2005 Financial Year
EWE Annual Press Conference
Oldenburg, 4. April 2006.
Present:
Dr. Werner Brinker, Board of Management Chairman & CEO
Heiko Harms, Board Member & Chief Officer Network Divison and IT
Michael Wagener, Board Member & Chief Financial Officer
Cora Zillich, Head of Corporate Communications
2005 Highlights
- EWE equal to tough competition
- Earnings hit by rising purchasing costs
- EWE remains one of Germany’s most competitive energy providers
- Against the trend: EWE creates new jobs
EWE once again confirms its position in the market in 2005
Oldenburg, April 4, 2006. "In fiscal year 2005, the EWE Group performed well in a difficult and demanding market environment," explained EWE CEO Dr. Werner Brinker at the Group's annual press conference in Oldenburg. The fiscal year was marked by the sharp rise in energy prices on the domestic and international purchasing markets, and tougher competition in the markets for electricity, natural gas and telecommunications. At the same time, the legal separation of network operations and sales required by the government placed great demands on the energy sector. "Nevertheless, EWE was able to confirm its position as Number 5 in the German energy market," Brinker added.
In the period under review*, the company generated sales of €7.4 billion. According to EWE, the increase of €1.3 billion compared with the previous year's figure is due to the fact that this was the first time VNG – Verbundnetz Gas AG subgroup was included in the figures for a full 12 months. The increase was also due to higher sales prices for electricity, natural gas, and gas transmission. End-customer prices were raised in the wake of the drastic increase in purchasing prices. During the course of 2005, this price increase led to higher purchasing costs for EWE, which it could not fully pass on to its customers.
Owing to this fact the operative earnings before interest and tax (EBIT) of €303.4 million failed to reach last year's level (€330.5 million) despite the significant increase in sales. The group net profit was €128.4 million (2004: €180.5 million). The various segments made very different contributions to the consolidated earnings of €110 million (2004: €145.4 million). At the Annual General Meeting, the Board of Management will propose an unchanged dividend of €60 million to the EWE AG shareholders, the towns and rural districts in the Ems-Weser-Elbe region.
* based on the provisional version of the 2005 Annual Report. All information subject to approval by the Supervisory Board.
Expert reports: price rises lower than cost increases
Two reports by an auditing company confirm that EWE did not pass on all the increases in purchasing costs. One report was presented by EWE back in December. The latest report from international auditing company Ernst & Young was presented by CEO Brinker at the annual press conference. It confirms that the purchasing costs for natural gas rose significantly between August 2005 and January 2006 compared with the previous eleven month (September 2004 to July 2005). However, the company could not pass on this increase fully to its customers. Thus, even "with a notional price increase of 0.86 cents per kWh less than the actual purchasing cost increase would have been passed on," the latest report confirms. The figure of 0.86 cents per kilowatt hour would have arisen if the increases of August 1, 2005 and February 1, 2006 had been carried out in one step.
Significant increase in Energy segment sales
In 2005, the Energy segment's sales rose 14.1 percent – from €3.1 billion to €3.5 billion. This was largely due to the raising of electricity and natural gas rates.
The Energy segment encompasses the business sectors network, energy trading and sales, and also gas procurement, storage and production. The operative business is concentrated on the Ems-Weser-Elbe region, Brandenburg, the Baltic island of Rügen, and western Poland. Apart from EWE Aktiengesellschaft (Oldenburg), this segment contains the fully consolidated subsidiaries Stadtwerke Cuxhaven GmbH (Cuxhaven), EWE Polska Sp. z o. o. (Poland) and Media Odra Warta Sp. z o. o. (Poland). The swb AG (Bremen) has been included in this segment as an associated company. EWE Netz GmbH (Oldenburg), which starts operations in 2006, is also part of this segment.
The higher purchasing prices for electricity in 2005 led to price rises for business and standard-rate customers. EWE had to raise the electricity rate from 13.26 cents to 14.06 cents per kWh net as of February 1, 2005. Taxes account for about 40 percent of the gross price of 16.31 cents per kWh.
The EWE Group's electricity sales of 13.9 billion kilowatt hours (bn kWh) were unchanged on the previous year's level. The number of electricity customers remained stable at 1,044,500 – 7,000 more than last year. Altogether, fewer than 3 percent of EWE's customers have opted for a different supplier since the opening up of the electricity market.
The natural gas sales for the EWE Group (without VNG) fell 2 percent to 41.7 billion kWh during the fiscal year just ended. The company attributes this to the mild weather at the beginning of the heating period. The number of natural gas customers however rose significantly by some 12,000 to 765,400.
Sales at EWE natural gas filling stations practically doubled to 3.4 million kilograms (equals 44 million kWh) in 2005. EWE increased the number of natural gas filling stations by four to 53. In 2005, VNG sold 18.3 million kg (250 million kWh) of natural gas indirectly at public natural gas filling stations, thus beating last year's figure by 3.7 million kg (50 million kWh). "This clearly shows that natural gas is increasingly establishing itself as a fuel," is how Dr. Werner Brinker interprets the positive development.
With respect to natural gas, the higher primary energy prices had a considerable impact on EWE's gas purchasing costs. As a consequence, EWE raised natural gas rates by 0.48 cents to 3.88 cents per kilowatt hour net in August 2005 (Ems-Weser-Elbe region). Taxes account for about 25 percent of the gross price. EWE could not pass on all the higher purchasing costs to its customers. The difference was partly offset by its own natural gas extraction, optimized management of underground storage facilities, and strict cost management, the annual press conference heard.
