GDF 2012 Profit Plunges After Charge on Europe Power Assets

GDF Suez SA, the biggest European utility by market value, saw a 61 percent drop in 2012 profit after writing down the value of its power plants in the region.

Net income of 1.55 billion euros ($2 billion) compared with 4 billion euros a year earlier, the Paris-based company said today. Earnings before interest, taxes, depreciation and amortization rose 3 percent to 17 billion euros, in line with analyst estimates. It offered a 1.50 euro-a-share dividend, unchanged, and said payouts would remain at least at that level.

The 2 billion euros of charges mainly incurred on gas-fired power stations reflect weakness in Europe’s power market, where lower demand, the falling price of carbon emission permits and the relative expense of gas compared with coal have combined to make generation unprofitable. The trend has spurred GDF to focus investment in emerging markets including Brazil and Thailand.

“We have deeply transformed the group and we have accelerated the transformation with a clear focus on energy and priority to fast-growing markets,” Chief Executive Officer Gerard Mestrallet said during a call with investors. “The European energy market is undergoing lasting and deep changes. Our gas-fired generation assets have been hit.”

GDF fell 0.6 percent to 14.32 euros by 4:04 p.m. in Paris.

‘Demand Crisis’

Europe’s market, described as in a “demand crisis” by GDF, forced it to revise earnings goals in December, targets that Mestrallet confirmed today. Net recurring profit will fall to 3.1 billion to 3.5 billion euros in 2013, from 3.8 billion euros in 2012, and will be in the same range next year.

The charge on gas plants “is something already reflected on the ongoing profitability as described by management at their December investment day,” Citigroup Inc. analysts wrote. “The results and guidance are in line with our expectations and we see scope for positive reaction from the shares.”

GDF commissioned 6,200 megawatts of power plants last year, 90 percent in “fast-growing” markets, it said. That included power plants in Indonesia, Thailand, Brazil, Peru and Bahrain. In contrast, the group is closing, or mothballing, more than 8,000 megawatts of capacity in Europe between 2009 and 2013.

They are “mostly” gas-fired and some such as Belgium’s Herdersbrug will be transformed to operate only in peak-demand periods, according to Vice-Chairman Jean-Francois Cirelli. Two French natural-gas storage sites will also be mothballed.

Develop Renewables

“Our strategy in Europe is to develop in renewables, invest in renewables and energy efficiency, and not to grow our thermal facilities,” Mestrallet said. “We will pare those.”

GDF Suez also delayed its plan to restart Belgian nuclear reactors Doel-3 and Tihange-2 until the second quarter from this month. They were shut in August and September on concerns over safety at a cost of 50 million euros a month in lost Ebitda.

“We’re confident in our ability to restart the reactors,” Cirelli said. Hydraulic and materials tests are going ahead.

Net debt fell 2 billion euros to 43.9 billion euros in the fourth quarter, the company said. Capital expenditure in 2012 was 10 billion euros, while asset sales will have an 11 billion euro effect on net debt this year and next, the utility said.

“We’re making great strides” to shrink debt to about 30 billion euros by end-2014, Chief Financial Officer Isabelle Kocher said.

(Updates with vice chairman’s comment in ninth paragraph.)
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