Dohler: “EWE will continue to systematically invest in the region’s future prospects”

Oldenburg, Germany, 26 April 2018. EWE had a good commercial performance in the 2017 financial year. Although its operating earnings before interest and taxes (OEBIT) of EUR 503.4 million were down almost six per cent on the previous year’s value (EUR 534.6 million), which had included a significant one-off effect, the figure was better than originally forecast. In spring 2017, EWE had expected its OEBIT to be 10 to 20 per cent lower than in the previous year. Consolidated net income for the period was satisfactory at EUR 256.1 million. As expected, it was also down on the previous year’s value (EUR 332.9 million), which had included two one-off effects that substantially increased this figure. EWE’s sales in 2017 were up around nine per cent at EUR 8.25 billion (2016: EUR 7.57 billion).

“Over the next few years EWE will continue to systematically invest in a sustainable energy supply system as well as comprehensive fibre-optic expansion right up to the doorstep – and thus strengthen the region’s future prospects,” Stefan Dohler, the Chief Executive Officer of EWE AG, announced at the company’s press conference on its financial statements. “In concrete terms, this means investments with a volume of EUR 1.2 billion in the expansion of our fibre-optic network as well as a further EUR 600 million in the roll-out of intelligent meters and the large-scale changeover from low-grade to high-grade gas.” In addition, further investments are to be made in renewable energies, mobility as well as innovative storage solutions. “We are hard at work on the rapid implementation of these projects. However, as well as weather conditions we are also faced with official restrictions, regulatory limitations and shortages in terms of civil engineering resources,” the CEO commented.

Playing a leading role in the energy turnaround while ensuring that it remains convenient for customers
Dohler characterised the energy turnaround as the key challenge for the future. Mastering this challenge means looking not only at the area of electricity, but also the areas of heat, mobility and industry. “If the goal of the energy turnaround is to reduce CO2 emissions and to halt climate change, then we as a company – but also the industry as a whole and the world of politics – must achieve a much more joined-up approach encompassing every sector.” EWE aims to play a leading role in supporting and shaping the energy turnaround. “If we are one of the first to achieve this in an integrated fashion for all four of those areas and can translate that into products and services for our customers flexibly, conveniently and fairly, then we will succeed,” Dohler is convinced.

It is also important for the overall Group to systematically look at things from an outsider’s perspective, to take up the ideas provided by interest groups and customers and to rapidly and effectively draw the right conclusions from this. This also applies for the strategic review which is currently under way and which the new Management Board aims to have completed by the summer. “We will establish a clear focus for the next few years which will enable us as a company to satisfy people with EWE’s service time and time again and to achieve economic growth. This includes exploiting the opportunities offered by digitalisation for the purpose of a dialogue and intelligently and securely linking available data for customers’ benefit,” says Dohler.

In the year under review, EWE mainly invested in regulated network business and the generation of renewable energies – the areas where the Group realises much of its operating result. Cash outflows for capital expenditure have risen to € 525.6 million, an increase of around twelve per cent on the previous year (€ 469.2 million). In terms of relevant changes in investment activities by comparison with the previous year, in particular broadband network expansion, the capital resources of the offshore wind farm TWB II and the acquisition of the onshore project developer TurboWind should be emphasised. Cash outflows for capital expenditure in Turkey declined by comparison with the previous year – this is mainly due to the acquisition of the Turkish telecommunications subsidiary Millenicom in 2016.

Of the development of the OEBIT figure in the year under review, Wolfgang Mücher, CFO of EWE AG, remarks: “All business areas contributed to the positive development of earnings in our operating business. Our network and sales business in particular made a greater contribution to earnings than in the previous year. And with earnings remaining stable in our Overseas and swb business areas compared with the previous year, we were able to largely compensate for the absence of a particularly significant one-off effect at swb.” swb restructured its company retirement benefits in 2016. The resulting one-off income (around EUR 90 million) increased the previous year’s OEBIT figure.

With regard to consolidated net income for the period, which, in addition to the operating business, covers non-operating effects as well as net interest income and taxes, Mücher says, “Earnings were satisfactory once again, enabling further risk provisioning. With regard to the result for the period, our ability to largely compensate not just for the absence of the swb non-recurring effect already mentioned, but also for the absence of the one-off effect from the sale of the VNG shares was due in part to the good results in our operating business. It was also due to positive non-operating effects in the reporting year – including lower impairments than in the previous year and impairment reversals conducted in the reporting year. In addition to this, there was a clear improvement in our net interest income.”

