More than a year on from the Fukushima disaster in Japan, Germany’s two major utilities are beginning to recover some of the financial clout lost by the snap decision to phase out nuclear energy, but their ‘E.On 2.0’ and ‘RWE 2015’ strategies have differed wildly.
In the race to revenue after a torrid 2011, E.On – the clear Goliath – is already streaking ahead to the finish line, while RWE – the David of this act – is still struggling to streamline its excess weight in the form of job cuts and divestments.
Both companies are classic competitors; each serves the German market with subsidiaries across Europe, both are based in the industrial heartland of the Rhineland, both have highly political pipeline assets in development, and each face the same gas price challenges affecting Europe.
However, the publication of half-yearly (H1) financial data by the companies on successive days this week illustrated very different reactions to these challenges. E.On posted a 230% increase in net income, with Chief Executive Johannes Teyssen saying challenges had been met and that the company’s gas business is “no longer a strategic work in progress”.
Conversely, RWE said it is looking to shed 2,400 jobs across the business, with new Chief Executive Peter Terium saying “the present framework conditions are anything but favourable”, in a statement outlining a gas sales slump of 11%. RWE did still post a 9% rise in initial earnings though.
The reasons for this disparity are plain to see. The outlook for both is based on the result of long-term contract negotiations with continental gas suppliers. E.On has managed to secure landmark deals with each of its suppliers, including a retrospective agreement with Gazprom worth €1.2 billion ($1.48 billion) in a one-off rebate registered in H1.
RWE reached a similar retrospective deal with Statoil this year but is still negotiating with its Dutch and Russian suppliers, accounting for 11 billion cubic metres of purchases. Without functioning contracts in place, RWE is suffering from crippling margins at its gas business, driving profits down.
The German government’s decision last year to phase out nuclear generating plants in the country hit both firms hard. E.On posted its first ever loss in 2011, as a result of the one-off cost, and both companies are to seek combined damages of €10 billion if German courts uphold their claim that the decision was unlawful.
While analysts remain positive that the financial future of both looks bright, E.On’s quick return to form only serves to accentuate RWE’s stuttering recovery. E.On has bounced back quickly, aided by its close relationship to its Russian suppliers and an increase in sales revenue. RWE is focusing more on efficiency within the company.