Measures to consolidate and reorganise the Group have positive effects

Karlsruhe. EnBW Energie Baden-Württemberg AG intends to return to the black in financial 2004 and to successfully conclude the disinvestment programme launched in 2003. These were the objectives outlined by Prof. Dr. Utz Claassen, CEO of EnBW, at the ordinary AGM of the company in Karlsruhe. Following a comprehensive situation analysis and the rapid creation of full transparency, the Group was able to speedily and systematically implement measures to consolidate the corporate finances and to reorganise its structure. These measures enabled the management to reduce the substantial earnings risks identified for 2003, to secure the financing structure for business operations and to greatly improve the cost structure of EnBW. "Most of the inherited burdens that negatively impacted the 2003 result have been absorbed in the balance sheet, and the excellent figures for the first quarter of 2004 not only give cause for optimism with regard to the future success of the company but also underline the necessity and appropriateness of the implemented measures ", said Prof. Dr. Claassen.

2003 operating results

Looking back on the 2003 result, Prof. Dr. Utz Claassen once again explained why it was necessary to underpin the long-term operating strength of EnBW. As has already been reported, EnBW's earnings figures for 2003 were unsatisfactory - in line with expectations. 2003 Group earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 11 percent compared to the previous year to 1.01 billion euros. Earnings before interest and tax (EBIT) were down by 584 million euros to minus 190 million euros (previous year: 394 million euros), and earnings before tax (EBT) fell to minus 1.1 billion euros (previous year: minus 134 million euros). "Inherited burdens" and one-off effects negatively impacted EBT to the tune of around 1.33 billion euros.

In contrast, EnBW succeeded in increasing Group sales last year by 25 percent to 10.6 billion euros. Revenues in the Electricity division were up from 6.1 billion euros in 2002 to 7.4 billion euros in 2003, while gas sales increased from 534 million euros (2002) to 1.4 billion euros in 2003 and revenues in the Energy and Environmental Services division rose from 434 million euros (2002) to 538 million euros last year.

Reorganisation and consolidation measures generate positive effects

Operating results also showed a clear upward trend during the second half of the year. Having recognised the dramatic nature of the situation, the new Management Board under the new CEO implemented a systematic turnaround strategy and launched a fast-acting and long-term catalogue of measures. The TOP-FIT concept was developed into a fully fledged programme, the Group structure was substantially streamlined, loss-makers were identified and eliminated step by step, and the operating capability of the entire Group was significantly boosted along the value added chain. The success of these measures became rapidly apparent and is reflected in the greatly improved operating result for the second half of 2003: after 329 million euros in the first half of 2003, EBITDA showed substantial growth to 685 million euros in the second half of the year, while EBIT increased from minus 513 million euros (1st half) to 323 million euros and EBT improved from minus 927 million euros (1st half) to minus 167 million euros in the second half of 2003.

Prof. Dr. Utz Claassen: "Had it not been for these measures, we would almost certainly not have been able to maintain the A rating last year that is so important for the capital market, and this would have posed a risk to the competitiveness of the company. Today, thanks to the policy of consolidation and reorganisation, EnBW has succeeded in greatly improving its earning potential in relative terms."

Positive key figures for Q1 2004

This is reflected in particular by the key figures for the first quarter of 2004. Sales for Q1 2004 remained unchanged from the same period last year at 2,843 million euros. In its core business area, however, EnBW succeeded in increasing first quarter sales by 7.8 percent from 2,501 million euros to 2,696 million euros.

As the special factors the Group had to absorb in financial 2003 and that led to a negative pre-tax result of minus 1.1 billion euros as at December 31, 2003 only became effective in the 2003 half-yearly accounts, the first quarters of 2003 and 2004 are directly comparable in terms of earnings. In Q1 2004, earnings before interest, tax, depreciation and amortisation (EBITDA) were 31 percent up on the corresponding period last year, while earnings before interest and tax (EBIT) showed an improvement of 27 percent on the same period in 2003. Earnings before tax (EBT) almost doubled from 125 million euros in Q1 2003 to 244 million euros in the first quarter of 2004. Post-tax earnings were also up by 273 percent in the first quarter to a new total of 123 million euros.

Operating cash flow more than tripled from 69 million euros to 247 million euros, while investments in intangible and tangible assets were approximately halved. The consolidation and reorganisation measures implemented within the Group in the second half of 2003 boosted free cash flow - currently the most significant parameter from our point of view - from minus 541 million euros in Q1 2003 to 471 million euros in the first quarter of 2004.

This indicates a swing of more than 1 billion euros between Q1 2003 and Q1 2004, an impresive figure that would still result in first quarter earnings well in the black even after notional adjustments for beneficial one-off factors in 2004. The equity ratio, which was at 6.1 percent as at December 31, 2003, also climbed back up to 7.2 percent by the end of March 2004.

Prof. Dr. Claassen: "Without wishing to overstate the value of the figures, it is fair to say that this first quarter result confirms the positive overall trend and creates an incentive and an encouragement for EnBW to push ahead with the current strategy. Our aim is to consolidate these results, and this will continue to require our very best efforts."

TOP-FIT programme and disinvestment prove successful

With a view to the current financial year, EnBW sees its top-priority goals as being the conclusion of the disinvestment programme, a further improvement in the equity ratio, a return to a positive free cash flow, a reduction in debt levels and the systematic implementation of the TOP-FIT programme. Overall, the TOP-FIT programme has identified around 1,100 measures within the Group to date with an estimated long-term cost reduction potential of over 940 million euros. These measures are to be implemented on an ongoing basis in the period up to 2006. Further measures are currently being drawn up. The programme was already well above target in 2003 with a period-effective figure of 117 million euros and therefore made an important contribution towards improving the operating efficiency of EnBW.

In this connection, Prof. Dr. Claassen once again made special mention of the pay agreement reached at the end of February 2004. He said that this agreement was the result of the far-sighted and responsible attitude of the bargaining parties towards the future of the company; it is expected to generate medium-term savings of up to 337 million euros, thereby making a key contribution to the recovery of EnBW while ensuring a socially sensitive personnel reduction policy.

The programme initiated in 2003 to streamline EnBW's investment portfolio originally comprising 395 holdings has played an equally important role in underpinning the long-term success of the company. The Group was quick to identify 166 companies that could be sold, merged, integrated in partnerships or deconsolidated by other means. This process is currently being systematically implemented in line with the motto "caution and quality before haste". Well over half of the earmarked companies have already been deconsolidated, and a further 11 have been added since our balance sheet press conference on March 5, 2004. As a result, the headcount of the EnBW Group has fallen from its high at the end of December, 2001 to 24,085 as of March 31, 2004. The speedy ongoing implementation of the portfolio streamlining policy will continue to reduce this figure at a rapid pace - but it is important to note that this will not result in lost jobs but merely in a change of company and hence employer.