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Europe's utilities see heavy churn as a dozen CEOs depart in less than 2 years

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Europe's utilities see heavy churn as a dozen CEOs depart in less than 2 years

On Dec. 15, the supervisory board of E.ON SE said it would replace its CEO, Johannes Teyssen, once his term expires at the end of March 2021. Teyssen has steered the German utility through a tumultuous decade, including Germany's nuclear exit and a €40 billion deal that reshaped the company into one of Europe's largest grid operators and energy suppliers.

His imminent departure will also make him the latest in a long line of chief executives headed for the door at European power and gas companies. This year, 12 of 25 of the largest public and private energy utilities have switched leaders or announced that their CEOs will leave before the end of 2021.

While many are handing over the reins after successful strategic turnarounds, some are leaving under more contentious circumstances. Engie SA ousted its CEO earlier in 2020 over reported quarrels with the board surrounding the sale of gas assets. EDP - Energias de Portugal SA and its listed subsidiary, EDP Renováveis SA, parted ways with their long-running chief executives amid allegations of corruption.

For almost all of the companies, the past few years have capped a fairly monumental shift that saw the industry begin to get out of fossil fuels, chiefly coal, and embrace renewable energy. Looking for more future-oriented business models, companies have also invested in a range of new technologies, from battery storage to hydrogen.

While that transformation is still far from complete, the course has largely been set, said Andrew Moulder, an analyst at CreditSights who covers the European utility sector.

"I don't think the transition is finished ... but the first stage of it is probably done," he said in an interview. "Now the next guys come in and need to decide, how do we take this forward?"

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That decision will come easier for some than others.

At Ørsted A/S, the consensus is that Henrik Poulsen, who surprised the market with his planned exit in June, is leaving his successor with a winning formula. After joining the company in 2012, Poulsen sold its upstream business, changed its name from Danish Oil and Natural Gas and remolded Ørsted into the world's largest offshore wind developer, multiplying its valuation many times over in the process.

"The company has come a long way in transforming itself," Poulsen told analysts on a call after announcing his resignation. "I felt if I wanted to go do something else in my life, now was probably a pretty good time to do so."

Similarly, things are unlikely to change much at E.ON and RWE AG. The two utilities have just completed a wide-ranging asset swap, leaving E.ON with a vast network of power grids and RWE with one of the largest fleet of power plants in Europe, including a growing share of renewables but also a legacy coal business that will be dissolved over the next 15 years.

Before the ink dried on the paperwork wrapping up the last parts of the deal, RWE CEO Rolf Martin Schmitz said he was considering stepping down, saying the company was on a new footing and thus ready for fresh leadership. A few months later, RWE announced that current CFO Markus Krebber will take over in July 2021.

"RWE is moving in a very different direction from what it was before they broke up the business," Moulder said. "In the German sector, we've seen a lot going on over the past few years."

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Anna Borg has become only the second woman to lead a major European utility.
Source: Vattenfall

Moulder added that Schmitz might have had an easy time making his decision since he has a suitable successor in Krebber, who is well liked in the financial community. Schmitz and Teyssen are also both nearing retirement age and, for some, spending more time with their families this year might have provided an added push.

"In some instances, the [COVID-19] situation has made people perhaps reconsider the direction that they wanted their life to take," Moulder said.

The average longevity of chief executives in the sector was already declining before this year's wave of exits. Counting announced departures, 17 of the 25 CEOs will have been in the job for five years or fewer at the end of 2020. The longest-reigning chief executive, Iberdrola SA's Ignacio Galán, will celebrate his 20-year anniversary in 2021.

And despite the likely unprecedented churn rate, only one woman, Vattenfall AB's Anna Borg, has been promoted to lead a major European utility. With Catherine MacGregor succeeding Isabelle Kocher at Engie, that means the number of female CEOs has merely doubled from one to two.

The number of female CFOs in the industry has remained flat at five since Vattenfall promoted its head of human resources, Kerstin Ahlfont, to the role. A handful of jobs, including the CEO roles at EDP and EDP Renováveis, have not yet been permanently filled.

Muddier waters

Although many are expected to merely continue business as usual, a number of incoming CEOs will face a somewhat trickier task. On the flip side, they could also have a bigger effect on shaping corporate strategies.

At Engie, MacGregor will need to hash out the details of a strategic review the board announced in July, which could see the company sell or spin off up to two-thirds of its energy services business.

Britain's Centrica PLC, where former finance chief Chris O'Shea has taken over from Iain Conn, is also looking at several high-profile disposals. The company has resumed talks to sell its oil and gas exploration business Spirit Energy Ltd. and also wants to sell its stake in the U.K.'s nuclear power plants.

The company still faces a number of other challenges, such as growing in the cutthroat British supply market and managing working capital once COVID-19 support mechanisms run out in 2021, according to analysts at Berenberg.

Tt Finland's Fortum Oyj, Markus Rauramo, another CFO-turned-CEO, is working to integrate German power producer Uniper SE after a contentious takeover. Fortum has come under pressure from shareholders who question the value of Uniper's coal- and gas-heavy portfolio. Analysts are also skeptical of the synergies Fortum hopes to generate from the merger.

Perhaps the most unusual departures of the year occurred at EDP and EDP Renováveis, where António Mexia and João Manso Neto have effectively resigned from their posts amid an intensifying corruption probe that centers around state compensation awarded more than a decade ago. But the companies they successfully led for years have moved on quickly, appointing interim replacements that have ensured business as usual.

"Both these guys were really well-regarded, but they have natural successors that are also well-regarded. So I don't see it as a big negative for the companies," Moulder said.