GDF Suez Set to Write Down Asset Values After Profit Falls

GDF Suez SA, France’s former natural-gas monopoly, said the value of European electricity generation and natural gas storage assets may be cut as nine-month profit fell on lower power prices.

“We have witnessed a further worsening of the outlook of two activities in particular in Europe, generation and gas storage,” Chief Executive Officer Gerard Mestrallet said on a conference call. “Forward power prices look increasingly weak.”

A change of asset values would affect 2013 net income and medium- and long-term electricity price scenarios will be adjusted, he said. The utility kept financial targets for 2013 while failing to reiterate an outlook for next year.

The shares fell as much as 2.2 percent and were trading down 19 cents to 18.295 euros in Paris.

GDF Suez, hurt by lower demand for gas-fired power in Europe, is closing plants to contain costs while seeking to expand in Asia, Latin America and the Middle East. Mestrallet has said the region’s “disastrous” energy policies prompted the utility to shut more than 10,000 megawatts of capacity.

“Our intention is to continue to transform the group, transform the composition of the assets of the region,” he said today on the call. The utility will “shift the center of gravity from mature to fast-growing markets.”

Earnings Drop

GDF Suez reported nine-month earnings before interest, taxes, depreciation and amortization fell 6.5 percent to 10.3 billion euros ($13.8 billion), adjusted to reflect changes in the way it accounts for its shareholding in Suez Environnement, according to the statement. That was in line with the average estimate of analysts surveyed by Bloomberg.

The utility kept its financial target for 2013 net recurring profit to be at the top end of the forecast range of 3.1 billion euros to 3.5 billion euros. That’s based on Ebitda of 13 billion euros to 14 billion euros.

GDF Suez had previously said 2014 performance for net recurring income was expected to be “in the same range” as this year.

Mestrallet and Chief Financial Officer Isabelle Kocher today declined to confirm the outlook for next year, give an indication of the level of the dividend for 2013, planned investment in 2014 or an estimated size of the expected writedowns for European energy assets. The figures will be given with full-year results in February, the CEO said.

Dividend Risk

“We see uncertainty for 2015 for which there is no guidance leading to a risk on the dividend,” Emmanuel Retif, analyst at Raymond James who has an underperform rating on the shares, said in a note today.

The value of some European assets may evolve in a “very unfavorable” way and there could be further plant closures, Kocher said on the call.

By the end of the first half of this year, GDF Suez had closed, mothballed or optimized 12,000 megawatts of capacity and is “finalizing’” the optimization of another 2,000 megawatts, according to Mestrallet. Between 5,000 and 7,000 of additional capacity is “under review.”

Net debt fell to 29.8 billion euros compared with 32.2 billion euros as of June 30, the company said. Lowering the debt to below 30 billion euros was done 15 months ahead of target. GDF Suez recorded a further 200 million euros of impairments in the first half after mothballing gas-fired plants.

GDF has also plans asset sales, which are designed to improve the balance sheet as well as expand and improve businesses in rapidly growing regions, Mestrallet said.

Belgian Reactors

Longer-than-expected shutdowns of Belgian nuclear reactors for safety checks will cost 318 million euros in Ebitda this year, the utility has said. It’s in talks with the Belgian government on extending operations of the Tihange-1 nuclear reactor and is suing the state over a tax on atomic energy.

At the end of last year GDF Suez reduced earnings targets, citing a “demand crisis” in Europe’s energy markets. In February the utility wrote down the value of its power plants in Europe by 2 billion euros, saying weaker demand, falling emission-permit prices and the cost of gas relative to coal combined to make generation unprofitable.

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