Energie Baden-Wuerttemberg AG : 2011 a difficult but decisive year, with EnBW actively shaping the new energy

• Unit sales and revenue up, but political decisions affecting the energy industry reduce group earnings considerably
• Efficiency programme with a sustainable effect of € 750 million, divestitures and capital measures open up investment opportunities

Karlsruhe. "2011 was a difficult year, but one that was decisive for EnBW in terms of the new energy concept. With the commissioning of Germany's first commercial offshore wind farm, the official commissioning of the new hydro-electric power station in Rheinfelden, the completion of the highest wind turbine in the northern Black Forest with a hub height of 138 metres and the implementation of the "Sustainable town of Leutkirch" project, including the related commissioning of a solar farm, EnBW developed and implemented a whole host of ground-breaking projects. These are examples of how EnBW is actively shaping the new energy concept," announced Hans-Peter Villis, CEO of EnBW Energie Baden-Württemberg AG, at this year's company press briefing on annual results.

"We will continue along this path as before, consistently, yet on a sound financial footing. The road will not be easy - as the political decisions affecting the energy industry taken in the past year have reduced our group earnings considerably and will continue to do so," added Villis.

Although EnBW was able to increase its unit sales of electricity by 6% on the prior year to 155.7 billion kilowatt-hours as well as significantly increase its external revenue by 7.3% to € 18,789.7 million, its result of operations before income taxes, financial result and investment result (adjusted EBIT) fell by some 17% in € 1,598.1 million in 2011 as a result of a material negative impact due to the new energy concept.

Adjusted EBIT in the electricity generation and trading segment fell by 20.9% to € 1,283.1 million in 2011. The negative effects on earnings arose primarily from the new nuclear fuel rod tax introduced in 2011 as well as the permanent shutdown of two of EnBW's nuclear power plants as part of the new energy concept introduced in Germany. This also led to the need to procure budgeted quantities of electricity from these two power plants that had already been sold on the forward market. In addition, higher fuel costs and the smaller spreads between the price of off-peak and peak electricity in comparison to the prior year also caused a further loss in earnings.

Despite stable earnings in the sales business, adjusted EBIT in the electricity grid and sales segment fell by 24.5% on the prior year to € 199.2 million. This was due to higher expenses in the grid area, such as connection costs for the offshore wind farms, as well as higher maintenance costs primarily incurred in the fourth quarter of 2011. At € 51.3 million, adjusted EBIT in the gas segment fell by 36% in 2011 in comparison to the prior-year level, which was primarily attributable to the sale of GESO Beteiligungs- und Beratungs-AG in the prior year. Adjusted for consolidation effects, the operating result in this segment fell by 2.5% or € 1.3 million. The volume of gas transmissions was down on the prior year due to the weather. As a result, EnBW recorded a fall in revenue from network user charges and saw earnings decrease, accordingly.

In the energy and environmental services segment, adjusted EBIT developed well in the fiscal year. Earnings increased by 71.2% to € 190.5 million, which was attributable, among other things, to our efficiency enhancement programme.

The resulting adjusted group net profit in terms of the loss/profit shares attributable to the equity holders of EnBW Energie Baden-Württemberg AG fell by 32.8% from € 964.3 million in the prior year to € 647.7 million in the reporting year.

The group net loss for 2011 in terms of the loss/profit shares attributable to the equity holders of EnBW Energie Baden-Württemberg AG amounted to € -867.3 million. In the prior year, EnBW had generated a group net profit of € 1,157.2 million.

In the fiscal year, extraordinary expenses in the area of nuclear power, expenses arising from additions to restructuring provisions, and impairment losses and other non-operating effects at entities accounted for using the equity method caused a non-operating group net loss in terms of the loss/profit shares attributable to the equity holders of EnBW Energie Baden-Württemberg AG of € 1,515.0 million. In 2010, the non-operating group net profit had amounted to € 192.9 million, with extraordinary income having a positive effect on the non-operating result.

Measures introduced to secure EnBW's investment ability and credit standing, some already successfully implemented

"The development of earnings requires rigorous countermeasures to secure EnBW's opportunities for the future. By continuing efforts already underway to increase our efficiency in the long term, selling investments that are strategically not relevant as well as initiating and implementing capital measures, we are securing the company's stability and creditworthiness," stated Villis.

Securing our investment ability by maintaining a good credit rating will remain a central target of EnBW in the coming years.

"We want to reduce adjusted net debt and increase operating performance in order to maintain EnBW's sound financial position with a view to retaining our A rating. Increasing our efficiency, divestitures and capital measures are the three key leverages for achieving this. In light of this, we are pleased that we were able to reap such notable successes from these measures in only the first few months of 2011," commented Thomas Kusterer, CFO of EnBW Energie Baden-Württemberg AG.

Under the "Fokus" efficiency programme, EnBW has already been able to implement measures of some € 190 million and generate or contractually agree on divestitures of some € 500 million. In addition, the hybrid bond of € 750 million issued in October 2011 was a considerable success on the capital market. Half of the volume of the bond will be treated as equity by rating agencies over the next few years.

As a further capital measure and expression of its sound financial policy, EnBW is planning to increase equity again in 2012. "The inherent trust of our shareholders in their company, the measures we have implemented and the strategic alignment of EnBW will strengthen the company in the long term and help secure its competitiveness and therefore its sustainability for the future," said Villis.

Orientation towards renewable energies and low-carbon generation

Gradual, well-planned restructuring of the generation portfolio is of decisive importance for the company's future sustainability. In this regard, EnBW is focusing its efforts on its low-carbon generation capacities and, as part of its efforts to expand renewable energies, is placing particular focus on wind and hydro-electric power in Germany.

"Efforts to restructure the German energy system can only succeed if the expansion of renewable energies is accompanied by us maintaining our high degree of supply reliability. And for us, the pending restructuring of the generation portfolio is associated with central large-scale power stations and local energy generation. It is not a question of either the one or the other, for us," said Villis.

EnBW is pressing ahead with the expansion of local energy generation, primarily in the area of renewable energies. It is setting up holistic products - for example the "sustainable town" approach - and provides operating functions, such as invoicing and settlement systems, as services to third parties.

Investments in Germany and Baden-Württemberg
Investment focus for renewable energies remaining on wind and hydro-electric power

Only a few weeks ago, EnBW put into operation the first wind turbine in the Freudenstadt district (Schopfloch) in the Northern Black Forest with a hub height of 138 metres. EnBW was also given permission for another project, the Berghülen wind farm in the Alb-Danube district. EnBW is also reviewing or in negotiations about some 100 locations for the construction of around 400 wind turbines. EnBW has already secured 22 of these 100 or so locations for the construction of wind turbines in Baden-Württemberg.

"EnBW is well positioned for the expansion of renewable energies and the new energy concept. We have a full pipeline of projects, and the expansion of renewable energies is making noticeable progress," said Villis.

With regard to the financial burdens prevailing this year and with a view to the nationwide "Fokus" efficiency programme, the Board of Management will, in consultation with the Supervisory Board, propose to the 2011 annual general meeting that a dividend of € 0.85 per share be distributed. In the prior year, a dividend of € 1.53 per share was distributed. "With the dividend proposed for 2011, the shareholders are making a significant contribution towards maintaining EnBW's credit rating and thereby strengthening the company's ability to invest," commented Villis.

At a glance

1 Prior-year figures restated.
2 In relation to the loss/profit shares attributable to the equity holders of EnBW AG.
3 Free cash flow before financing activities.
4 Without cash and cash equivalents of the special funds and short-term investments to cover the pension and nuclear power provisions.
5 Number of employees without apprentices and without inactive employees.