2013 Annual Report
Total Page:16
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2013 Annual Report E.ON Group Financial Highlights € in millions 2013 2012 +/- % Attributable generation (MW) 61,090 67,622 -10 – thereof renewables (MW) 10,885 10,171 +7 Fully consolidated generation (MW) 62,809 70,209 -11 – thereof renewables (MW) 10,414 10,025 +4 Owned generation (billion kWh) 245.2 263.1 -7 – thereof renewables (billion kWh) 30.8 30.2 +2 Carbon emissions from power and heat production (million metric tons) 114.3 125.8 -9 Specific carbon emissions (metric tons of CO2 per MWh) 0.45 0.46 -2 Electricity sales (billion kWh) 704.4 740.9 -5 Gas sales (billion kWh) 1,091.7 1,162.1 -6 Sales 122,450 132,093 -7 EBITDA1 9,315 10,771 -14 EBIT1 5,681 7,012 -19 Net income 2,510 2,613 -4 Net income attributable to shareholders of E.ON SE 2,142 2,189 -2 Underlying net income1 2,243 4,170 -46 Investments 8,086 6,997 +16 Expenditures on technology and innovation (including software) 130 161 -19 Cash provided by operating activities of continuing operations 6,375 8,808 -28 Economic net debt (at year-end) 31,991 35,845 -11 Debt factor3 3.4 3.3 +0.12 Equity 36,385 38,820 -6 Total assets 130,725 140,426 -7 ROACE (%) 9.2 11.1 -1.94 Pretax cost of capital (%) 7.5 7.7 -0.24 After-tax cost of capital (%) 5.5 5.6 -0.14 Value added 1,066 2,139 –50 Employees (at year-end) 62,239 72,083 -14 – Percentage of female employees 28.6 28.4 +0.24 – Percentage of female executives and senior managers 14.0 12.9 +1.14 – Average employee turnover (%) 3.5 3.6 -0.14 – Average age of employees 43 42 +12 – TRIF (E.ON employees) 2.6 2.6 – Earnings per share5, 6 (€) 1.12 1.15 -3 Equity per share5, 6 (€) 17.54 18.33 -4 Dividend per share7 (€) 0.60 1.10 -45 Dividend payout 1,145 2,097 -45 Market capitalization6 (€ in billions) 25.6 26.9 -5 1Adjusted for extraordinary effects (see Glossary). 2Change in absolute terms. 3Ratio of economic net debt and EBITDA. 4Change in percentage points. 5Attributable to shareholders of E.ON SE. 6Based on shares outstanding. 7For the respective financial year; the 2013 figure is management’s proposed dividend. CEO Letter Contents Report of the Supervisory Board E.ON Stock Strategy and Objectives Combined Group Management Report Consolidated Financial Statements Supervisory Board and Board of Management Tables and Explanations 2 CEO Letter 4 Report of the Supervisory Board 10 E.ON Stock 12 Strategy and Objectives 18 Combined Group Management Report 18 Corporate Profile 18 Business Model 20 Management System 21 Technology and Innovation 24 Business Report 24 Macroeconomic and Industry Environment 30 Business Performance 35 Earnings Situation 43 Financial Situation 47 Asset Situation 48 E.ON SE’s Earnings, Financial, and Asset Situation 49 Financial and Non-financial Performance Indicators 49 – ROACE and Value Added 50 – Corporate Sustainability 52 – Employees 56 Subsequent Events Report 56 Forecast Report 60 Risk Report 69 Opportunity Report 70 Internal Control System for the Accounting Process 72 Disclosures Regarding Takeovers 75 Corporate Governance Report 75 Corporate Governance Declaration 81 Compensation Report 93 Declaration of the Board of Management 94 Consolidated Financial Statements 94 Independent Auditors’ Report 96 Consolidated Statements of Income 97 Consolidated Statements of Recognized Income and Expenses 98 Consolidated Balance Sheets 100 Consolidated Statements of Cash Flows 102 Statement of Changes in Equity 104 Notes 208 Supervisory Board and Board of Management 208 Members of the Supervisory Board 210 Members of the Board of Management 211 Tables and Explanations 211 Explanatory Report of the Board of Management 212 Summary of Financial Highlights/Capacities/Energy Volumes 216 Glossary of Financial Terms 221 Financial Calendar 2 CEO Letter In 2013 we again had to navigate difficult terrain. Although we were able to finish the financial year with results that were in line with our expectations, these results nevertheless reflect the considerable adverse impact of our business and regulatory environment. Our EBITDA declined by 14 percent year on year to €9.3 billion. It was inside our forecast range, as was our underlying net income of €2.2 billion. Our underlying income per share was about €1.18. In April we’ll therefore recommend to the Annual Shareholders Meeting that E.ON pay out a dividend of €0.60 per share. This would be a payout ratio of 51 percent of our underlying net income, which is likewise inside the range we’ve communicated for several years. Taking a sober view of what lies ahead, there are few indications that our market environment will rapidly or tangibly improve. We recognized early that the magnitude of the persistent dislocations couldn’t be counteracted overnight. That’s why we launched our E.ON 2.0 program back in 2011. Its purpose