Dusseldorf. Eon boss Leo Birnbaum hates complicated structures. “Germany suffers from a culture of bureaucracy that rewards complexity and delegates responsibility,” the manager wrote on LinkedIn a few days ago. “This culture produces longer procedures and higher costs as a result.”
Now Birnbaum wants to slim down the organization in his own company: Last week it became known that Eon was working with the management consultancy McKinsey on a savings program called “Polaris”.
Since then, financial market players and industry members have been asking themselves: What's behind it? Thomas Deser, portfolio manager at Union Investment, says: "The Eon savings program surprised me. This raises the question of whether Eon has been doing too well so far or whether the company cannot avoid such a program for some reason."
Eon says that the savings program is nothing special and that the group is regularly monitored for possible improvements. But the timing was probably not chosen entirely by chance. Handelsblatt's conversations with insiders and observers of the company provide insights into why the austerity program is coming now - and what it is intended to achieve.
Debt is increasingly being viewed critically
The energy company has big plans and at the same time has to deal with increasingly difficult conditions. The company wants to invest 48 billion euros by 2030. A large part of this goes into expanding the power grids - Eon's most important business area.
Over the past four years, the group has expanded its investment plans by five to ten billion euros almost every year. But the huge sums bring with them increasing challenges.
Eon finances itself on a large scale through bonds. Every year the company has to pay back billions of dollars to bondholders and raise new money. This is likely to become more expensive in the future. Since the beginning of the year, the yields on Eon bonds have risen by almost one percentage point in some cases.
Portfolio manager Deser says that increasing debt is being viewed increasingly critically by investors. "Ultimately, Eon wants to continue paying a dividend and investing. This situation is likely to have an impact on the result sooner or later," he says.
The stock has already lost popularity. After a strong upward trend last year, the price has fallen slightly since March of this year. Erkan Aycicek, analyst at LBBW, comments on the development: “Compared to other energy companies, Eon’s growth potential is limited.” And adds: "At RWE, thanks to the power plants, you can benefit from the high electricity prices and the expansion of renewable energies. But the requirements in the grid business are strict."
“We have to invest massively”
In Germany, the Federal Network Agency determines how much network operators like Eon can earn from their electricity networks. The state wants to protect electricity customers such as households and industry from excessive network fees.
Because the costs of expanding and operating electricity networks change, the returns to which network operators are entitled are also adjusted every five years. Now the next adjustment is imminent: The Federal Network Agency is working on defining the rules for the coming regulatory period, which starts for electricity network operators in 2029.
Expanding the electricity grid is becoming increasingly expensive. Electricity grid connections from new power plants, data centers and industrial customers are in demand all over the world. As a result, network operators compete for important components and drive up prices.
Eon will only remain attractive to investors if the group can earn more money in the future. Management is therefore worried about what the Federal Network Agency's decision will be. When presenting Eon's figures for the first half of the year, Eon boss Birnbaum had already made it clear: "We have to invest massively, and we can only attract this capital if we can show returns on the capital markets that are competitive in international comparison - and there has to be an improvement for that."
Savings at a strategic time
None of these challenges triggered the new austerity program acutely. The program has been in preparation since the beginning of the year, as several people told Handelsblatt. The group emphasizes that the program primarily affects the Eon headquarters with its administrative functions and not the group's operating units. The goal is obviously not to make network expansion in Eon's numerous subsidiaries more efficient.
And yet the current developments resonate. Both employees and observers told Handelsblatt that it was common for network operators to implement cost-cutting measures shortly after the so-called “photo year”. The photo year is the year for which the Federal Network Agency monitors the network operators' costs. These costs will then be adopted as standard in the upcoming regulatory period. Anyone who manages to subsequently reduce their own costs can generate more returns.
2026 is a photo year for network fees in the next regulatory period. That's why it's worth working on reducing costs after the photo year. The fact that Eon wants to implement the planned savings measures from 2027 fits into the picture.
The issue of costs has been omnipresent for a long time
The photo year cannot be a direct trigger for the austerity measures - after all, the “Polaris” austerity program only affects the headquarters. However, according to insiders, the Eon subsidiaries are also encouraged to save. A spokesperson confirmed that “optimization activities are ongoing regularly and in different units.”
According to insiders, the Polaris program is also important at the group level because management has difficulty communicating to employees in the operating units that they need to become more efficient, while costs in Essen are increasing.
On the one hand, the issue of costs has been omnipresent for a long time, says one employee: “We no longer have cookies at meetings and no permanent workstations either.” On the other hand, the number of employees at headquarters has increased significantly in recent years. And that while employees in the operating units keep hearing from customers that everything at Eon is too expensive.
The company says Eon is now developing “a simpler control model for the interaction between headquarters and operational units.” Employees have heard that in the past, an employee in an operational unit sometimes accidentally received two or three inquiries on the same topic from different people at headquarters.
Eon plans to cut jobs in administrative functions. But this should happen as amicably as possible. According to company information, management is already in discussions with the works council - and the works council is probably not as opposed to the program as employees say.
The program, which is expected to achieve savings of up to 25 percent in administration, is probably not just about cutting costs - but also to a certain extent about maintaining corporate peace.
