German energy giant E.ON AG (EOAN.XE) said Wednesday 2011 operating
earnings will decrease by up to 16% on the year, but added that it expects
profits to recover in 2012 after bottoming out this year.
Poor margins in its wholesales gas and power generation businesses as well as a
new nuclear fuel tax in its home market, will hit profits in coming years, said
E.ON. At the same time, E.ON offered a more positive outlook after 2011 than
German peer RWE AG (RWE.XE).
In 2011 adjusted earnings before interest, taxes, depreciation and amortization
will decline to between EUR11.2 billion and EUR11.9 billion compared with the
EUR13.35 billion recorded last year, said the company.
Adjusted after-tax profit is expected to decrease by up to a third to between
EUR3.3 billion to EUR4 billion.
E.ON added, however, that cost cuts and accelerating earnings from its Russian
power plant fleet and renewable energies will help return the company to
earnings growth in 2012.
Germany
's
largest utility by market value has previously said it will also seek to expand
operations in emerging markets, where growth is expected to be stronger than in
its core European markets.
In 2013 adjusted Ebitda is expected to rise to at least EUR13 billion, E.ON
said.
At 1242 GMT, E.ON shares were down .76% at EUR22.94 as the German bluechip
index DAX traded .17% higher.
E.ON's shares have declined around 10% over the past 12 months, underperforming
its Euro Stoxx Utilities peer group by around three percentage points.
E.ON's medium-term guidance was considerable more upbeat than that of its main
domestic competitor RWE, which two weeks ago drew a much bleaker picture.
On Feb. 24 RWE said that earnings are expected to fall by nearly 50% through
2013 and aren't expected to improve before 2014.
Profit margins of European power generators have come under pressure in the
last year, as power prices lag the renewed increase in coal and oil
prices--which increases the cost of producing power--and demand still hasn't
recovered to pre-crisis level.
E.ON said Wednesday that at present power generation margins the "major
part of [the] European thermal power plant fleet is only able to cover fixed
costs" due to the free allocation of carbon dioxide emissions allowances.
From 2013, full auctioning of carbon dioxide allowances will further eat into
profits of power generators and E.ON said it expects some power plants will
then become unprofitable and be decommissioned.
So far utilities have been granted most carbon credits for free under the
E.U.'s emissions trading system.
In response to the worsened trading conditions E.ON, RWE and other German
utilities have pledged to sell assets, reduce dividends as well as investment
budgets and further cut costs.
E.ON also said Wednesday that net profit in 2010 fell around 30% on the year
due mostly to lower disposal gains than a year earlier and impairment charges
on assets in southern
Europe
incurred in the third
quarter.
Net profit came in at EUR5.85 billion, down from EUR8.42 billion a year
earlier. The figure exceeded the EUR4.88 billion average forecast in a Dow
Jones Newswires poll of 13 analysts.
Adjusted for impairments, gains or losses from asset disposals, the revaluation
of energy derivatives and restructuring expenses after-tax profit was EUR4.88
billion, down around 4% on the year.
Revenue in the 2010 was EUR92.86 billion, up 16% from EUR79.97 billion a year
earlier. Analysts
had forecast revenue of EUR83.62 billion.