ONE2ONE

Financial Management, Apr 2007

Graham Bartlett FCMA

Chief financial officer, E.ON UK

You're responsible for E.ON UK's communications. That's a bit unusual for a CFO.

It is unusual, but a lot is happening in strategy and energy policy at the moment, so we wanted a board director in charge of both strategy and how it's communicated.

A CFO does need to communicate with analysts, parent organisations and staff. My role here has never been purely about the technical ability to argue a business case; negotiation skills have been equally important. Some of the most rewarding periods of my career have involved using softer skills. I learned many of these when I was part of a team running the franchise operations of Kentucky Fried Chicken and had to listen to the views of the people who were running their own businesses. It was so different from working with employees in one large organisation.

You're also in charge of M&As. How much of your time does that take?

We've had no major M&A activity since 2003, but in October 2002 we purchased five million customers and assets from TXU, which happened incredibly fast. Within seven days we did a £1.7bn transaction and it was probably the most exciting and busy time of my career. I joined Powergen in July 1999, we became part of E.ON in June 2002 and we completed the TXU dea! only a few months later.

Was It hard at the time to convince your new parent company to spend £1.7bn on another acquisition while you were still being integrated?

Some of our competitors thought it would be impossible. I can only praise E.ON AG's board members in Germany for their support. I rang them on Monday morning and told them we needed an indicative bid by Friday. They said they'd never done anything like this before. I said: "Neither have I, so let's do it together." We had to establish a joint working team at once, so I quickly got to know them well.

How did having German owners change things?

First, I had to brief them on how the UK's energy market differs from Germany's. Then I had change how and when we produced information. They wanted a lot of data that we didn't normally gather. Also, our UK pension fund had a big deficit in 2004, and E.ON AG paid £420m into it - a big commitment from our parent to us.

Did the transition to IFRS cause you many problems?

As we reported under US Gaap to our German parent and UK Gaap for our own statutory accounts, IFRS didn't give us too many surprises. The main differences were in pensions, deferred tax, leasing and derivatives. Derivative accounting under IAS39 is different from that under FAS 133, especially in relation to own-use contracts and embedded derivatives. Leasing was an issue because some of our combined heat and power plants that were accounted for as fixed assets became leases.

The past year has seen rising energy prices and concerns about supplies. What issues create the biggest headaches for suppliers?

We monitor wholesale prices regularly and buy gas years in advance to try to protect customers from market volatility. But of course demand and prices rise when there's a cold snap. In the UK, gas enters the National Grid and is then distributed around the country. It's a highly regulated business, so you need to book the capacity in advance. You can do all the forward planning in the world, but the weather is the key to how much gas our customers use.

Since the start of 2007 the wholesale market has stabilised and, as prices have fallen, we've been able to cut our retail gas and electricity prices. But we can't get complacent. One problem is that the UK has fewer gas reserves than the rest of Europe, so prices always spike when there's a long cold period. This country traditionally hasn't worried about storage, because it relied on North Sea gas, but it's a net importer now, so we have to build storage facilities to help secure its supplies in future. We're building a new facility in Cheshire and seeking planning permission for another in East Yorkshire.

Where do you stand in the debate on nuclear energy?

I support the idea of having new nuclear power stations as part of a diverse energy mix. More than 20 per cent of the UK's generating capacity will need renewing in the next decade. We have to balance this with the need to reduce carbon emissions. Nuclear power is important because it doesn't release carbon dioxide, and it could be part of a balanced energy portfolio.

Before it can become an option for E.ON, there are many issues to address - for example, we need a long-term policy on waste, together with clear licensing and planning regulations. But I think the government will solve many of these in the next few years. Other countries are providing examples, so it's a question of finding the right solutions for the UK. and ensuring that the public understands the need for new nuclear power plants.

E.ON is strongly involved in sponsorships. What do you gain?

We've sponsored the weather forecast on ITVl for the past ten years. The British are fascinated with the weather, so that works well for us.