UPDATE 3-EDF shares jump on unexpected hike in dividend

Thu Feb 14, 2013 2:33pm EST

Related Topics

* Shares jump as much as 6.3 percent

* EDF sees flat EBITDA, investments flat at 12 bln euros

* EDF plans cuts of 1 bln euros in operating, capital spending

* No asset sales announced; Alpic stake under review (Adds in 18 paragraph that France will take part of dividend in shares.)

By Geert De Clercq

PARIS, Feb 14 (Reuters) - Shares in EDF, Europe's No. 1 electricity producer, surged on Thursday after the French utility unexpectedly increased its dividend increase, on the back of a multi-billion euro government payout for renewables.

EDF also said it would cut 1 billion euros ($1.34 billion) of costs, on top of a 2.5 billion cost-cutting programme begun in 2011, to shave 5 percent off operating and capital expenditure this year.

Like other European utilities, EDF faces falling demand due to the weak economy in the region, and a drive for greater energy efficiency. They are also burdened with big debts built up through rapid expansion before the 2008 financial crisis.

"The year 2013 did not start well, and we are looking at how to reduce our costs," EDF chief executive Henri Proglio said.

EDF expects stable core EBITDA earnings in 2013 amid deteriorating business conditions and will keep its investment outlay flat at 12 billion euros. Net profit in 2012 was up 5.3 percent to 3.3 billion, below consensus for a 9.77 percent rise.

Against analyst expectations, the firm did not announce asset sales, but Proglio said that EDF was reviewing whether to keep its 25 percent stake in Alpiq, which provides a third of Swiss energy needs.

Proglio denied EDF was under pressure to sell assets to cut debt, and said he did not like minority shareholdings.

"We like to control our own destiny," he said. Asked whether Alpiq was a long-term investment, he said, "Probably not".

Analysts say a capital increase at Alpiq, which has a market value of 2.4 billion euros, might be the catalyst for an EDF exit, as a majority stake is out of reach.

"For political reasons, it is unlikely the other Alpiq shareholders sell to the French," ZKB analyst Sven Bucher said.

DIVIDEND, DEBT

EDF offered a 1.25 euro dividend, up from 1.15 euros and above Thomson Reuters I/B/E/S consensus for a flat payout. Shareholders can choose to receive the extra 10 cents in shares.

"Increasing the dividend despite the absence of any certainty about future tariff-capex trends is either adventurous or a very strong signal," a Paris-based trader said.

EDF said its closely watched net financial debt to EBITDA ratio had fallen to 2.4 from 2.5 following the January agreement on renewable energy subsidies under which EDF used 2.4 billion euros out of a 4.9 billion payout to reduce its debt.

Pro forma net debt, taking into account the one-off renewables refund, rose to 39.2 billion euros, above the 2011 level of 33.3 billion, but below a 42 billion consensus.

EDF shares rose 5.1 percent to 14.97 euros by 1524 GMT, having hit 15.15 on the second highest volume since December.

EDF stock has underperformed, in part because the state, which owns 84.4 percent of its shares, caps electricity prices while demanding high dividends, pushing EDF deeper into debt.

"As a shareholder, the French state wants the highest possible dividend. As a regulator, it wants to control electricity tariffs," Proglio said.

The French state said it would exercise the option to take 10 cents of its dividend for each share in the form of new shares in the utility.

Talks about tariffs are due over the next few months.

In 2011-2025, EDF needs to spend 55 billion euros to upgrade its ageing nuclear fleet and EDF is keen to increase electricity prices. It also hopes to extend the life span of its fleet to 60 years from 40.

"There must be a correlation between the level of investment in plant renewal and plant lifetime," Proglio said.

In 2012, EDF invested 12 billion euros, of which 3 billion euros on networks and 2.7 billion on nuclear maintenance.

Proglio said EDF is continuing talks with Britain about setting an electricity sales price for its plan to build nuclear plants after its partner Centrica pulled out.

He expects a deal by the end of the first quarter. ($1 = 0.7442 euros) (Additional reporting by Benjamin Mallet, Christian Plumb, Alexandre Boksenbaum-Granier, Ruppert Pretterklieber and Silke Koltrowitz; Editing by Louise Ireland)

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