EON Says Energy Industry Downturn May Hit Future Dividends

  • CFO says utility must draw conclusions from industry downturn
  • Reiterates dividend payment of 50 euro cents for 2015

EON SE, Germany’s largest utility, said the downturn in the energy industry is a “reality check” for the company’s investment strategy and its dividend policy in coming years.

While the Essen-based company is sticking to its plan to pay a 50 euro cents-a-share dividend for 2015, “this is a glimpse in the rear-view mirror,” Chief Financial Officer Michael Sen said in an interview on Friday. “We see a considerable economic deterioration that won’t remain without consequences. Wholesale prices are at an all-time low and oil prices have fallen significantly.”

Open questions also remain in the debate about funding the decommissioning of nuclear power plants in Germany as the country phases out atomic energy, Sen said.

“We have to draw our conclusions from this and examine carefully what the consequences will be for our internal financing power, investment budget and our dividend policy,” he said. “If I look to the future, it’s imperative that we make regular reality checks, these days more than ever, on our assumptions and our ambitions.”

Shares Fall

EON shares fell 4.5 percent to 8.49 euros at the Frankfurt close, making it the biggest loser in Germany’s benchmark DAX Index. Analysts at Bloomberg Dividend Forecasting estimate EON’s dividend for 2016 at 50 euro cents a share, increasing to 52 euro cents for 2017.

Chancellor Angela Merkel’s unprecedented shift to renewable energy has squeezed margins at traditional coal and gas plants in Europe’s biggest power market. Utilities are also putting aside billions to pay for the decommissioning of reactors, which will be shut by 2022.

As a consequence of the country’s nuclear exit, EON separated its operations from Dusseldorf-based Uniper SE on Jan. 1 in preparation for a stock-market listing in the second half of this year. Uniper operates the power generation, energy storage and global commodities part of the business while EON is focusing on renewable energy and distribution grids.

EON posted its biggest quarterly loss in the three months ended Sept. 30 as the German utility wrote down the value of power generation assets by billions of euros.

Sen’s comments follow the decision by EON’s rival RWE AG this week to cancel the dividend on its common shares as plunging electricity prices forced the company to write down the value of its power plants in Germany and the U.K.

Sen also distanced himself from comments in September that Uniper has the potential to pay a high dividend.

“Half a year ago, the world looked different,” he said. “The underlying conditions have worsened dramatically in the meantime. This has unavoidably reduced the opportunities to earn money.” Consequences may include further plant shutdowns, he said.

“If power plants fail to make money for a sustained period of time, we must and will act,” Sen said.

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