Although sales rose by around EUR 684 million to EUR 8.25 billion in the last financial year, the increase, which was primarily attributable to the trading business, occurred alongside a corresponding rise in the cost of materials and services. The materials usage ratio resulting from these two key indicators (sales and cost of materials and services) stood at 76.8 per cent and was therefore roughly at the previous year’s level (76.1 per cent).

The separate financial statements of EWE AG prepared according to the German Commercial Code (HGB) show a net loss of EUR -136.9 million for the 2017 financial year (previous year: EUR 103.9 million). This is due to the write-down of the EUR 349.2 million book value of the Group’s investment in Bremen’s swb AG – this has been implemented in the consolidated balance sheet in several steps since 2010. “However, due to its solid resources EWE will once again be able to distribute a dividend in the current year,” Mücher reports. “The Management Board and the Supervisory Board have therefore issued the shareholders with a recommendation to pay a dividend of EUR 88 million, as in the past.”
The average number of employees in the Group rose year on year by 86 to 9,134 (2016: 9,048). The number of full-time equivalent (FTE) positions increased by 44 to the current figure of 8,651 (previous year: 8,607). This increase was attributable to all operationally active business areas, with the exception of the swb business area. There was a significant rise in the number of employees in the area of renewable energies, due in part to the acquisition of the TurboWind onshore project developer. New employees have also been hired in the energy services business area and, due to the growing volume of consulting business, in the IT business area.

Outlook for 2018
Taking into consideration the specific developments expected within the industry, the political and regulatory environment and the continuing intense competition in the energy market, EWE expects its operating EBIT in the current financial year to be down 15 to 30 per cent on 2017, which will at most mean earnings at the level recorded in 2015. On the one hand, this expected decline in earnings reflects the fact that income from avoided network use charges will decline significantly and permanently due to the implementation of the Network Fee Modernisation Act (NEMoG). On the other hand, regulated revenue ceilings for network business will decrease. In addition, the continuing strong competition will depress the margins in the electricity and natural gas sectors. In Turkey, the energy framework and the regulatory requirements remain hard to predict.

Publication
EWE will publish its report for the first half of 2018 on 28 August 2018.

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 2,118.5 million (previous year: EUR 2,012.9 million) in the 2017 year under review. In terms of factors outside of the Group, this increase in sales mainly resulted from increased network use charges for electricity and gas as well as the increase in the volume of electricity generated by the offshore wind farm RIFFGAT following the disruption to the network connection in the previous year. Operating EBIT went up to EUR 388.8 million in the same period (previous year: EUR 333.7 million). In particular, this was attributable to positive earnings effects in relation to networks. The Renewables business area also benefited from an increase in earnings for the offshore wind farm RIFFGAT. The key compensatory factors were a decline in fluctuations in the value of gas reserves as of the reporting date and an addition to the recultivation provision in the Gas Storage business area.

Sales, Services and Trading business area
The Sales, Services and Trading business area reported a year-on-year increase in sales to EUR 4,421.1 million (previous year: EUR 3,763.9 million). In particular, this is attributable to increased sales volumes in the trading business, combined with a simultaneous rise in raw material prices. Operating EBIT increased to EUR 70.6 million (previous year: EUR 61.2 million). In the area of energy sales, in particular the absence of one-off effects such as the establishment of provisions for impending losses in connection with the operation of the network of natural gas filling stations and a funding commitment for the DLR Institute of Networked Energy Systems research centre (previously NEXT ENERGY) had a positive impact. In the telecommunications business area, the figure for the previous year had included income from composition proceedings.

Overseas business area
The Overseas business area saw a fall in sales to EUR 623.8 million (previous year: EUR 727.9 million). This decline mainly relates to the Turkish business, where income fell, principally as a result of exchange rate movements. Operating EBIT declined slightly to EUR 24.8 million (previous year: EUR 25.6 million).

swb business area
In the swb business area, at EUR 1,085.1 million sales in the reporting period were higher than in the previous year (EUR 1,058.7 million). This was mainly due to an increase in sales in the field of conventional generation. Operating EBIT declined significantly to EUR 89.3 million (previous year: EUR 165.2 million). The lower result has resulted from the absence of the above-mentioned one-off effect due to the restructuring of company retirement benefits.