3rd UPDATE:E.ON To Book EUR3.3 Billion Charge In 08 On Worsened Market

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, particularly in the U.S. and Italy.

The Duesseldorf-based company added, however, the impairment charges will be cash-neutral so that 2008 adjusted net profit and adjusted earnings before interest and taxes would rise in line with its forecasts.

E.ON also pledged to step up its efforts to improve costs and efficiency to ensure it will achieve its growth targets despite the global recession.

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.

In a conference call Chief Executive Wulf Bernotat said a 0.7% increase in costs of capital at its U.S. business would result in around EUR1 billion in writedowns. A further EUR300 million are the result of deteriorated prospects for longer-term power and gas demand growth, he added.

Around EUR1.8 billion in impairment charges was related mainly to an increase in Italy's corporate tax and a "gloomier" outlook for the country's energy market due to regulatory intervention in wholesale markets.

The tax increase resulted in around EUR500 million in writedowns; up to EUR700 million in charges relate to regulatory changes that have weakened future expectations for the Italian power generation market, Bernotat said.

While the charges on the European assets had been anticipated in light of worsened market conditions in the economic 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 disappointing 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 1342 GMT E.ON shares traded up EUR0.13, or 0.5% higher, at EUR25.15.

Based on preliminary figures E.ON 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 results March 10.

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.

Some EUR1.1 billion in savings will be related to cost cuts, while the remaining EUR400 million would come from productivity enhancements, CEO Bernontat said.

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 utilization 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: www.eon.com

-By Jan Hromadko, Dow Jones Newswires; [phone]; [e-mail]