Germany's E.ON, the world's second-largest utility, unveiled cost-cuts of 1.5 billion euros ($1.9 billion) to help reach its annual targets and make up for lower profit growth due to the economic crisis. The company is also writing down the value of its US business by 1.5 billion euros as financing costs rise and economic growth shrinks and of its Italian unit by 1.8 billion euros due to regulatory measures and problems with power plants, it said on Tuesday.
The double-writedown is the strongest hit yet to be taken by any European power group due to the recession. "The cost cuts will have been necessary to reach their 2010 earnings targets," said Unicredit analyst Karin Brinkmann. "The new Italian business is not living up to the high expectations E.ON had for it," she said. The shares underperformed those of other utilities.
They were down 0.5 percent at 24.90 euros at 1237 GMT, while the DJ Stoxx European utilities sector index was up 0.3 percent. Mario Kristl, an analyst with DZ Bank, said the news was a negative surprise but E.ON's operating business had performed well nonetheless.
Chief Executive Wulf Bernotat warned that the efficiency campaign, which runs through 2011, could include cuts in jobs. The market doubts right now that Bernotat will be able to reach his target of adjusted earnings before interest and tax of 12.4 billion euros in 2010. Twenty-six analysts on average estimate E.ON will only post an adjusted EBIT of 12.2 billion euros, according to Reuters data.