* E.ON trims outlook, GDF warns of European asset writedowns
* Both forced to close or mothball modern gas-fired plants
* Both firms bank on emerging markets, GDF also on energy
* Valuations depressed, both stocks trade around 0.76 times
By Geert De Clercq and Christoph Steitz
PARIS/FRANKFURT, Nov 13 Germany's E.ON and
French GDF Suez, two leading European utilities, posted lower
earnings as a prolonged energy crisis in Europe is leading to
power plant closures and asset writedowns.
Both companies said they would focus on investment in
emerging markets to try and counter a stagnant western Europe,
where economies are struggling to emerge from recession.
E.ON said its European electricity production
fell 7 percent in the first nine months of the year and saw core
profit fall by a fifth. The group trimmed its 2013 core earnings
forecast to a range of 9.2 to 9.3 billion euros ($12.4-12.5
billion), from 9.2 to 9.8 billion.
GDF, Europe's second-largest by market value after
French EDF, posted a 6.5 percent drop in nine-month
core earnings and said it would write down European power assets
but confirmed guidance for current earnings.
Falling demand and overcapacity have led to plunging
wholesale power prices and have thrown Europe's
utilities into an unprecedented crisis.
To make matters worse, abundant U.S. shale gas has led to
Europe-bound exports of cheap U.S. coal, which makes gas-fired
generators uneconomical and forces utilities to close down or
mothball dozens of turbines.
E.ON has shut seven gigawatt (GW) of gas plant capacity -
equivalent to seven nuclear plants - while GDF has closed down
12 GW, decided to close 2 GW in the third quarter and has put
another 5 to 7 GW under review.
Ingo Becker, European head of utility research at Kepler
Cheuvreux, sees little improvement in market conditions.
"There is no real end in sight," he said.
Utilities also struggle with renewables, which have zero
fuel costs and enjoy priority access to the power grid, pushing
thermal generation out of the market.
"It simply isn't acceptable that renewables receive
guaranteed, risk-free compensation but that conventional
capacity - essential for ensuring a reliable power supply - is
barely able to cover its costs," E.ON CEO Johannes Teyssen said.
The crisis has also hit rivals, most notably Germany's RWE
and EnBW, due to the additional burden of
Germany's decision to abandon nuclear power by 2022.
To compensate for low-growth Europe, GDF and E.ON both bank
on emerging markets where power demand growth is high and their
traditional business model of centralised power production in
capital-intensive plants is not challenged by wind and solar.
GDF CEO Gerard Mestrallet said that in past months GDF had
sold power plants in Portugal and Australia and entered new
markets including Mongolia, Vietnam, Uruguay and South Africa.
"These transactions fit into GDF's strategy to reduce
footprint in mature markets in order to recycle capital and
reinvest in fast-growing markets," he said.
In January-September, GDF earned 10.5 billion euros in Latin
America, Asia and the Middle East, or 15.5 percent of its 67.6
billion euros consolidated revenue.
"GDF Suez has been well ahead of the pack in taking the
emerging markets route and among European integrated utilities
it is now the uncontested leader in terms of exposure to these
markets," said KBC Securities analyst Dieter Furniere.
E.ON, which for years has run a utility business in Russia,
has only recently begun expanding in other growth markets like
Turkey, where it owns 50 percent in energy group Enerjisa in a
venture with Sabanci, and Brazil, where it bought a
38 percent stake in power firm Eneva last year.
Non-EU markets accounted for just 6 percent of E.ON's
nine-month core earnings, unchanged from last year.
E.ON has said it aims to generate more than 25 percent of
net income in markets outside Europe in the second half of the
decade, roughly double current levels.
Besides investing in growth markets, GDF also bets on energy
services, in which it has become the top European player,
followed from afar by RWE and Sweden's Vattenfall.
GDF's energy services unit employs nearly 80,000 staff, over
half its total staff count, and is expanding abroad through
acquisitions, most recently with a 190 million pound buy of the
facilities management unit of Britain's Balfour Beatty.
With the bulk of their activities still in Europe, the two
firms' diversification so far has not helped valuations. E.ON
and GDF both trade around 0.76 times book value, the lowest in
the Dow Jones Stoxx European utilities index.
In the year to date, E.ON shares are down 4.2 percent, GDF
shares are up 19 percent.