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Europe Needs To Expand Hydrogen And Renewables In The Long Term Says E.ON CEO

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A file photo of Proparco Supports GreenYellow's For RE Production In South East Asia.

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At the company’s annual results press conference, E.ON CEO Leonhard Birnbaum said, “Europe needs to diversify its energy imports. This includes LNG as well as hydrogen. And Europe needs to move forward even more resolutely with its green energy transition.” In the short term, however, the point is to maintain energy security for the next two years.

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Birnbaum said, “We also have to ensure the affordability of energy. For households as well as for industry. There are no easy solutions, nor can Germany afford to take an ethically purist position if it doesn’t want to jeopardize its industrial base and economy. That’s why I welcome the German government’s prudent approach.”

The company’s business continued to perform very well in 2021 despite a turbulent market environment and the second year of the Covid pandemic.

CFO Marc Spieker stated, “E.ON finished the year successfully and surpassed expectations, thereby further strengthening the financial foundation for future growth.”

E.ON increased Group adjusted EBITDA by a significant €1 billion to €7.9 billion. One growth driver was the Customer Solutions segment, which grew its EBITDA by 45 percent to €1.5 billion, owing in part to the successful restructuring of its U.K. business. The Energy Infrastructure Solutions unit, whose EBITDA increased by 40 percent year-on-year to € 480 million, is becoming an increasingly key growth business. The Future Energy Home unit, whose offerings include solar panels and battery storage devices, likewise experienced increased demand: the number of installed devices increased from 100,000 to 125,000 in a single year.

Group earnings were also positively affected by Non-Core Business: particularly high-capacity utilization of power plants and the current price level on the sales side made a contribution, especially in the fourth quarter. Earnings at Energy Networks mainly reflected positive weather conditions, the absence of negative effects from the pandemic, and anticipated regulatory developments at the network business in Germany.

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The earnings impact of the increasingly extreme situation on energy markets in the second half of 2021 was manageable for E.ON. Higher costs for line losses in Sweden and Central and Eastern Europe led to a temporary adverse effect at Energy Networks. The regulatory mechanisms in these countries will lead to the recovery of these costs over several years. E.ON’s Customer Solutions segment consciously pursues a conservative procurement strategy for all energy sales markets and therefore weathered the exceptional situation on commodity markets well with only a small adverse impact on earnings.

E.ON recorded an adjusted net income of €2.5 billion in 2021, which was 53 percent more than in 2020 and €100 million above the upper end of the forecast range that E.ON increased last fall. Economic net debt declined by almost €2 billion from year-end 2020 to €38.8 billion. The improvement in economic net debt is mainly attributable to a reduction in provisions for pensions. Strong earnings in the 2021 financial year and the reduction in economic net debt have already enabled E.ON to reduce its debt factor to 4.9, which is within its target range of 4.8 to 5.2 times EBITDA for a strong BBB/Baa rating.

CFO Marc Spieker also highlighted that E.ON has made significant progress in achieving its sustainability goals. “Our state-of-the-art energy solutions have reduced our customers’ carbon emissions by 107 million metric tons. Our own 2021 carbon emissions fell to 9.4 million metric tons. We’ve also become a partner of the United Nations as a pioneer in ecological power-line corridor management and are creating valuable biotopes under 13,000 kilometers of high-voltage lines.”

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At the presentation of its growth strategy this past November, E.ON announced that it would significantly increase investments in order to accelerate earnings growth. E.ON plans to invest €5.3 billion in 2022 and a total of €27 billion through 2026. More than three-quarters of these investments will go toward energy networks. A double-digit percentage is earmarked for energy infrastructure solutions.

Spieker said, “97 percent of our taxonomy-eligible investments in 2021 were taxonomy-aligned. Our investments are thus paving the way to a green energy future and support the policy targets for tackling climate change. E.ON is by far Germany’s biggest issuer of corporate bonds.”

In line with its strategy, E.ON continuously reviews its portfolio to advance its strategic agenda of sustainability, digitization, and growth. In this regard, E.ON has decided to initiate the process to investigate strategic options for its district heating businesses in Norrköping and Örebro in Sweden, including the possibility of divestment. E.ON’s other district heating businesses are not part of this review. E.ON is also initiating a process to assess the option of finding a co-investor to support the growth of Westenergie’s broadband infrastructure business. There is no certainty whether these reviews will result in any transactions and E.ON will provide a further update if, and when, appropriate.

E.ON issued its earnings forecast for the 2022 financial year with the caveat that the short- and long-term impact of the war in Ukraine on its business performance and on key performance indicators cannot be fully estimated at this time.

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Under these circumstances, E.ON expects to record an adjusted EBITDA of €7.6 to €7.8 billion in 2022. Spieker emphasized that, despite lower earnings from nuclear power, this will be achieved primarily through significant organic growth in E.ON’s core business. E.ON also intends to realize €400 million in additional synergies through the innogy integration. This earnings forecast does not yet include portfolio optimization measures. E.ON announced in November 2021 that it will divest €2 to €4 billion of assets to finance growth through 2026, primarily by means of smaller portfolio adjustments.

Spieker expects E.ON to post adjusted net income of €2.3 to €2.5 billion in 2022, which corresponds to earnings per share of 88 to 96 cents. He also reaffirmed E.ON’s dividend proposal for 2021 of 49 cents per share and its target of increasing the dividend by up to 5 percent annually through 2026.

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