German utility E.ON AG (EOAN.XE) Wednesday confirmed its outlook for rising profits in this year and next, after reporting stronger than expected preliminary first-quarter results last week, but warned that it continues to face headwinds as the energy industry is undergoing a "fundamental transformation."
German utility E.ON AG (EOAN.XE) Wednesday confirmed its outlook for
rising profits in this year and next, after reporting stronger than expected
preliminary first-quarter results last week, but warned that it continues to
face headwinds as the energy industry is undergoing a "fundamental
transformation."
The results follow a dismal 2011 for
Germany
's
largest utility by market value, after the German government decided to
accelerate a planned nuclear energy exit, which led to the immediate and
permanent shutdown of nearly half of the country's 17 nuclear reactors. Including
a tax on nuclear fuel, the policy reversal cost the company EUR2.5 billion last
year, resulting in the first net loss since E.ON's creation 12 years ago.
At present, gas demand in
Europe
is at
2001 levels and power demand is around the level of 2004, Chief Executive
Johannes Teyssen said.
"Our positive first-quarter performance can't hide the fact that the
energy and macroeconomic environment remains difficult," Teyssen said. "For
the foreseeable future, our business will continue to be characterized by weak
energy demand, keen competitive pressure--above all in our wholesale gas
business--and occasionally erratic government intervention in the energy
marketplace."
Despite the deteriorated market environment, E.ON confirmed that it expects
earnings to rise in the next two years, due in part to ongoing cost-cutting and
commissioning of new production facilities.
For the full-year 2012, earnings before interest, taxes, depreciation and
amortization, or Ebitda, are expected between EUR9.6 billion and EUR10.2
billion, with underlying after-tax profit expected between EUR2.3 billion and
EUR2.7 billion, E.ON said in a statement.
E.ON adjusts its Ebitda for non-recurring items such as revaluations of energy
derivatives used for hedging purposes, book gains and losses on disposals as
well as restructuring expenses. Underlying after-tax profit is also adjusted
for income and losses from discontinued operations and special tax effects, and
is used to determine dividend payments.
The company also reported a nearly 9% increase in first-quarter operating
earnings in underlying after-tax profit. It attributed the results to
improvements at its wholesale gas business, which is still suffering from
procurement prices that far exceed European selling prices.
In March, E.ON said that it reached an agreement with Norwegian gas producer
Statoil ASA (STO) to bring commercial terms of long-term gas procurement
contracts down to market levels.
The company said Wednesday that this agreement has improved earnings at its
Optimization & Trading unit by EUR340 million in the first three months of
the year.
E.ON's power generation business in
Russia
performed
well--increasing operating earnings by around 30%--due to the commissioning of
new power plants.
Net profit in the first three months of the year amounted to EUR1.72 billion,
down more than 24% from EUR2.27 billion a year earlier, E.ON said.
Underlying after-tax profit, the figure that determines E.ON's annual dividend
payout, was EUR1.67 billion, up 26.5% from EUR1.32 billion a year earlier. The
figure was in line with the EUR1.69 billion average forecast of four analysts
polled by Dow Jones Newswires.
Ebitda amounted to EUR3.77 billion, up 8.6% from EUR3.47 billion. Analysts had
forecast EUR3.79 billion.
Revenue was EUR35.73 billion, up more than 28% from EUR27.85 billion a year
earlier and considerably higher than the EUR27.89 billion forecast by analysts.
E.ON attributed the strong increase in revenue to robust activity at its
trading unit from buying and selling power and gas on the open market.
E.ON's shares have shed around 4% in value this year, outperforming its Euro
Stoxx Utilities peer group by around nine percentage points.
The stock Tuesday closed at EUR15.66, valuing the company around EUR32 billion.
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