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Deep cuts

August 10, 2011

German energy giant E.ON is planning to cut up to 11,000 jobs in response to Berlin's nuclear phase-out policy. The debt-ridden company posted a historic second-quarter loss, and says it needs to cut costs quickly.

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nuclear plant Staudinger
E.ON blames Germany's nuclear phaseout for its lossesImage: picture-alliance / dpa

Germany's biggest energy group E.ON confirmed it plans to cut 9,000 to 11,000 jobs worldwide after posting its first-ever quarterly loss on Wednesday.

E.ON recorded an adjusted net loss of 382 million euros ($544 million) in the second quarter of 2011, from April to the end of June.

The first half of this year has seen the company's net income decrease by 71 percent to 900 million euros. Managers attributes the poor results to the federal government's decision to phase out nuclear power by 2022, and to the tax on nuclear fuel introduced last year.

As a result, E.ON reduced its profit outlook for 2011. The energy giant now anticipates an adjusted net income of 2.1 to 2.6 billion euros.

In order to cut costs over the next years, CEO Johannes Teyssen said the the company's board needed to make deep job cuts, primarily in administrative areas.

"We cannot afford any unnecessary management levels, processes, and duplication of work," Teyssen said when presenting E.ON's half-year results in Dusseldorf.

The head of the works council, Hans Prüfer, criticized the idea, telling Reuters news agency that while it was necessary to cut costs, E.ON was missing opportunites for growth.

Johannes Teyssen
Johannes Teyssen said the cuts would mainly hit administrative jobsImage: AP

Germany's biggest energy company is laboring under 45 billion euros ($64 billion) of debt as it prepares to shut down its six nuclear power plants and end its involvement with five others.

Analysts say the looming loss of income from the lucrative Isar 1 and Unterweser nuclear plants is a major problem for E.ON, as are unfavorable contracts with the Russia's state-run energy giant Gazprom, which supplies E.ON subsidiary Ruhrgas.

Wide range of estimates

Labor representatives have been shocked by the sheer number of jobs said to be at risk. Previous reports indicated only several hundred positions were on the chopping block.

But over the weekend, the Süddeutsche Zeitung newspaper reported on company plans to slash about 10,000 jobs worldwide - or more than 10 percent of its total workforce.

"We're completely distraught that these numbers are being circulated, and it makes me sorry that (E.ON) workers have to read or hear them over breakfast," works council head Hans Prüfer said Saturday.

E.ON's main competitor RWE, which also strongly opposed the government's accelerated nuclear phaseout, saw its net income decline by almost 40 percent to 1.7 billion euros in the first six months of 2011. The Essen-based energy company lowered its earnings forecast, but is not planning to cut jobs.

Market observers say Germany's decision to shut down its nuclear reactor has been nothing but bad news for investors with stakes in major utility companies.

"I believe an era of atrocity has been opened," said Marc Tüngler of the German Protection Association for Securities Holding (DSW). "The nuclear phase-out is showing its ugly mug in the numbers of E.ON and RWE."

Author: Andrea Rönsberg, Gerhard Schneibel (dpa, Reuters, AFP)
Editor: Sam Edmonds