RWE AG (RWE.XE), Germany's largest power producer by output, Thursday said it expects stable earnings in 2009 and raised its medium-term profit targets as it reported a 4.1% drop in 2008 net profit.

RWE said it expects higher sales in 2009, despite weaker economic conditions.

Through 2012, the Essen-based company now expects operating profit to rise between 5% to 10% on average per year while recurrent net profit is expected to increase 10% per year on average in the same period.

The company had previously targeted operating profit to rise 5% on average per year and increases of 5% to 10% for recurrent net profit.

RWE said its previously announced cost cutting and efficiency improvement program over EUR1.2 billion through 2012 will help achieve the targeted earnings increases.

By the end of 2009, the company expects the measures will have driven earnings higher by around EUR450 million.

However, RWE said the new medium-term earnings targets are dependent on the recession not having a "long-lasting negative impact on wholesale electricity prices."

"In view of the substantial fluctuations in wholesale electricity prices, the company is basing its forecast on the expectations of an average realized German electricity price of at least EUR60 per megawatt-hour during this period," RWE said.

On Germany-based European Energy Exchange forward baseload prices for delivery in 2012 currently traded at between EUR48.10/MWh to EUR49.10/MWh.

The planned EUR8.24 billion takeover of Dutch utility Essent NV that was announced last month isn't yet reflected in the new medium-term targets, RWE added.

RWE has said the acquisition of Essent would make it the fourth-largest energy firm in Europe with 22.5 million power and 12.5 million gas customers and a total generation capacity of around 51 gigawatts across the continent.

Germany's second-largest utility by market value behind E.ON AG (EOAN.XE) also said it plans to maintain its investment program.

The company has pledged to invest an average of around EUR6.5 billion per year between 2008 through 2012, amounting to more than EUR30 billion.

RWE said net profit in the year ended Dec. 31 fell to EUR2.56 billion from EUR2.67 billion a year ago, just missing the EUR2.64 billion average estimate of 17 analysts polled by Dow Jones Newswires.

Profits were mainly hit by a EUR600 million impairment charge related to the initial public offering of RWE's U.S.-based water unit American Water Works Co (AWK) in early 2008.

Recurrent net profit, which is adjusted for the impairment charge and other non-recurring items, came in 12.8% higher at EUR3.37 billion - more or less in line with the EUR3.44 billion analysts had forecast.

The company didn't immediately publish fourth-quarter figures, but a Dow Jones Newswires calculation showed that net profit in the three months to Dec. 31 swung to a net profit of EUR347 million compared with a loss of EUR167 million in the same period last year.

Sales rose more than 15% to EUR48.95 billion from EUR42.51 billion, while analysts forecast EUR47.29 billion.

RWE shares closed Wednesday at EUR52.63.

Company Web site: www.rwe.com

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@dowjones.com