10 Dec 2014

E.ON‘s CEO Johannes Teyssen: E.ON will remain committed to Russian partners

Germany‘s E.ON is spinning its Russian business off to a "New Company" which will be transferred to the company‘s shareholders, with plans to list it in 2016. Apart from the Russia business, the new company will receive all of E.ON‘s conventional energy assets. E.ON itself will focus on renewable energy and innovation. Johannes Teyssen, E.ON‘s CEO, told Interfax in an interview of the logic behind the decision and its implications for the concern‘s Russian subsidiary OJSC E.ON Russia.

Interfax: You recently announced the restructuring of the business, which directly concerns the Russia-based assets. Will E.ON continue its partnership with Russia? Johannes Teyssen: Irrespective of our strategic repositioning, E.ON will not pull back from Russia and will remain committed to its Russian partners. This is also clearly reflected in the future set up of E.ON.

Russia will be a key region for the New Company. All power operations in Russia, including distributed energy, will be assigned to the New Company. In terms of electricity generation and utilisation, E.ON Russia is and will continue to be one of the leading energy producers in Russia. The company has the most efficient facilities in the Russian electricity market. Our power plants are located in rapidly growing regions with rising energy requirements.

Q.: What is the strategic logic behind the new setup resulting from E.ON‘s new strategy?

A.: Our strategy review process has shown that there is a new energy world emerging alongside the conventional energy world around large-scale electricity generation, upstream and midstream gas supply and trading. Hence we have decided to split E.ON into two focused, publicly listed companies in 2016 with initially the same owners. The future E.ON will focus on the "new energy world" with renewables, power and gas distribution, and customer-oriented energy solutions as its pillars. The New Company will concentrate on the "conventional energy world". Its pillars will be power generation, upstream and midstream gas, and commodity trading.

Both companies will be financially solid and have the potential to become leading players in their chosen fields: E.ON will provide sustainable energy in a customer-centric business model; the New Company will provide security of supply for societies. For that purpose, it will take over our large industrial gas customer base and position itself as a key player in gas trading, infrastructure and sales in Europe. We also believe that this New Company could act as a consolidation platform for other players. With more than 50 gigawatts of installed capacity, the New Company will be a leading power producer in Europe and Russia.

Q.: Why did you go for a spin-off and not for a sale?

A.: We have thoroughly assessed all options to execute our strategy. We are convinced that a spin-off is the better alternative for all of our stakeholders: It allows the New Company to continue to exploit the strong synergies between its businesses. The New Company will offer a unique platform for consolidation in the conventional energy world. It provides significant upside potential which stems from a recovery in commodity prices and spreads and from expected regulatory reforms. The formation of the New Company with its distinct profile is much more value-creating for our shareholders and also much more promising for our employees than disposing of the respective assets individually step-by-step or in a big disposal program. The E.ON shareholders will be able to choose after the spin-off in which of the businesses they would like to be invested.

Q.: Is the Yuzhno Russkoye field a part of the E&P disposal?

A.: There is a strong logic in keeping our Russian E&P business in Russia in the spin-off unit, in other words our Russian power company, our upstream investment in Yuzhno Russkoye with Gazprom as well as our long-term gas contracts with Gazprom. It is particularly important to have a holistic business approach to our activities in Russia. We will conduct a strategic review of our E&P business in the North Sea.

Q.: Can you describe the two entities‘ dividend policies? Will the spin-off influence the current dividend policy of E.ON Russia? How?

A.: The dividend is important to E.ON. We therefore intend to suspend our current dividend policy for E.ON SE for the 2014 and 2015 financial years and replace it with a fixed dividend. The policies of the two new entities have not been defined yet, but we have a clear understanding of their characteristics. The New Company‘s dividend policy should not be related to underlying net income any more. We believe the relevant KPI driving it should be the free cash flow.

For the future E.ON we are targeting an attractive, growing dividend starting from a solid base. Whether the underlying net income will be playing a role in the policy to be defined still remains to be seen. We will take our time to understand what our investors think about an adequate policy for such a company and then take a decision at the right point in time.

Q.: On which stock exchange will the shares of the new company be listed?

A.: It is too early to answer that for the New Company. The listing of E.ON Russia will not be affected.

Q.: After the change of a major shareholder, is it necessary for E.On to make an offer to minority shareholders and then buy their shares?

A.: All E.ON Russia shares will stay at E.ON Russia Holding GmbH as direct shareholder. E.ON holds currently 83.7 % of E.ON Russia. This holding company will be part of the New Company. It will not be necessary to make a takeover offer to minority shareholders of E.ON Russia.