3rd UPDATE:E.ON To Book EUR3.3 Billion Charge In 08 On Worsened Market
February 10 2009 - 8:38AM
Dow Jones News
Germany's E.ON AG (EOAN.XE) Tuesday said it would have to book
considerable impairment charges for parts of its business due to
deteriorated trading conditions, particularly in the U.S. and
Italy.
The Duesseldorf-based company added, however, the impairment
charges will be cash-neutral so that 2008 adjusted net profit and
adjusted earnings before interest and taxes would rise in line with
its forecasts.
E.ON also pledged to step up its efforts to improve costs and
efficiency to ensure it will achieve its growth targets despite the
global recession.
The world's largest investor-owned utility by market value said
it would have to book around EUR3.3 billion in impairment charges
for its U.S., Italian, Spanish and French operations reflecting
deteriorated market conditions.
Around EUR1.5 billion in impairment charges are related to
E.ON's U.S. Midwest business.
In a conference call Chief Executive Wulf Bernotat said a 0.7%
increase in costs of capital at its U.S. business would result in
around EUR1 billion in writedowns. A further EUR300 million are the
result of deteriorated prospects for longer-term power and gas
demand growth, he added.
Around EUR1.8 billion in impairment charges was related mainly
to an increase in Italy's corporate tax and a "gloomier" outlook
for the country's energy market due to regulatory intervention in
wholesale markets.
The tax increase resulted in around EUR500 million in
writedowns; up to EUR700 million in charges relate to regulatory
changes that have weakened future expectations for the Italian
power generation market, Bernotat said.
While the charges on the European assets had been anticipated in
light of worsened market conditions in the economic crisis,
analysts said the U.S. impairment charge was a negative
surprise.
"The impairment charge for the U.S. Midwest market unit and the
fact that it accounts for almost half of the overall impairment
charge volume is certainly a negative surprise," said Sal.
Oppenheim analyst Matthias Heck, who rates E.ON shares as buy.
E.ON expects lower longer-term growth rates for that business
unit, reflecting the poor state of the U.S. economy, he said.
"This is particularly disappointing given that most of E.ON's
U.S. business is regulated."
E.ON's shares outperformed a broadly lower market in Tuesday's
trading session in spite of the announced charges, which traders
and analysts said was due to the preliminary 2008 results and
dividend plans.
At 1342 GMT E.ON shares traded up EUR0.13, or 0.5% higher, at
EUR25.15.
Based on preliminary figures E.ON expects 2008 adjusted EBIT to
rise by 7% to 8% on the year and a similar increase for adjusted
net profit, in line with its previous guidance of 5% to 10%
increases. E.ON will report 2008 results March 10.
E.ON said it intends to propose a dividend payment for 2008 of
EUR1.50 per share, representing a 9.5% year-on-year rise, but just
below the lower end of its targeted range for a 10% to 20% annual
dividend increase.
E.ON further said it intends to generate EUR1.5 billion in
savings and efficiency improvements until 2011 to ensure it can
still achieve its growth targets in a deteriorated market
environment.
Some EUR1.1 billion in savings will be related to cost cuts,
while the remaining EUR400 million would come from productivity
enhancements, CEO Bernontat said.
The measures are aimed at the company's entire value chain and
all operations, including specific action in areas such as
procurement, IT and administration.
Other measures aim at improving better utilization of generation
capacity in the Nordic market unit, optimizing the sales business
in the U.K., marketing storage capacity in the pan-European Gas
unit and the organizational integration of power and gas sales in
Germany, E.ON said.
Company Web site: www.eon.com
-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503;
jan.hromadko@dowjones.com
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