ELE Electric Word

Germany's E.ON AG (EOAN.XE) Tuesday said it would have to book considerable impairment charges for parts of its business due to deteriorated trading conditions, but added that 2008 results would rise more or less in line with its forecasts.

The Duesseldorf-based company also pledged to step up its efforts to improve costs and efficiency to ensure it will achieve its growth targets despite the financial and economic crisis.

The world's largest investor-owned utility by market value said it would have to book around EUR3.3 billion in impairment charges for its U.S., Italian, Spanish and French operations reflecting deteriorated market conditions.

Around EUR1.5 billion in impairment charges are related to E.ON's U.S. Midwest business due to "an increase in the market-unit-specific cost of capital and lower long-term growth rates."

A further EUR1.8 billion in impairment charges was related mainly to an increase in Italy's corporate tax to 33% from 27.5% for energy companies and a "gloomier" outlook for the Italian energy market due to regulatory intervention in wholesale markets.

E.ON acquired the assets in Italy, Spain and France last year for EUR11.5 billion from Enel SpA (ENEL.MI) and Acciona SA (ANA.MC) in a compromise that ended the German company's bid for Spain's Endesa SA (ELE.MC).

While the charges on the European assets had been aniticipated in light of worsened market conditions in the ecnonomic crisis, analysts said the U.S. impairment charge was a negative surprise.

"The impairment charge for the U.S. Midwest market unit and the fact that it accounts for almost half of the overall impairment charge volume is certainly a negative surprise," said Sal. Oppenheim analyst Matthias Heck, who rates E.ON shares as buy.

E.ON expects lower longer-term growth rates for that business unit, reflecting the poor state of the U.S. economy, he said.

"This is particularly dissapointing given that most of E.ON's U.S. business is regulated."

E.ON's shares outperformed a broadly lower market in Tuesday's trading session in spite of the announced charges, which traders and analysts said was due to the preliminary 2008 results and dividend plans.

At 1017 GMT E.ON shares traded down EUR0.28, or 1.1% lower, at EUR24.74.

The impairment charges would hit the company's 2008 consolidated net profit, but will leave adjusted net profit and adjusted earnings before interest and taxes unaffected, it added.

E.ON said based on preliminary figures it expects 2008 adjusted EBIT to rise by 7% to 8% on the year and a similar increase for adjusted net profit, in line with its previous guidance of 5% to 10% increases. E.ON will report 2008 March 10.

Based on the preliminary figures E.ON said it intends to propose a dividend payment for 2008 of EUR1.50 per share, representing a 9.5% year-on-year rise, but just below the lower end of its targeted range for a 10% to 20% annual dividend increase.

E.ON further said it intends to generate EUR1.5 billion in savings and efficiency improvements until 2011 to ensure it can still achieve its growth targets in a deteriorated market environment.

The measures are aimed at the company's entire value chain and all operations, including specific action in areas such as procurement, IT and administration.

Other measures aim at improving better utilitzation of generation capacity in the Nordic market unit, optimizing the sales business in the U.K., marketing storage capacity in the pan-European Gas unit and the organizational integration of power and gas sales in Germany, E.ON said.

Company Web site: http://www.eon.com

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

Electric Word (LSE:ELE)
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