Engie to Cut Dividend From 2017 as Energy Rout Erodes Profit

  • Shareholder payout will shrink to 70 euro cents from 1 euro
  • Power-generation asset sales to cut debt by 5.5 billion euros

Engie SA, the French energy company formerly known as GDF Suez SA, will cut dividends, slash costs and sell as much as 15 billion euros ($16.5 billion) of assets by 2018 as earnings are dented by falling prices.

Engie will reduce shareholder payouts on fiscal 2017 and 2018 earnings, the company based in Courbevoie near Paris said Thursday in a statement. Net recurring income fell 5 percent to 2.6 billion euros last year, in line with analyst estimates compiled by Bloomberg.

“Prices of all commodities have collapsed in 2015,” Chairman and Chief Executive Officer Gerard Mestrallet said on a conference call. “The energy world has entered an unprecedented period of upheaval.”

Mestrallet wants to reduce Engie’s exposure to unregulated gas and power markets in the U.S., Europe and elsewhere to shield it from the price slump caused by surplus supply and government subsidies for clean energy. At the same time, the company plans to increase investment in energy-efficiency services as well as wind and solar power. It follows domestic peer Electricite de France SA in cutting dividends to weather the rout.

Asset Writedowns

Engie reported a full-year net loss of 4.6 billion euros compared with profit of 2.4 billion euros in 2014 as it wrote down 8.7 billion euros of assets in businesses including exploration and production and merchant power generation. Engie will pay a dividend of 1 euro a share this year and next before reducing it to 70 euro cents.

The company agreed Thursday to sell U.S. thermal and hydropower assets, and interests in two coal-fired plants in Indonesia and India. The disposals will trim annual earnings by about 600 million euros from next year, Chief Financial Officer Judith Hartmann said. They’ll also reduce net debt by 5.5 billion euros when the four deals close in the second half of 2016, according to a separate statement.

“The de-risking of the group together with an improvement in financial strength and already well-advanced asset-disposal plan offers a compelling investment equation,” Damien de Saint Germain, head of credit research and strategy at Credit Agricole SA, said in an e-mailed note.

Engie rose as much as 3.8 percent to 14 euros in Paris trading, and was at 13.97 euros as of 2:25 p.m. local time. The Stoxx 600 Utilities index advanced 2.1 percent.

Funding Boost

As part of Engie’s divestment program, exploration and production units will be under “systematic review,” according to the company. Asset sales will help fund 22 billion euros in capital spending by 2018, including acquisitions and 7 billion euros on maintenance.

The disposal plan doesn’t mean Engie has desisted from acquisitions. The company recently bought U.S.-based OpTerra Energy Services for $200 million and is working on the purchase of a Dutch wind-farm operator, Mestrallet said.

Regulated and contracted business that isn’t exposed to commodity prices will represent more than 85 percent of earnings in 2018, up from about half last year, Deputy CEO Isabelle Kocher said on the call. 

Belgian Business

On top of the 15 billion-euro asset-sale plan, the company may also sell a minority stake in its Belgian operations, which include seven nuclear plants, Mestrallet said at an analyst briefing. A decision should be made in 12 to 18 months, Kocher said. The divestment program doesn’t include Engie’s liquefied natural gas business or its stake in Suez Environnement.

Engie is deepening cost cuts, targeting savings that will have a cumulative net impact on earnings before interest, taxes, depreciation and amortization of 1 billion euros by 2018.

Ebitda fell 7.2 percent in 2015 to 11.3 billion euros as revenue dropped 6.4 percent to 69.9 billion euros, hurt by lower energy prices as well as by reactor shutdowns in Belgium. In 2016, Ebitda will be 10.8 billion to 11.4 billion euros, while net recurring income will be 2.4 billion to 2.7 billion euros, Engie said.

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