Enel SpA, Italy’s largest utility, said earnings sank 79 percent last year and won’t recover until 2017 as taxes and weakening power demand crimp growth and force asset sales. German peer EON SE also announced disposals.
Enel’s net income fell to 865 million euros ($1.13 billion) from 4.1 billion euros a year earlier following 2.5 billion euros of writedowns at its Endesa unit, it said today in a statement. Earnings before interest, tax, depreciation and amortization dropped 4.9 percent to 16.7 billion euros and will hold steady until rising to as much as 18 billion euros in 2017.
European utilities including Enel and EON are disposing of assets to bolster balance sheets as economic stagnation curbs energy demand. Rome-based Enel, writing down Endesa after buying the power producer in 2007, has also seen profit margins squeezed by new levies on electricity companies in Italy and Spain, which are entering their second year of a recession.
“Short-term targets are very poor,” UBS AG analysts wrote in a note today, maintaining a sell rating on Enel stock. Long-term targets are “optimistic” as “fundamentals and disposals imply almost no growth.”
Enel slumped 6 percent in Milan trading, the biggest one-day decline in almost nine months, to close at 2.612 euros.
Enel plans 4 billion euros of cost reductions in Italy and Spain, including job cuts and capacity closings, Chief Executive Officer Fulvio Conti said today in a presentation. The utility also intends to sell about 6 billion euros of assets to lower borrowings. Net debt shrank 3.8 percent to 42.9 billion euros last year, and will drop to a targeted 37 billion euros in 2014.
EON, Germany’s largest utility, has sold assets to weather the economic decline and the phaseout of nuclear energy at home. The company, whose economic net debt fell to 35.9 billion euros as of Dec. 31 from 36.4 billion euros a year earlier, plans to raise more than 2 billion euros in two years selling regional units and a stake in nuclear-fuel processing business Urenco.
“Our sales volume and earnings remain under pressure, especially in conventional power generation,” CEO Johannes Teyssen said today. “In particular, our technologically advanced, climate-friendly gas-fired power plants are currently barely profitable.”
As Europe’s weak economy holds back electricity demand, gas power stations are being undercut by cheaper coal, requirements to buy renewable energy and the falling cost of carbon permits. EON’s Irsching-5 plant in Bavaria, a 400 million-euro facility built three years ago, operated less than 25 percent of the time last year as slumping prices made burning gas unprofitable.
EON and the co-owners of Irsching-5 will decide by the end of March whether to shut the plant, Teyssen said at a press conference. The company sees a temporary shutdown as the “only economically viable solution” without “fair compensation” to keep the site operating, he said.
EON, based in Dusseldorf, confirmed a January forecast that Ebitda this year will be about 9.2 billion euros to 9.8 billion euros, a decline from 10.8 billion euros in 2012. The stock slipped 0.2 percent to 13.01 euros in Frankfurt.
Both EON and Enel are looking to new countries to counter weakening markets elsewhere. EON’s asset sales will provide capital for expansion in emerging economies including Brazil and Turkey, while Enel plans to increase investments in eastern Europe and Latin America following a 2.8 percent drop in Italian power demand last year.
“For the next five years, we confirm our current strategy, which is focused on protecting margins and cash flows in mature markets as well as development in growth markets and renewables,” Conti said in today’s statement. Enel will reduce capacity by 12 percent to 52 gigawatts by 2017, with most cuts in mature markets, he said on a conference call.
The utility’s clean-energy division, Enel Green Power, reported 2012 net income of 413 million euros yesterday, missing analyst estimates of 453 million euros.
Enel, which sells electricity to 61 million clients in 40 countries, will distribute a dividend of 15 euro cents a share, in line with analyst estimates.