Oil Report

UPDATE 1-Verbund pleases investors with 45 pct dividend increase

* Proposes dividend of 0.42 eur/shr for 2017

* Plans to pay out up to 45 pct of 2018 adj profit

* Sees itself well prepared for power market split

* Shares gain as much as 11.2 pct (Adds 2018 forecast, debt, share price)

By Kirsti Knolle

VIENNA, March 14 (Reuters) - Austrian energy group Verbund proposed a 45 percent increase in its dividend for 2017 despite a double-figure decline in last year’s core profit.

Austria’s largest utility plans to pay a dividend of 0.42 euros per share for 2017, lifting its shares more than 11 percent to their highest in more than six years.

Verbund, which generates its electricity almost exclusively from renewable sources such as hydropower, expects adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of 850 million euros ($1.05 billion) this year.

That would mark a further decline after an 11.7 percent drop to 922 million euros in 2017.

Like many of its rivals, the majority state-owned group is facing a slump in power prices and challenges, including European regulators’ decision to split up a joint power zone with Germany.

From October 2018, capacity on the border with Germany will no longer be unlimited and billions of euros in forward contracts will have to be settled differently.

Verbund has prepared for this by adjusting its trading systems and resources, amending contracts and modifying procurement practices.

“Verbund considers itself to be optimally positioned in light of the radical changes in conditions,” it said in its annual report.

Rivalry from Germany increased further after E.ON and RWE agreed a landmark deal which will transform RWE into Europe’s third-largest renewables group and E.ON into the continent’s largest network and retail energy player.

In response to the many challenges, Verbund is expanding into new business areas.

In cooperation with oil and gas group OMV it is setting up a comprehensive charging infrastructure for electric cars in Austria. Together with Siemens and steelmaker Voestalpine it is building a hydrogen power plant.

Verbund is also working on further reducing debt, which stood at 2.84 billion euros at the end of 2017, down around 12 percent from a year earlier.

Last year’s earnings decrease was largely due to non-recurring write-offs, a stake sale in its electric vehicle charging company Smatrics and an obligation to return an interest in a power plant, Verbund said.

It plans to pay out 40-45 percent of its 2018 adjusted group result, which it expects to come in at around 300 million euros, to its shareholders. ($1 = 0.8080 euros) (Reporting by Kirsti Knolle Editing by Susan Fenton and Keith Weir)