* H1 EBITDA 5.01 bln eur vs 4.9 bln Reuters poll average
* EBITDA at Russian division fell by a quarter
* Keeps 2014 view, expects 3rd straight year of falling
* Shares up 4.5 percent, biggest gainer on Germany's DAX
(Recasts, adds CFO comments on Russia, context)
By Christoph Steitz
FRANKFURT, Aug 13 Germany's biggest utility E.ON
posted a 12 percent drop in first-half core profit,
hit by a weakening currency in Russia, its most important
foreign market that is the target of Western economic sanctions
E.ON on Wednesday said earnings before interest, tax,
depreciation and amortisation (EBITDA) at its Russian energy
business declined by a quarter due to a drop in the rouble, and
warned the currency could fall further.
The rouble has dropped 7 percent against the euro
so far this year, as the Ukraine crisis has intensified.
The sanctions imposed on Russia's defence, oil and financial
sectors in response to Moscow's support for separatists waging
an insurrection in Ukraine are intended to hurt an already weak
Some German companies operating in Russia, including car
manufacturers and drugmakers, have already said the crisis was
hurting their businesses.
The Ukraine crisis is the latest blow for E.ON which, like
other German utilities, has seen its profits and share price
tumble in an energy sector shake-up that has promoted solar and
wind generation at the expense of utilities' gas-fired power
Investors and analysts have pointed to Russia as a potential
source of risk for the company, whose total investment in the
country will grow to 10 billion euros ($13.4 billion) next year.
E.ON sells electricity in Russia through E.ON Rossiya OAO
. It also gets up to half its gas from Russia's Gazprom
and owns a quarter in Yuzhno Russkoye in Siberia, one
of the world's largest gas fields.
Chief Financial Officer Klaus Schaefer said the company was
not directly affected by sanctions, but the weakening rouble was
"If you look at the forward rates for the rouble you'll also
know that there are further devaluations possibly out there,"
Schaefer told analysts during a call.
Schaefer said profits were expected to recover in rouble
terms next year, boosted by the 800 MW power unit at its
Berezovskaya plant that is expected to enter service later this
Shares in E.ON, whose market value has slumped by nearly
three quarters to about 27 billion euros ($36 billion) over the
last six years, were up 4.5 percent on Wednesday after group
results beat analysts' forecasts.
Some analysts see recovery potential for the shares in the
second half of the year, provided the company continues to
reduce debt and if there is progress in creating a so-called
capacity market - government payments to keep essential
loss-making power plants running.
E.ON has a price-to-book ratio of 0.8, lower than the 2.2 of
smaller rival RWE and the 1.1 for European utilities,
according to Thomson Reuters Starmine.
Net debt fell to 29.7 billion euros at June 30 from 31.1
billion at the end of March.
"We believe there is the potential for structural change in
Germany ... alongside nuclear compensation resolution that will
eventually improve E.ON's prospects," RBC Capital Markets
analyst John Musk wrote to clients, keeping an "outperform"
rating on the stock.
Nine out of 32 analysts covering the stock recommend buying
shares, while 10 analysts rate the stock a "sell", according to
Thomson Reuters data. The remaining 13 analysts have a "hold"
Group EBITDA fell 12 percent to 5.01 billion euros, beating
the 4.9 billion average forecast from analysts, driven by E.ON's
generation unit, where earnings increased by more than a quarter
due to lower spending on Germany's nuclear fuel
E.ON said it expects a third straight year of falling
profits, maintaining forecasts for 2014 EBITDA of 8-8.6 billion
euros and underlying net income of 1.5-1.9 billion.
($1 = 0.7484 euro)
(Additional reporting by Daniela Pegna; Editing by Erica