E.ON plans sweeping cuts after profits drop

10 August 2011

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10 August 2011 | Angeline Albert

E.ON has pledged to slash costs by €1.5 billion a year (£1.3 billion) within four years, in response to the first quarterly loss in its 10-year history.

The German energy company’s half year results show its adjusted net income fell by 71 per cent year-on-year to €900 million (£797.4 million). This was, in part, caused by the German government’s decision to shut down its nuclear plants, following events in Japan (the country declared an emergency at two nuclear power plants following the devastating earthquake and tsunami).

In response to the results, E.ON said it intends to “significantly reduce controllable costs”. It plans to cut costs from around €11 billion (£9.7 billion) to approximately €9.5 billion a year (£8.4 billion) by the end of 2015

Speaking during the results presentation, E.ON CEO Johannes Teyssen said: “We need simpler, more transparent and less cost-intensive structures if we are to be successful in the future market. We cannot afford – not only, but particularly in Germany – any unnecessary management levels, processes and duplication of work.

“My objective is to create a new E.ON that is quicker and leaner, and successfully operates globally with considerably lower costs. This is the only way for us to generate the necessary funds for future investments, to retain the trust of our shareholders and to secure many competitive jobs for our employees in Germany and abroad in the long term.”

Some 9,000 to 11,000 jobs, mostly in administrative functions, could go as a result of the changes.

The amendment of the German Nuclear Energy Act, which led to early unplanned shutdowns of nuclear power plants in Germany, plus the nuclear fuel tax, contributed to the financial results. Negative earnings from long-term gas procurement agreements and lower revenues from the power trading business also had an impact.

The company said it believed technological change as well as “market interventions from politicians and regulators” will continue to cause considerable adverse effects on the business in the years to come.

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