* Says set for drop in earnings for two years
* Drop might be dissappointingly steep - analysts
* 2011 EBITDA might drop 12 percent - Reuters poll
* Renegotiating loss-making gas contracts crucial
* Needs to detail planned expansion outside Europe
By Peter Dinkloh
FRANKFURT, March 9 German group E.ON (EONGn.DE), the world's second-largest utility, is under pressure to show investors it can deliver growth as it sells large parts of its profitable European business to cut debt.
E.ON will shed traditional core businesses worth 15 billion euros ($21 billion) as power prices stagnate in Europe, gas prices slump and the economic crisis hammers energy demand, in favour of a shift to two new overseas markets. [ID:nN01119969]
As chief executive Johannes Teyssen prepares to release 2010 earnings on Wednesday, he has yet to say which markets he wants to target. Nor has he revealed how deep the dive in the company's earnings will be before he can reach his target of generating 25 percent of earnings overseas by 2015.
The results presentation will be the first since Teyssen announced a strategic shift to non-European markets in November, having taken over the helm of the company six months earlier.
"E.ON is going through three difficult years of transition," Collins Stewart analyst Harold Hutchinson said.
"We expect 2010 results at the lower end of management's guidance, and see some room for disappointment due to a difficult year 2011," MacQuarie analyst Matthias Heck said.
Earnings before interest, taxes, depreciation and amortization (EBITDA) might drop 12 percent in 2011, according to a Reuters poll. [ID:nLDE72618E]
That would mark the first EBITDA drop in the history of the Duesseldorf-based group created 11 years ago through a merger and only this year overtaken as the world's largest utility by French peer GDF Suez GSZ.PA. [ID:nBRQ010071]
The main drag on profit this year will be a deal struck in 2010 allowing utilities to extend the operating life of German nuclear power plants by 12 years in exchange for extra tax and a levy to boost investment in renewable energy.
Separately, Teyssen has been looking to cut the cost of contracts under which he has to buy gas from the Netherlands, norway and Russia. The deals were negotiated with prices tied to the currently high oil price, rather than lower gas prices that have evolved as that market has matured.
"Russia's Gazprom has made an offer that is not sufficient," said a person with knowledge of the matter, that declined to be identified because the talks are confidential. "Norway and the Netherlands are more willing to accomodate E.ON's wishes." (Reporting by Peter Dinkloh; Writing by Peter Dinkloh; Editing by Dan Lalor) ($1 = 0.7185 euro)