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GDF books 15 billion euro charge as price slump sticks

By Geert De Clercq

PARIS (Reuters) - GDF Suez (PAR:GSZ) took a 15 billion euro (12 billion pounds) write-down in its 2013 results mainly for gas storage and gas power plants whose value was hit by a price slump, but new dividend and profit guidance for the years ahead lifted its share price.

Its shares rose more than three percent even though the write-down tipped the business into loss against a forecast profit of 2.7 billion euros, as the market focused instead on a dividend policy more in line with that of its peer group, progress on debt reduction, and the positive earnings outlook.

GDF took a 9.1 billion euro impairment on assets and a 5.8 billion impairment on goodwill, swinging to a full-year 2013 net loss of 9.74 billion euros from a 1.54 billion profit in 2012.

"This (write-down) decision reflects the group's conviction that this situation is serious and long-lasting," GDF Chief Executive Gerard Mestrallet said on a conference call.

For the years ahead, GDF said it expected a 2014 net recurrent profit between 3.3 and 3.7 billion euros - in line with the 2013 figure of 3.4 billion before the write-down, net investments of between 6 and 8 billion euros, and a ratio of debt to core earnings of maximum 2.5.

Mestrallet said the impairment charges would have no effect on cash or cash flow generation, which stand respectively at 8.8 billion euros and 10.4 billion.

"The deterioration of the situation in thermal power generation in Europe is durable and profound," Mestrallet said, adding that "this accounting decision will have no impact on the financial health of the group, which remains very robust".

GDF proposed an unchanged dividend of 1.5 euros per share and indicated that for the 2014-16 period it would aim for a dividend payout ratio of 65 to 75 percent and a minimum payout of one euro per share, payable in cash.

Kepler Cheuvreux analyst Xavier Caroen said the new dividend policy is more in line with the sector.

"We view this move as smart and positive as it gives the group flexibility to adjust it if need be," he said.


GDF Suez warned in November of more write-downs on 2013 when it released nine-month earnings - which were down 6.5 percent.

"Visibility is now clear on the investment case, with a clear dividend policy and quite a positive outlook on 2014 earnings," Caroen said in a note.

GDF shares have risen about 24 percent over the past 12 months, which is around the median performance for the 26-share Stoxx European Utilities index . GDF's book value per share is the lowest in the index at just 0.71.

European power utilities are suffering a price slump because a boom in subsidised solar and wind energy has led to overcapacity, while power demand has been depressed by the economic crisis and energy efficiency measures.

Wholesale power prices across the continent have more than halved from their 2008 highs.

GDF's German peer RWE (GER:RWE) took a 2013 write-down of 3.3 billion euros, more than twice its 2012 net profit, reflecting losses at coal- and gas-fired power plants.

German power prices for baseload (24 hours) delivery in 2015 dropped as low as 35.20 euros per megawatt-hour (MWh) on Wednesday, their weakest since March 2005 and have fallen more than 60 percent since the financial crisis began in 2008.

Swedish utility Vattenfall's CEO Oystein Loseth said in June he expected the utilities industry to remain in dire straits until at least 2020 because of oversupply, falling demand and a difficult regulatory framework.

(Additional reporting by Benjamin Mallet and Michel Rose; Editing by Andrew Callus and Jon Boyle)

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