GDF Suez Warns 2014 Profit to Be in Lower Forecast Range

GDF Suez SA (GSZ), operator of Europe’s biggest natural-gas network, said its first-half profit dropped 13 percent and warned the outage of two Belgian nuclear reactors and reduced heating demand may weigh on full-year earnings.

While the utility confirmed 2014 financial targets, Courbevoie, France-based GDF Suez said these may be changed in the second half depending on what happens with the Belgium generators.

The utility has forecast net recurring income in the range of 3.3 billion to 3.7 billion euros ($4.4 billion to $5 billion) for the year, compared with 3.4 billion euros in 2013.

“We expect to be close to the low end” of the range under average weather conditions, even if the Belgian nuclear reactors are restarted in the fourth quarter, Chief Executive Officer Gerard Mestrallet said yesterday on a conference call.

“Even if we do better on financial charges, 3.3 billion euros is reachable but would be a good result,” Chief Financial Officer Isabelle Kocher said on the call. She cited the effects of the relatively warm winter in France, the Belgian reactors and the rising cost of producing electricity in Brazil as reservoirs dry up.

GDF Suez, which operates installations from atomic reactors and pipelines to offshore gas platforms, has been hurt by lower demand for gas-fired power during Europe’s economic slump, leading it to close or mothball more than 11,000 megawatts of capacity. Mestrallet has sought to expand in Asia, Latin America and the Middle East to counter the slowdown.

Earnings Drop

The utility reported yesterday that net recurring income fell to 2.125 billion euros from 2.425 billion euros a year earlier. Earnings before interest, taxes, depreciation and amortization declined 14 percent to 6.6 billion euros.

The utility beat an estimate compiled by Bloomberg of 2.04 billion euros for net recurring income over the period and just missed the 6.66 billion euro average of eight analysts’ estimates for Ebitda.

Net debt fell to 26 billion euros, 3.2 billion euros less than at the end of December, according to the statement. The company is aiming to cut debt and lower costs.

The outage of the Doel-3 and Tihange-2 nuclear reactors in Belgium that are run by GDF’s Electrabel unit is costing about 40 million euros a month in net recurring income, according to the utility.

Reactor Uncertainty

The future of the reactors has been clouded by uncertainty since cracks were found in their cores in 2012, prompting the Belgian authority to order operations halted until their safety could be assured. Further tests are being performed, Vice-Chairman Jean-Francois Cirelli said on the call.

In addition to the closures in Belgium, a tax on atomic energy in that country is “confiscatory” and would be fought by “all legal means” including arbitration, the utility said yesterday. The levy will cost GDF Suez 400 million euros a year, Cirelli said.

“We will examine all options concerning the future of our nuclear activities in Belgium,” he said.

The utility wrote down 14.9 billion euros in asset values and goodwill, it said in February, mostly because of the shutdown of European thermal plants. The shutdowns continued in the first half of the year, Cirelli said yesterday on the call.

For the 2014 to 2016 period, GDF Suez plans to invest 6 billion to 8 billion euros a year, compared with 3 billion euros last year, and scale back asset sales to 2 billion to 3 billion euros a year.

“There will be no transformative acquisitions because our group does not need it,” Mestrallet said. Instead, GDF Suez is studying “interesting” possibilities and will spend about 2 billion to 3 billion euros annually buying “small and medium-sized” assets in the next three years.

On the possibility of selling European energy infrastructure, he said GDF Suez has “no intention to do that right now.”

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Steven Frank, Carlos Caminada

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