Monday 18 March 2013

Annual report 2012 E.ON.

E.On., 2012, annual report

So today I spent some time to dig into the annual report from E.ON. SE. Lately they have been pounded pretty well by the Mr. Market. First it was in the end of 2012 mainly due to that they decided to decrease the dividend payment for 2013 to probably 50 or 60% of the profit. Then now in February/March the stock market slaughtered E.ON. again due to that their investment in Brazil is running far from smoothly. The partner that they joined up with is apparently close to or is maybe even insolvent.

After reading through the annual report there are a few things I liked and plenty of things I did not like... did not like it at all.

I liked that they have increased the money spent on R&D and that they are trying new concepts such as converting excess wind/solar power into hydrogen gas via fuel cells that will then be pushed into the gas pipes. I also liked that in opposition to 2011 they had positive earnings and since 2008 their revenue have increased by 50%. They also managed to decrease their debts substantially by divesting.

What I did not like much was that their production costs are increasing like crazy. From 2008 their productions costs have increased by 74% with a revenue increase of only 50% you are getting pretty squeezed. If you are looking only between 2011 and 2012 then the production costs increased by 19% with the explanation being... higher trading volumes... I´m sorry. You trade more and then you also end up paying 19% more. Looks like you have to fire all the traders if that is the reasons. Higher prices I can accept but higher trading volume?!
When it comes to renewable energy E.ON. only has 11.7% of which 8.7% in Germany and 14.7% in the rest. This is too low!
When it comes to CO2 emissions E.ON. is 6.6% above the EU restriction. So I guess we can expect future punishments due to that.
It is sad to see bonuses based on EBITDA and ROACE also it does no feel fully normal that the management are receiving practically 200% bonus on base salary both 2012 as well as they did 2011. Is that bonus system working as well for the shareholders as it does for the management team? I don´t feel happy.
Currently they are divesting like crazy to pay off debt but also to step into Brazil as well as Turkey. I´m not fully convinced. Will they really be able to convert those divested assets into bigger future profits? Feels a bit like finger crossed which I strongly dislike.

In "Other Operating Expenses Miscellaneous" they had a loss of 4.5 billions € where they do not declare 3.1 billion €... Not worth mentioning? I mean that was the entire profit in 2012!
Other aspects...for the last two years they have had a total loss of 1.8 billion € on derivative financial instruments.. well... if your not making a profit out of it then maybe don´t try to stick your fingers into the cookie jar!

I´m not happy with E.ON. I did however not buy it for the short run and I bought it mainly due to the dividends. I expect to continue to get a fairly good %-age there also in the future and over the years management will probably change and it can become a better company than what it is today. So I stick with it but my eyebrows are raised!

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