French utility GDF Suez took a "massive” €14.9bn impairment charge and warned it could cut its dividend, adding that the crisis in Europe’s energy market shows no signs of abating, according to a Financial Times report. The world’s biggest power producer by output said that impairments of €9.1bn and a goodwill charge of €5.8bn led to a net loss for the full year of €9.3bn, compared with a €1.5bn profit in the same period last year.
The writedown reflects the declining value of European gas power plants, which are struggling with overcapacity because of subsidised renewable energy and cheap coal imports flooding in from the US. But investors reacted positively to the move, with the share price rising 6 per cent. Analysts said that the writedown and dividend move gave them more clarity, and a corresponding rise in 2014 forecasts and capital expenditure was positive. "By deciding to write down massively our [European power generation] activities it is a demonstration that we want to accelerate the transformation of the group,” said Gérard Mestrallet, chief executive. Mr Mestrallet is attempting to move GDF Suez into high-growth markets, such as Latin America and the Middle East, by shifting the focus away from Europe.
Over the past five to six years about 50,000MW of gas-fired capacity in Europe – equivalent to 50 nuclear plants – have been closed or mothballed by 10 of the continent’s biggest utilities amid weak demand and the rise of renewable energy. In Germany the "Energiewende” – or energy transformation – towards renewable energy has been particularly pronounced, with German utilities shutting or mothballing conventional energy plants.
RWE, Germany’s second-biggest utility, took a 2013 writedown of €3.3bn, more than twice its 2012 net profit amid low wholesale power prices and weak demand for energy because of the crisis in the eurozone. Mr Mestrallet said that amid the turmoil in Europe’s traditional energy markets, the group was moving its business towards renewable energy as well as energy services, for example installing smart technology in houses to reduce fuel bills.
Full-year operating profits at GDF Suez were lower over the year, with earnings before interest, taxes, depreciation and amortisation down from €17bn in 2012 to €14.8bn last year. The group added that the dividend may be cut. It announced a dividend of €1.50 a share for last year but said it would pay a minimum of €1 a share from 2014 to 2016, with the extra money being used for investment. The utility said it would increase capital expenditure more than 20 per cent to between €8bn-€9bn and scale back asset sales to between €2bn and €3bn a year. Its net debt was €29.8bn at the end of last year. Mr Mestrallet said that the company was increasingly more of a growth stock than a dividend stock, with the payout rate falling from 100 per cent to 65-75 per cent.
Sofia Savvantidou, Citi analyst, said that while the writedowns by GDF were more than expected, the overall results were in line, and an increase in 2014 guidance to net income of between €3.3bn-€3.7bn was positive.
Martin Brough, analyst at Deutsche Bank, said: "The clarity of the new policy, the coverage by earnings and the growth capex should give confidence for new investors to come into the stock.”