is to achieve lasting cost reductions across our company and to tangibly improve our efficiency. It gives me great satisfaction to report to you that E.ON 2.0 is right on schedule. By the end of 2014 we’ll have initiated and largely completed most of its main measures. We will achieve our goal of lowering our controllable costs to €8.2 billion by 2015 at the latest. We reduced E.ON’s workforce by 7,700 employees by the end of 2013. In consultation with trade unions and works councils, we put in place numerous measures so that staff reductions were implemented in a socially responsible manner. Our focus is increasingly on using the broad momentum from this program to establish a performance culture in which we continually achieve enduring improvements in our cost structure. We’re making good progress in this area as well and have identified further potential cost reductions beyond those targeted by E.ON 2.0. Market dislocations and interventionist government policies have had a particularly severe impact on our conventional generation business in Europe. That’s why improving the profitability of this part of our operating business was very high on our agenda in 2013. Our primary focus is on maintaining our commercial flexibility in this area as well. To this end, we continually and carefully scrutinize the profitability of each one of our assets. As a result, we’ve decided to decommission nearly 13 GW of capacity. That’s more than one fourth of our entire conventional fleet in Europe. But the situation will get increasingly out of balance if, for economic reasons, we shut down power plants that are actually urgently needed to ensure supply security. For a number of our power plants, we’ve found solutions with the local system operator that, for the time being, ensure supply security and render the provision of this generating capacity economically viable. Policymakers are discussing other measures such as fair rules for providing generating capacity and incentives for the construction of new capacity. All are urgently needed. Generating capacity—and providing this capacity to ensure supply security—needs to again pay returns. Together with executives from other multinational companies, I’ve lobbied on a European level for a rapid and comprehensive reform of the market design for power generation, particularly the introduction of a capacity mechanism and the reform of the EU Emissions Trading Scheme. The decision to implement back-loading is a first step in the right direction. Alongside our extensive efforts in our operating business, we further optimized our portfolio as well. We’ve now generated about €20 billion from the sale of noncore assets, thereby surpassing our original target of €15 billion by a wide margin. Our successful divestments not only give us financial flexibility. They also allow us to sharpen our focus on the challenges and opportunities in our core businesses. Despite all these efforts, we know that in the next few years as well our business will only generate limited funds for new investments. Relative to 2013 our investments in subsequent years will be significantly lower. Alongside necessary maintenance and network investments, we’ll focus in particular on expanding our growth businesses like renewables and distributed-energy solutions. With more than 5 GW of installed wind and solar capacity, we already rank among the world’s leading renewables companies. But renewables are more than just a significant component of our generation portfolio. After just seven years of focused growth, they’re above all a mainstay of our earnings. Our industrial-scale approach from development to maintenance makes our wind fleet one of the most reliable and profitable in the industry. The addition, in 2013, of London Array and Kårehamn offshore wind farms—which we delivered on time and on budget—made our wind fleet even stronger. Amrumbank West offshore wind farm is currently under construction. When this project is completed, our wind fleet will make a reliable contribution to the CEO Letter Report of the Supervisory Board 3 E.ON Stock Strategy and Objectives Combined Group Management Report Consolidated Financial Statements Supervisory Board and Board of Management Tables and Explanations transformation of Germany’s energy system as well. Our operational excellence enables us to also be successful at taking new approaches to unlocking capital. For example, we found investors—Pension Danmark and Danish energy utility SEAS-NVE—who bought stakes in wind farms in the United States and Rødsand 2 offshore wind farm and entrust us with their operation. This innovative form of capital rotation enables us to unlock invested capital more rapidly and to create additional value by investing it to deliver other wind and solar projects in our superb development pipeline.