Gas Transmission and Trade segment's earnings well below previous year's figure
EWE's Gas Transmission and Trade segment includes the business activities of VNG – Verbundnetz Gas Aktiengesellschaft (Leipzig), whose subgroup is fully consolidated. VNG is primarily active in the importing, wholesale, storage and wheeling of natural gas, and its geographic focus of its activities is on the eastern parts of Germany. VNG is also represented in central and eastern Europe via subsidiaries or shareholdings.
The segment sales amounted to €3.8 billion in fiscal year 2005. The previous year's figure was €2.9 billion. Concerning the previous year's figure it should be borne in mind that VNG has only been included in the scope of consolidation since January 28, 2004. The company attributes the increase in sales largely to the sharp rise in purchasing prices. "The time-lag effect for higher purchasing costs and the rising competitive pressure led to a drop in gross margins," explained Brinker. The segment earnings (EBIT) of €17.4 million were well down on the previous year's figure of €80.3 million. Allowing for the results from associated companies using the equity method, the EBIT was €46.3 million (2004: €102.2 million).
Further dynamic growth in I+C segment
In the I+C segment (Telecommunication and Information Technology), EWE succeeded in continuing the previous years' dynamic development in 2005 with a 13.3 percent increase in sales to €379 million. The segment earnings rose from €9.6 million to €21.2 million. The key driver for growth in the telecommunications sector was DSL broadband Internet access. In the information technology sector the implementing of SAP projects and IT outsourcing were reliable growth drivers. For telecommunications, the I+C segment encompasses the fully consolidated companies EWE TEL GmbH (Oldenburg), BREKOM Bremer Kommunikationstechnik GmbH (Bremen), osnatel GmbH (Osnabrück), and also htp GmbH (Hanover) as an associated company. The EWE Group's telecommunications providers signed up 34,000 new customers in their regional markets. Altogether, the number of customers rose to 336,000. Some 5,000 new customers opted for htp GmbHs’ services. Information technology covers in the main the activities of the fully consolidated BTC Business Technology Consulting AG (Oldenburg). It offers consulting, system integration and management, network control technology, and also the development and implementation of customized system solutions. BTC provides these services throughout Germany and also in Switzerland, Turkey, and Poland.
Investments
The EWE Energy segment's investments totaling €224.4 million relate in the main to the expansion of the network infrastructure, the construction of underground storage facilities for natural gas and also investments in plant for generating energy from wind, sun, biomass, and biogas.
In the Gas Transmission and Trade segment, the Group invested €50.9 million, in particular to improve the capacity of its underground storage facilities and gas transmission system.
The EWE Group invested €65.4 million in the expansion of communications and exchange systems, and – in the IT segment – in the building of a data center with especially secure premises to which its business customers can outsource their IT infrastructures.
Against the trend: EWE creates jobs
As of the end of 2005, the EWE Group had a headcount of 5,419 employees (2004: 5,212), a 4 percent year-on-year increase. The rise is attributed by EWE CEO Brinker in the main to recruitment in the I+C segment, the Gas Transmission and Trade segment, and activities in Poland. In the I+C segment alone, the number of staff rose 177 to 1,751 as of year’s end.
In the year under review, EWE implemented the legal separation (unbundling) of its network and sales operations. Of the altogether 2,339 employees at EWE AG 1,635 will probably be working at the new EWE Netz GmbH. In the Gas Transmission and Trade segment, network operation will be handled by the newly founded ONTRAS – VNG Gastransport GmbH. This involved the reallocation of VNG AG employees to this subsidiary.
In fiscal year 2005, more than 200 young people completed a craft-technical or commercial apprenticeship in the EWE Group. To give even more young people the opportunity of an apprenticeship, the proportion of apprentices was increased from four to five percent. In 2005, 19 additional apprenticeships were awarded by the Group's companies.
Research and development
EWE continued its commitment to research and development in 2005. The energy service provider has been developing a distributed energy management system (DEMS) for some years now. This system helps to optimize electricity purchasing from multiple energy sources. A prototype IT platform was set up in 2005. This platform will in future enable automated data exchange between the various information systems used by EWE and other project partners.
EWE is also promoting the market introduction of stationary fuel cells and is testing pre-series fuel cells from a rising number of manufacturers. Among others, the EWE Group has also been working together with the Australian manufacturer Ceramic Fuel Cells Limited since 2005. EWE is a founding member of the Germany-wide "Fuel Cell Initiative" and a member of a EU working group to prepare the way for the Joint Technology Initiative (JTI).
Developments in 2006 and outlook
EWE CEO Brinker expects 2006 to present the company with further challenges arising from rapidly changing markets, regulated competitive conditions, and intervention by legislators. He put the following topics high on the agenda:
- The implementing of unbundling requirements,
- Network usage fees
- Developments in electricity and natural gas prices
- Implementing a model to compete for domestic customers in the natural gas market
- The stronger marketing of natural gas as a fuel
- In the telecommunications sector competition for broadband customers, and infrastructure optimization
The EWE CEO pointed out that EWE remains one of Germany’s most competitive energy providers. "EWE will probably keep its electricity prices unchanged in 2006 in so far as prices are not impacted by higher taxes," said Brinker. Following the planned construction of an 800-MW coal-fired power station in cooperation with swb AG (Bremen) and Essent N. V. (Netherlands), EWE would also be active in electricity generation. This would provide the company with further scope for optimizing its electricity purchases, he said.
In the immediate future, natural gas prices would depend greatly on the price of oil. As of February 1, 2006 EWE had had to adjust its natural gas prices in response to higher purchasing costs, which led to a 0.38 cents increase in natural gas rates to 4.26 cents per kWh net. Brinker added that prices would also be adjusted in the Gas Transmission and Trade segment under the contractually agreed price adjustment clauses.
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