09/05/2012 09:32:00

UPDATE: E.ON Warns Energy Markets Remain In Difficult Turf

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--Results in line with expectations after E.ON previously pre-released

--Earnings rise attributed to improved wholesale gas, Russian power business

--Low European power prices, German nuclear exit still weigh

--2012, 2013 outlook for rising profits confirmed

(Rewrites throughout, adding CEO comment, detail.)

By Jan Hromadko

Of DOW JONES NEWSWIRES

FRANKFURT -(Dow Jones)- 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.

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@dowjones.com

(END) Dow Jones Newswires

May 09, 2012 04:32 ET (08:32 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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