German utility E.ON AG (EOAN.XE) warned that muted energy demand in Europe continues to weigh on its power-generation business and pledged to respond to the deteriorated market environment by reducing operating costs and examining further power-plant closures.
"In our power-generation business in Europe...reduced demand continues to adversely impact capacity utilization, prices, and margins," said Chief Executive Johannes Teyssen. "We'll therefore further optimize our conventional generation portfolio, reduce costs, enhance our assets' flexibility, and even explore closing assets where necessary," he said.
The comments come as E.ON reported a sharp increase in earnings for the first six months of the year and reiterated its outlook for higher full-year profits. The company mainly attributed the increase to one-off gains from a recent settlement with its biggest natural gas supplier, Russia's OAO Gazprom (GAZP.RS), over the terms of previously loss-making gas contracts.
The adjusted commercial terms of long-term gas contracts boosted earnings by around 1.2 billion euros ($1.5 billion) in the first six months of the year, the company said.
First-half-2012 earnings were also flattered by comparison with the previous year, when profits took around EUR1.5 billion euros of charges related to Germany's decision to accelerate a phase-out of nuclear power, said E.ON.
First-half net profit surged to EUR2.91 billion compared with EUR691 million a year earlier.
Underlying after tax profit in the January to June period amounted to EUR3.31 billion, more than a threefold increase from EUR933 million in the same period last year, the company said.
Earnings before interests, taxes, depreciation and amortization, or Ebitda, rose 56% to EUR6.71 billion, compared with EUR4.33 billion in the first six months of 2011.
Revenue in the six months through June amounted to EUR65.4 billion, up more than 23% from EUR53.05 billion. 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 adjusts its Ebitda for non-recurring items such as revaluations of energy derivatives used for hedging purposes, 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.
E.ON's shares have gained around 4% in value this year, valuing the company at around EUR36 billion. The shares outperformed its Euro Stoxx Utilities peer group this year by around 15 percentage points.
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