E.ON AG
,
Germany
’s largest utility, plans to raise 15 billion euros ($21 billion) by the
end of 2013 in a second round of asset sales and expand outside of
Europe
as the company faces
a decline in earnings.
Profit
will be “under pressure” in the next three to four years on lower power
prices and an oversupply of natural gas and as European governments increase
influence over the energy industry, E.ON said in a presentation distributed to
reporters today at the company’s headquarters in Dusseldorf, Germany.
E.ON plans to pay down borrowings with the asset sales and use the
“financial strength” it gains to invest in two markets outside of
Europe
where demand is
growing, according to the presentation. The company, which wassaddledwith debt after snapping up power
plants in
Europe
, said it has adapted its strategy and will seek to partner on projects
rather than to gain complete ownership.
“Our objective is to sharpen E.ON’s profile as an international energy
specialist and to increase our earnings strength by placing it on a broader,
more international foundation,” Chief Executive OfficerJohannes Teyssensaid in a letter to shareholders
published today.
Dividend Payout
E.ON rose 3.9 percent to 23.045 euros in
Frankfurt
trading as of
10:13 a.m.
local time. That trimmed thestock’s decline this year to 21 percent. That compares with
a 24 percent decline for smaller rivalRWE AGand a
14 percent increase for
Germany
’s
benchmark DAX Index, of which both companies are members.
While E.ON still plans to recommend a 1.50
euro-a-share dividend for 2010, the company is targeting a minimum shareholder
payout of 1.30 euros a share for 2011 and 2012, according to the statement. The
utility is maintaining its 50 percent to 60 percent payout ratio.
Adjustedearningsbefore
interest, tax, depreciation and amortization, excluding the effects of the
asset sales, will be at about their 2010 level in 2013, according to the
presentation. The utility plans cost cuts that will boost earnings by 600
million euros a year from 2013, according to the statement.
E.ON may sell its
U.K.
power grid, Chief Financial OfficerMarcus Schencksaid,
without specifying what assets the German utility will sell. The
U.K.
grid unit could fetch 3.5 billion pounds ($5.7 billion), the Sunday
Times reported Nov. 7, without saying where it got the information.
‘Risky Markets’
“Their debt multiples will not be looking OK in 2011” without assets
sales,Peter Wirtz, a WestLB AG
analyst who has a “neutral” rating on E.ON, said Nov. 8. Still, the analyst
voiced concern at divestitures. “You can’t sell assets that are at the core of
your business at prices you can’t be sure of only to spend the proceeds on
risky markets.”
Former CEOWulf Bernotatset
a target of raising more than 10 billion euros from asset sales in the two
years through 2010 after acquisitions in
Spain
,
Italy
and
France
saddled the company with debt. He exceeded that target after agreeing
to sell the company’s
U.S.
utility business to PPL Corp. in April. E.ON, which still owns wind turbines in
the
U.S.
, has sold about 13 billion euros of assets in the last two years.
E.ON sold or swapped about 20 percent of
its power generation capacity in
Germany
, and also disposed of its domestic electricity grid, to end an EU
antitrust probe. It also sold a municipal utility holding company to a group of
German local energy suppliers.
‘Burn’ Earnings
While German ChancellorAngela Merkel’s government agreed to allow nuclear reactors
to run longer in exchange for payments to a renewable energy fund, it stuck to
a plan to raise an annual 2.3 billion euros from the country’s four largest
utilities for six years starting in 2011.
The German nuclear levy could “burn”
E.ON’s annual adjusted Ebit by as much as 1.5 billion euros, the utility said
in August.
Electricity prices in
Europe
’s biggest market
didn’t track oil and coal gains after the worst recession since World War II
and a colder-than-usual winter.
German power for delivery in 2011 averaged
50.25 euros a megawatt-hour in the first nine months of the year, 7.8 percent
less than the 54.50 euros it fetched in the same period in 2009, broker data on
Bloomberg show. German electricity can be sold several years in advance in
order to limit price volatility.
E.ON lost a competitive advantage last
year when output of gas in the
U.S.
jumped and liquefied natural gas cargoes were diverted to
Europe
. The price of gas on
the spot market fell to about half the price at which the utility buys the fuel
through multiyear contracts with producers OAO Gazprom and Statoil ASA.
The company agreed with suppliers earlier
this year to tie some of its supply to spot prices, rather than crude oil, to
lessen the effect on earnings. Teyssen said in August that additional talks were
necessary.