GDF Suez SA, Europe’s largest utility by market value, said earnings will fall next year because of a “challenging” economic outlook.
Recurring net income will be 3.1 billion euros ($4 billion) to 3.5 billion euros next year, compared with an expected 3.7 billion to 4.2 billion in 2012, France’s former gas monopoly said in a statement yesterday. Profit will be “in the same range” in 2014. The company said it would cut investment, while maintaining dividend payments.
GDF Suez, which published the financial targets before an investor day in Paris tomorrow, said the worsening outlook was because of a “demand crisis” in Europe, the economic slowdown and the boom in U.S. gas production.
GDF Suez plans to cut its share of profit coming from Europe as the regional debt crisis slows demand. The utility is seeking to double sales of liquefied natural gas to emerging markets by 2020 in a push into faster-growing economies. Chief Executive Officer Gerard Mestrallet has said changing European regulations will discourage investment.
The financial targets for 2013 are based on estimated earnings before interest, taxes, depreciation and amortization of between 13 billion and 14 billion euros, the Paris-based company said. This compares with an outlook for Ebitda of 17 billion euros this year.
The utility, which had debt of 45.9 billion euros at the end of September, didn’t repeat a forecast from earlier this year for recurring net income to reach 5 billion euros in 2015. Yesterday’s statement only said they expect a “rebound.”
The gas distributor plans to reduce debt by one third to around 30 billion euros by the end of 2014 and will cut spending by about 20 percent to 7 billion to 8 billion euros a year in 2013 and 2014, according to the statement.
That’s lower than the outlook given this year for spending at the “lower end” of a 9 billion- to 11 billion-euro range in 2013. The utility has targeted investment of 10 billion to 11 billion euros this year.
The lower debt will come partly from an end to an investor pact regarding Suez Environnement, which will allow GDF Suez, which owns 34 percent, to change the way it consolidates the water utility.
This year was marked by higher taxes in Belgium and an inability to “offset the rise in supply costs” in France, GDF Suez said yesterday. Mestrallet has said European regulations that don’t favor investment have hastened the company’s shift toward faster-growing markets.
GDF Suez agreed in April to buy the 30 percent of International Power Plc it doesn’t own for 8.4 billion euros to expand in Asia and Latin America. After the deal, GDF Suez sees capacity of 132,000 megawatts as power plants are built in Brazil, Indonesia and Thailand.
In France, the utility has about 86 percent of the household gas market. The government allowed GDF Suez to raise regulated gas prices by 2 percent on Oct. 1. The government is scheduled to announce new rates Dec. 10 after the country’s highest court struck down the price cap.
The dispute is the latest in a conflict over pricing between GDF Suez and the government, which holds a 35 percent stake in the utility.