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Europe utilities boost dividends but outlook uncertain

Britain's International Power warned that falling gas prices and lower energy demand would hit this year's profits while joining Italian grid operator Terna SpA in offering shareholders a fatter 2008 dividend.

“In the absence of a significant improvement in pricing in the US and the UK, it is likely group profitability in 2009 will be lower than in 2008,” International Power Chairman Sir Neville Sims said.

Gas prices have fallen since mid-2008 and economies are slowing, spelling trouble for power generators such as International Power, which operates in 20 countries.

International Power turned in a 16% rise in 2008 profits and hiked its dividend 20% but its shares shed 5% on the 2009 profit outlook.

Terna, helped this year after Italy's energy regulator approved rules to cap any rise or fall in consumer power demand at 0.5%, posted a 5.6% fall in 2008 net profit hit by one-off items.

But it too raised its 2008 dividend, lifting it by 4.6% to €0.158 per share.

The company, which announced its plans for the next four years in February, aims to increase its payout to investors by at least 4% per year through to 2013.

For 2009, its focus is investment as it kicks off a 4-year plan to spend more than €3 billion.

“The company will work hard on the timely implementation of investments laid out in the development plan,” Terna said.

On Tuesday, E.ON, the world's biggest utility by sales, cut its 2010 profit expectations by around 10% and said the global economic crisis meant its outlook for the current year was “burdened with insecurities.”

E.ON cited lower electricity and gas sales volumes because of the economic crisis among factors prompting it to cut its 2010 guidance.

It said 2009 adjusted operating profit would be unchanged from 2008's €9.9 billion.

Top Italian power generator Enel reports results on Thursday and 20 brokers on average are expecting net income of €5.259 billion, up from €3.977 billion in 2007, according to Enel's website.

Chief Executive Fulvio Conti has already committed the company - burdened with over €60 billion of debt - to an unchanged dividend payout of €0.49 on 2008 results.

But investors may still be tapped for a capital increase - which a source close to the operation has said could be for as much €8 billion - as it looks for ways to cut its debt.

Enel added €11 billion to its debt earlier this year when it bought out Spain's Acciona, to take 92% of Spanish utility Endesa.

Analysts have suggested another option for Enel would be to cut or pass on its dividend or sell assets - although current low valuations make that a less appetizing choice.

Another option could be to cut back on capex plans, a step which E.ON has indicated it will take. (Reuters)