GDF books 15 billion euro charge as gas price slump sticks

By Geert De Clercq

PARIS (Reuters) - GDF Suez took a 15 billion euro (12 billion pounds) writedown in 2013, 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.

GDF's stock rose more than 6 percent in the biggest volume since June, even though the writedown tipped it into loss against a forecast profit of 2.7 billion euros, as the market focused on its dividend policy, progress on debt reduction and a positive earnings outlook.

The French gas and power utility 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 from a 1.54 billion profit in 2012.

"The deterioration of the situation in thermal power generation in Europe is durable and profound," GDF Chief Executive Gerard Mestrallet told reporters.

He said the crisis in the European utilities sector would last for a long time and that the writedown was based on the view that the industry's old business model of centralised energy production will never come back.

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.

GDF said the impairment charges have no effect on cash or cash flow generation, respectively at 8.8 billion euros and 10.4 billion, nor on the financial health of the group.

Revenue eased 0.8 percent to 81.3 billion euros and core earnings before interest, tax, depreciation and amortisation (EBITDA) fell 8.1 percent to 13.4 billion euros due to asset sales, foreign exchange losses and lower power prices.

International core profit rose 4.2 percent to 3.9 billion euros, but in European energy it fell 15 percent to 3.4 billion.

"CREDIBLE DIVIDEND"

Net recurring income, which is closely watched by financial analysts, came in at 3.4 billion euros, at the high end of the firm's 3.1-3.5 billion guidance range.

The firm lifted its forecast for 2014 net recurring profit to 3.3-3.7 billion euros and for EBITDA to 12.3-13.3 billion euros and proposed an unchanged dividend of 1.5 euros per share.

For the 2014-16 period it will aim for a payout ratio of 65 to 75 percent and a minimum dividend of one euro per share.

Deutsche Bank said in a note that although the writedown was huge, the credible dividend commitment, strong balance sheet and increased investments for growth should allow the shares to rally to around 20 euros from the current 18.5 euros.

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.

Chief financial officer Isabelle Kocher said the writedowns, because they will lead to lower annual depreciations, will boost recurring net profit by about 350 million euros from this year.

GDF'S net debt fell 6.8 billion to 29.8 billion euros. Mestrallet said GDF wants to keep debt below 30 billion and its net debt to EBIDTA ratio at or below 2.5 times.

"VALLEY OF TEARS"

GDF had warned in November of more write-downs on 2013 when it released nine-month earnings - which were down 6.5 percent - but had not indicated they would be so huge.

GDF shares have risen about 30 percent over the past 12 months, which is around the median performance for the 26-share Stoxx European Utilities index <.SX6P>.

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

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

Its CEO Peter Terium said late last year he expected 2014 would by a "valley of tears" for the utilities sector.

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