Thursday, March 17, 2016

E.On annual report 2015

E.On, report, 2015, annual, front page

The report from E.On is out and the reading is not pretty. Each time when I read the reports from E.On then there is always a quote from Munger that keeps poking my brain regarding EBITDA in which he responded to a statement from Buffett during the Berkshire Hathaway shareholders meeting by saying:

“I think that, every time you saw the word EBITDA [earnings], you should substitute the word “bullshit” earnings. People who use EBITDA are either trying to con you or they’re conning themselves. Telecoms, for example, spend every dime that’s coming in. Interest and taxes are real costs.” - Charlie Munger

What makes things even worse is when managers bonuses are tied to EBITDA. It is simply a very unhealthy way for the shareholders to unjustifiable enrich incompetent managers. The theory behind a bonus tied to EBITDA is, especially for high investment business, that the managers will not fear to keep up the maintenance and investment needed to cover the depreciation but on the other hand... if you as the board feel that you need to force the CEO by such bonuses to guarantee that he or she will make a correct job with future investment well then please do not hire that person. It is as easy as that.

For the report in full please go here and to see my previous summary please visit E.On report Q3 2015 and to find out more about E.On then please go to analysis of E.On 2015 (a new one will arrive shortly).

I only wanted to push this little piece forward due to the previous statement from Munger. The #2 stands for adjusted. So... if EBITDA is equal to bullshit earnings what is then adjusted EBITDA? Additionally a difference of 8.6 billion € between whatever adjusted EBIT value they attempt to present and the Net loss is an outrage.

Munger on EBIDTA

Below in the financial statement I must say that the increased revenue pleases me. They have during difficult times managed to push up their sales by 2.6% to over 117 billion €. The material costs have unfortunately increased by over 4% which takes away all the potential gains from the gains. Heavy impairment costs were taken during the year, we should even say that once again heavy costs were taken. The end result of -6.3 billion € is a real smack in the face but we already new this from the previous quarter report. That of course does not make it ok but at least it was not new news.

E.On, 2015, financial statement

Conclusion: As I have mentioned before these costs have, in my opinion, been all about dressing the bride for the wedding. If I am wrong on that one then I should be very scared of this holding. The two companies now already exists and I have already seen advertisement from the new company Uniper (to check it out please click on the link). I will remain a grumpy shareholder in E.On.

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