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27.04.2017 - EWE AG

EWE: good financial year with satisfactory result

Consolidated net income for the period up significantly, partly due to non-recurring items

Oldenburg, Germany, 27 April 2017. EWE closed the financial year 2016 with a satisfactory result: consolidated net income for the period recovered significantly year-on-year to EUR 332.9 million (previous year: EUR -9.4 million). Operating earnings before interest and taxes (OEBIT) came to EUR 534.6 million, a sharp increase on the previous year (EUR 428.1 million). EWE reduced its financial liabilities by some EUR 800 million in the reporting year. Its cash expenditure fell year-on-year from EUR 666.9 million to EUR 469.2 million. Sales declined in the same period to EUR 7.57 billion (previous year: EUR 7.82 billion). EWE is expecting operating EBIT for the current financial year 2017 to fall by 10 to 20 per cent due to the absence of one-off effects.

“2016 was a good year for EWE, with a stable operating business and two non-recurring items: among other things, the significant improvement in consolidated net income is due to the successful sale of our shares in VNG in Leipzig. Then there is the earnings contribution of some EUR 90 million from restructuring retirement benefits at swb AG,” explains Wolfgang Mücher, CFO of EWE AG. “This restructuring is responsible for the bulk of the increase in operating EBIT,” adds Mücher. Looking at the financial year 2016, the CFO emphasises: “Earnings were satisfactory on the whole and that allowed us to manage risks, significantly reduce our liabilities ahead of time and therefore also lower future burdens considerably.”

Sales drop due to price reductions
The decline of EUR 253 million in Group sales was partly due to reduced prices for private customers at the start of the reporting year and lower natural gas sales.

Cash outflows for capital expenditure were almost EUR 200 million lower year-on-year at EUR 469.2 million (previous year: EUR 666.9 million), primarily because EWE did not have any major financial capital expenditure compared with the previous year. Back in 2015, the Group acquired additional shares in VNG AG for nearly EUR 206 million in order to increase its chances of a successful sale of a larger and therefore more attractive stake.

The average number of employees in the Group rose by 194 year-on-year to 9,048 (previous year: 8,855), primarily due to the acquisition of a foreign telecommunications company. The slight increase in the number of employees in the operating business areas was offset by a decrease in employee numbers at the Group’s corporate centre.

Outlook for 2017
EWE expects competition in the energy and telecommunications markets to remain very tough in 2017. Regulatory demands and energy policies will ensure that the generation and network businesses remain under pressure. Operating EBIT for the current financial year is therefore expected to be up to 20 per cent lower – so net income should be at least on par with 2015.

2026 strategy
Based on the strategy adopted in the last financial year, EWE intends to have created the leading utility company in the north of Germany by 2026. “We are increasingly focusing our energy business on decentralised renewable energies. In addition, digitisation is not only making comprehensive customer orientation necessary, but also opening up new opportunities for this and for greater efficiency in all of the business areas,” explains Mücher, naming some concrete examples of the restructuring: “We will increasingly offer attractive products and services beyond the limits of our home market and will exploit digital innovations, drawing among other things on the experience and digital expertise of new partners and company investments in this area”.

Compliance audits
The ongoing in-depth review of charges levelled at the Group subsidiary EWE NETZ (compliance breaches) will continue independently of the operating business, says Mücher. “We take advice and criticism very seriously and make comprehensive and unquestioning checks. Accuracy is more important than speed here – the main thing is that we are able to clarify all the facts and take decisions on this basis,” Mücher announced, adding that the appointed external auditors are expected to present their definitive assessment this summer. “Although there are currently no signs of our operating business being impacted, which we continue to develop very successfully on the basis of our 2026 strategy, we are systematically working on making EWE more transparent and on improving our processes. We have already taken some initial steps to improve our compliance, including providing better resources in this area in the future and making training mandatory for all the employees.”

Integrated company report
The report on the financial year 2016 is the first so-called integrated report comprising both financial and sustainability reporting. This makes it possible to illustrate how financial and non-financial value drivers contribute to EWE’s business success. In order to meet the stakeholders’ changing information needs more effectively, the 2016 integrated report also looks at the company’s strategic restructuring and vision, and EWE’s responsibility as a regional utility company. Structured on the basis of the resources environment, employees, social matters and relations, systems and networks, expertise and finance, the report outlines how EWE creates value for businesses, the environment and society. As such, it continues in the same vein as EWE’s sustainability reporting to date. It is based on the recommendations of the International Integrated Reporting Council (IIRC) and complies with the international G4 Core guidelines of the Global Reporting Initiative (GRI). The integrated report contains information specific to the energy and telecommunications sectors.

Date: EWE will publish its 2017 interim report on 29 August 2017.


A look at the individual business areas

Renewables, Network and Gas Storage business area
In the Renewables, Network and Gas Storage business area, external Group sales rose to EUR 2,012.9 million (previous year: EUR 1,951.8 million). The increase was mainly due to higher network use charges for electricity and gas. Operating EBIT went up to EUR 333.7 million in the same period (previous year: EUR 314.4 million). 2016 was a poor year for wind, which depressed earnings contributions for the onshore and offshore wind farms. A positive effect from the measurement of natural gas storage volumes as of the reporting date and a positive year-on-year change in earnings from network operations were nonetheless able to make up for the negative development in wind income. Cash outflows for capital expenditure were slightly lower year-on-year at EUR 240.3 million (previous year: EUR 257.4 million). They therefore accounted for more than 50 per cent of the Group’s capital expenditure. The number of employees increased by 38 to 2,079 (previous year: 2,041).

Sales, Services and Trading business area
The Sales, Services and Trading business area reported a year-on-year decline in sales to approximately EUR 3,763.9 million (previous year: EUR 4,053.4 million). This drop in external sales of almost EUR 290 million was primarily due to price reductions and lower natural gas sales. Operating EBIT fell to EUR 61.2 million (previous year: EUR 80.4 million). Among other things, lower gross results in the electricity, gas and heat sectors were responsible for this decline in earnings. Capital expenditure was slightly down year-on-year at EUR 75.6 million (EUR 80.6 million), while the employee headcount increased by 25 to 3,213 (previous year: 3,188).

Overseas business area
The Overseas business area saw a fall in sales to EUR 727.9 million (previous year: EUR 759.4 million). The decline mainly related to the Turkish business, where income fell, principally as a result of exchange rate movements. Operating EBIT was up slightly at EUR 25.6 million (previous year: EUR 25.3 million). The improvement stemmed primarily from higher gross income in the Polish natural gas business. EWE increased its capital expenditure in overseas business by EUR 20.5 million in the year under review to EUR 51.0 million (previous year: EUR 30.5 million). The number of people employed in the Overseas business area went up by 133 to 965 (previous year: 832). This increase was primarily due to the acquisition of the Turkish telecommunications company Millenicom. With its entry into the telecommunications business in Turkey, EWE succeeded in increasing the number of its telecommunications customers by almost 146,000 by the end of the year.

swb business area
Sales in the swb business area came to EUR 1,058.7 million in the reporting period, roughly on a par with the previous year’s figure of EUR 1,052.1 million. The slight increase was primarily the result of higher revenue in the distribution of electrical energy. Operating EBIT was up significantly at EUR 165.2 million (previous year: EUR 90.3 million). The year-on-year improvement in earnings is mainly due to the restructuring of retirement benefits, resulting in a one-off effect in the amount of approximately EUR 90 million. At EUR 77.9 million, capital expenditure in Bremen and Bremerhaven was essentially on a par with the 2015 level of EUR 77.6 million. Meanwhile, swb’s employee headcount increased by twelve year-on-year.