EON Falls in Frankfurt on 3 Billion-Euro Impairment Charge

EON AG, Germany’s largest utility, fell in Frankfurt trading after saying it will book an impairment charge of about 3 billion euros ($3.9 billion) for 2011 as it shuts down generating capacity.

The stock dropped 1.2 percent to 16.79 euros at the 5:30 p.m. close of trading, taking this year’s decline to 27 percent. EON is shutting down 6 gigawatts of capacity over the next three years and is considering additional closures because of the “subdued environment for spread generation,” the Duesseldorf-based company said in a statement on its website yesterday.

The European sovereign debt crisis and the looming threat of a recession in the region is weighing on the value of some assets in Italy and Spain, eastern Europe and Belgium as EON contends with a government plan to shutter nuclear reactors in its home market. The company aims to change its legal status to a Societas Europaea from a German stock corporation, the first utility to do so, as it stuck to a proposal to pay 1 euro-a-share dividend this year and repeated a 2013 forecast.

While the impairments “are a negative surprise,” they’re based on current low generating margins, are not liquidity-related and won’t affect dividend payments, Bernhard Jeggle, an analyst with Landesbank Baden-Wuerttemberg AG in Stuttgart, said in a note to clients. “We see the company on course when it comes to raising efficiency,” said Jeggle, who rates EON at “buy” with a target of 18.50 euros.

‘Negative Market’

The charge will result in adjusted net income of 2.3 billion euros to 2.5 billion euros for the year, compared with a previous forecast of 2.1 billion euros to 2.6 billion euros, EON said. Adjusted earnings before interest, tax, depreciation and amortization will probably come in at 9.1 billion euros to 9.3 billion euros, compared with an earlier target as high as 9.8 billion euros, it said.

“Despite the aforementioned negative market developments and softer margins, the company confirms and specifies its previously communicated earnings outlook for 2011 and 2013,” EON said in the statement.

Utilities are selling assets and cutting jobs to lower costs and boost profit margins as a weakening economy weighs on electricity demand and Germany’s nuclear exit removes revenue streams. Japan’s Fukushima Dai-Ichi disaster spurred Chancellor Angela Merkel’s government to revise its nuclear energy policy with a plan to shut down all 17 reactors in Germany by 2022.

EON is cutting as many as 11,000 positions, and announced a 64 percent slide in nine-month profit in part because of the accelerated nuclear phase-out.

Asset Sales

Chief Executive Officer Johannes Teyssen, who took over in May 2010, has cut borrowing by selling assets, including a stake in Stadtwerke Duisburg AG and its U.K. electricity distribution network. The company outlined a target last year of selling 15 billion euros of assets by the end of 2013.

Allianz SE is in talks to buy EON’s gas network, Sueddeutsche Zeitung reported today, citing people close to the company it didn’t name. Carsten Thomsen-Bendixen, a spokesman for EON, declined to comment on the report.

RWE AG, EON’s closest German competitor, has opted to sell as much as $3 billion in Egyptian energy assets in an effort to raise up to 11 billion euros and reduce its debt load in response to the nuclear policy change.

Areva SA, the world’s biggest supplier of nuclear fuel and services, will limit its dividend to 25 percent of net income and cut between 1,200 and 1,500 jobs in Germany, the company said in a presentation handed to journalists in Paris today.

The company yesterday forecast an operating loss of as much as 1.6 billion euros for 2011 on asset writedowns at mining projects and plant closures.

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