EON Posts Higher Earnings as Asset Sales Target Exceeded

EON SE, Germany’s biggest utility, reported higher earnings after renegotiating gas contracts with OAO Gazprom and said asset sales will exceed an earlier target.

Adjusted net income, which EON uses to calculate its dividend, rose to 4.3 billion euros in 2012 from 2.5 billion euros in 2011. That compared with the 4.15 billion-euro median estimate of 24 analysts surveyed by Bloomberg. EON estimates earnings on this basis will drop to 2.2 billion to 2.6 billion euros for 2013.

“We could come toward 20 billion euros” of asset sales, Chief Executive Officer Johannes Teyssen said today on a conference call. EON has completed about 17 billion euros of disposals to date, from an initial target of 15 billion euros.

European utilities are struggling to cope with weaker demand and a slower economic outlook at the same time Germany plans to exit nuclear energy by 2022. EON, which scrapped previous profit forecasts for 2013, plans to reduce capital spending and is selling assets to cut costs. The utility is also studying whether to close unprofitable power plants.

EON said it will shut 11,000 megawatts of power generation in Europe by 2015, with a focus on coal-fired plants.

Shares decline

The shares fell 0.8 percent to 13.22 euros as of the close in Frankfurt after initially climbing as much as 4 percent. The stock lost 15 percent last year for the worst performance in Germany’s benchmark DAX Index.

EON will return to a payout ratio of 50 percent to 60 percent of adjusted earnings and will no longer have an absolute dividend target in future, the Dusseldorf-based company said today. It confirmed a payout of 1.10 euro a share for last year.

“It will come down to a significant dividend cut for 2013,” said Sven Diermeier, an analyst at Independent Research GmbH in Frankfurt. “The dividend will even be below the level of 2011.”

The utility is targeting 1.3 billion euros of cost savings from 2011 to 2015 as well as positive free cash flow until 2015. Planned capital spending of 6 billion euros in 2013 will be reduced to 4 billion to 4.5 billion euros in 2015, the CEO said.

Gazprom, Russia’s gas-export monopoly, agreed to amend long-term supply deals for EON after the utility lost hundreds of millions of euros on contracts linked to oil prices.

The German utility had previously scrapped profit forecasts for this year after saying the shift to renewable energy presented “huge challenges.” The estimate for 2013 adjusted earnings compared with an earlier forecast of 3.2 billion to 3.7 billion euros.

EON said in November that it pulled the initial targets because of the “substantial economic uncertainties and structural changes” in the energy industry.