UPDATE 3-GDF Suez writes down European assets, expands in Asia

Thu Feb 28, 2013 11:40am EST

Related Topics

* Writes down 2 bln euros of Europe gas power plants

* Focuses nearly all new investment in emerging markets

* In Europe, focus on renewables and energy efficiency

* Further 11 bln euro asset sales planned in mature markets (Adds CEO, analyst comments)

By Geert De Clercq

PARIS, Feb 28 (Reuters) - French utility GDF Suez wrote down 2 billion euros ($2.6 billion) worth of uneconomic gas power plants in Europe and said that nearly all its new investments will focus on energy-hungry emerging markets.

Many of GDF Suez's European gas-fired power plants are no longer economical to operate because of competition from cheap coal and renewable energy and because the economic crisis has hit power demand across the continent.

GDF Suez mothballed or closed 7.3 gigawatts of electricity generating capacity during 2009-2013 and has recently decided to take another 1.3 gigawatts offline - a total roughly equivalent to the capacity of eight nuclear power plants.

"It makes no sense to continue operating assets at a loss," GDF Suez Chief Financial Officer Isabelle Kocher said.

The impairment dragged 2012 net profit down to 1.6 billion euros ($2.10 billion) from 4 billion in 2011.

GDF Suez stock rose 1.5 percent in opening trade but was down 0.6 percent by mid-afternoon, hovering just above all-time lows hit after a profit warning in December.

Over the past 12 months, the French gas giant's shares have been the second-worst performer in the Stoxx Europe Utilities index, down 28 percent. They now trade on a price/book ratio of 0.54, the cheapest in the index.

Chief Executive Gerard Mestrallet said GDF Suez would continue to close or mothball European gas plants that generate cash losses, which will allow the firm to focus on other types of energy production in Europe and growth in emerging markets.

"In Europe, our strategy is to develop in renewables and energy efficiency," Mestrallet said.

He said that 90 percent of the 12 billion euros worth of asset disposals since 2011 had been done in mature markets.

GDF Suez aims to sell another 11 billion worth of assets in 2013-14, mainly in mature markets. The sales will help cut net debt to 30 billion euros by the end of 2014 from 43.9 billion at the end of 2012.

CAPACITY GROWTH IN ASIA, BRAZIL

While GDF Suez slows down in Europe, it is expanding in Asia and other emerging economies.

Of the total 6.2 gigawatts in power capacity the firm commissioned in 2012, 90 percent was in fast-growing markets including Indonesia, Thailand and Brazil.

Mestrallet said 40 percent of the firm's installed power capacity is now located in emerging markets and 80 percent of the 10 gigawatts it has under construction is there.

He added that the acquisition of Britain's International Power, completed in June, has given GDF Suez access to several new markets, including Kuwait and Morocco.

GDF Suez reiterated guidance given in December for 2013 net recurring income of between 3.1 and 3.5 billion euros and said it expected 2014 profit to be in the same range. It expects financial performance to rebound in 2015.

It proposed an unchanged dividend of 1.5 euros per share.

"The only negative, but perhaps not surprising, of the results is the 2 billion euro writedown the group took, which is non-cash and relates to energy market trends in Europe," Citi analyst Sofia Savvantidou said in a note to clients.

Group sales rose 7 percent to 97 billion euros, while core earnings before interest, tax, depreciation and amortisation (EBITDA) were up 3 percent.

A negative impact on EBITDA were the closures of two nuclear plants in Belgium, where its Electrabel unit had to halt reactors in 2012 after the regulator found indications of cracks in their core tanks. GDF Suez expects to restart the two reactors in the second quarter.

Analysts wonder whether it makes sense for GDF Suez to remain active in nuclear power, which represents only 5 percent of its 116 gigawatt generation capacity.

Mestrallet said he did not want to close the door on nuclear as he wants a diversified energy mix - 59 percent of GDF Suez's plants run on gas, 14 percent on coal, 14 percent on hydropower.

He said GDF Suez is looking at nuclear projects in several countries, including Britain, in a joint venture with Spain's Iberdrola. The firm will not decide on the British project before 2015 he said. ($1 = 0.7628 euros) (Reporting by Geert De Clercq; Editing by Erica Billingham)

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