less than a month after its rival RWE unveiled a €5.7bn loss for 2016 — the largest in its 119-year history — and said it was scrapping its dividend for the second year in a row.

Eon said its core operating business was healthy, despite the net loss. It said adjusted earnings before interest and taxes stood at €3.1bn, at the upper end of its guidance range. It said it would pay out a dividend of 21 cents per share for 2016, rising to 30 cents for 2017, and said it expected adjusted ebit of between €2.8bn and €3.1bn in 2017.

Eon’s loss reflects the continuing crisis in Germany’s power sector, caused by its radical shift away from nuclear and fossil fuels towards renewables. Cheap solar and wind power have squeezed energy produced from gas and coal out of the market and suppressed electricity prices, making some conventional power stations uneconomic.

The utilities have also been hit hard by Germany’s decision in the wake of the Fukushima disaster to switch off all its nuclear reactors by 2022. Berlin announced last year that nuclear operators would have to pay €23.6bn into a new nuclear waste storage fund — much more than they had provisioned for. 

Eon says it will have to chip in €10bn — €2bn more than expected. It said on Wednesday it could fund this through a capital increase of up to 10 per cent and by issuing hybrid bonds.

Eon and RWE have responded to the crisis in the sector by splitting themselves in two. Eon hived off its fossil fuel power plants into Uniper, which floated on the Frankfurt stock exchange in September. RWE pooled its grid, renewables and retail businesses into a new company, Innogy, which debuted in Frankfurt a month later.

Innogy’s shares have surged this week on a Bloomberg report that Engie of France was eyeing the company.

Eon said it planned to lower its debt from €26.3bn at the end of 2016 to about €20bn. It said options include selling some of its shares in Uniper, in which it still owns a 46.65 per cent stake, transferring its stake in the Nord Stream 1 gas pipeline into a pension fund, divesting non-strategic businesses and issuing a scrip dividend.

The company also said it would lower annual costs by €400m by 2018, resulting in the loss of 1,300 jobs — 1,000 of them in Germany. That, it said, represented about 3 per cent of its current workforce of 43,000 employees. It also said it had reduced its investment budget for the next three years by €2bn to €8bn. 

Via FT