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Eon to divest as recession stifles demand
Wednesday, March 11, 2009
Shares in Eon, Germany’s largest energy company, tumbled on Tuesday after it warned that adjusted net income would fall by 10 per cent this year as the recession saps European demand for electricity and gas.
The Düsseldorf-based utility warned future earnings would be hit by interest expenses on its enlarged debt pile, higher regulatory costs and the weakness of currencies such as the British pound and Swedish krona
The downbeat outlook underscored a growing concern that European utilities are not immune from the economic slowdown because struggling industrial customers are cutting their energy consumption and financing costs remain elevated.
Power demand from some industrial users such as car and steel manufacturers has dropped by more than 20 per cent and Eon did not rule out that customer bad-debt could also become a problem
Accordingly, the company cut a previous forecast for 2010 adjusted earnings before interest and taxation from €12.4bn to €11bn, a figure that does not include future divestments.
“In view of the current financial and economic crisis, we don’t intend to issue rosy forecasts that are based on hardly plausible or creditable assumptions about parameters like future demand and energy prices,” Wulf Bernotat, chief executive, said.
Eon is looking to consolidate and cut costs after a period of rapid expansion in which it acquired OGK-4, the Russian power company and added a string of European assets after resolving an unsuccessful bidding war for Endesa, the Spanish group.
The company intends to divest at least €10bn of assets by the end of 2010, subject to the situation in the capital markets.
Eon warned last month that it would take €3.3bn in charges related to its operations in Italy and the US and cut its investment programme by about €6bn between now and 2011 “in view of the significantly more difficult economic environment”.
Full-year adjusted earnings before interest and taxation, depreciation and amortisation increased by 8 per cent to €13.4bn, on sales which jumped by 26 per cent to €86.8bn. Earnings per share dropped 82 per cent to €0.68
The shares fell an initial 10 per cent, but were down 6.3 per cent on the day at €18.94 in afternoon trading.
This story was featured on the Financial Times Website
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