GDF Suez May Scale Back Dividends After Writing Down $20 Billion

GDF Suez SA, France’s largest natural-gas supplier, wrote down 14.9 billion euros ($20.4 billion) in asset values and goodwill and may cut dividends as Europe’s power market remains mired in its worst slump.

“We have decided to hit hard,” Chief Executive Officer Gerard Mestrallet said today on a conference call. The situation is “serious and long-lasting.”

The utility took impairments of 9.1 billion euros, mostly on European power assets, and goodwill of 5.8 billion euros, according to a statement. The shares rose after Mestrallet said earnings this year would be higher than previously forecast as GDF Suez made investments outside Europe and cut costs.

The Courbevoie-based company, which operates installations from atomic reactors in Belgium to offshore gas platforms, has been hurt by lower demand for gas-fired power during Europe’s economic decline, 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.

While GDF maintained a dividend of 1.50 euros a share for 2013, the utility said it would only pay a minimum of 1 euro from 2014 to 2016.

“Although the dividend cut might disappoint some, the yield is still attractive versus peers,” Citigroup Inc. analysts said in a note to clients. “Guidance should be the main focus and taken positively, but delivery depends largely on execution of growth investments.”

Shares Gain

GDF rose 6 percent, the biggest one-day gain since November 2011, to close at 18.615 euros in Paris trading.

The writedowns led to a 2013 net loss of 9.3 billion euros compared with a restated profit of 1.54 billion euros a year earlier, the company said in the statement. Earnings before interest, taxes, depreciation and amortization fell to 14.8 billion euros from 17 billion euros under new accounting rules.

“The depreciations will give us more flexibility in the management of our assets,” Mestrallet said. “The impairments are on the past” and show “we want to change our strategic priorities in Europe.”

Goodwill is an accounting measure used to value intangible assets on the balance sheets of companies. It’s often added to accounts during mergers and acquisitions to reconcile the difference between the value of assets and the purchase price. Management is responsible for regularly reviewing goodwill.

Investment Plan

For the 2014 to 2016 period, the utility plans to invest 6 billion to 8 billion euros annually, compared with 3 billion euros last year, and scale back asset sales to between 2 billion and 3 billion euros a year, GDF said. It increased a 2015 cost-cut target by 800 million euros to 4.5 billion euros.

Net debt was 29.8 billion euros at the end of December.

GDF Suez had already reduced earnings targets at the end of 2012, citing a “demand crisis” in Europe’s energy markets. It forecast net recurring profit would fall to 3.1 billion euros to 3.5 billion euros in 2013 from 3.8 billion euros in 2012, and be in the same range this year.

Net recurring income was 3.4 billion euros in 2013, it said today. The company is aiming for profit by that measure of 3.3 billion euros to 3.7 billion euros this year.

“We are moving out of a period of pressure on margins and getting out of the crisis,” Chief Financial Officer Isabelle Kocher said at a press briefing. In recording depreciations on European thermal-power assets, the utility has “hit harder” than other energy producers in the region, she said.