* Net profit down 25 pct on weak power generation market
* Sees no sign of improvement, takes 441 mln euro impairment
* Shares up 5 pct as firm maintains earnings guidance
* EU utilities struggle with overcapacity, slack demand
(Adds CEO, CFO, analyst comments, detail, background, shares)
By Geert De Clercq
PARIS, Aug 1 French gas and power group GDF Suez
posted a 25 percent drop in first-half net profit on
Thursday and said it saw no sign of improvement in Europe's
power generation market, where utilities are struggling with
overcapacity and slack demand.
But shares in Europe's second-biggest gas and power company
by market value after French rival EDF rose more than 5
percent as the firm kept its full-year earnings guidance and
said its emerging markets business was going strong.
European power demand has been falling since 2008 because of
a weak economy and rising energy efficiency.
On the supply side, solar and wind energy have shaken up
utilities' traditional model of centralised power generation in
nuclear and fossil fuel-fired plants, while imports of cheap
coal from the United States are making recently built gas-fired
power plants uneconomical to run.
"The group is evolving in a still uncertain and challenging
economic environment, particularly in power generation in Europe
where depressed market conditions do not yet offer any sign of
improvement," GDF Suez said.
Last week, Sweden's Vattenfall, one of Europe's
biggest energy firms, wrote down the value of its business by
$4.6 billion, saying there was no recovery in sight for Europe's
ailing electricity markets.
Austrian hydropower firm Verbund also blamed its
operating losses on upheaval in electricity markets as it
struggled to compete with heavily subsidised renewable energy
German utilities E.ON and RWE report
earnings on Aug. 13 and 14 respectively.
Chief Executive Gerard Mestrallet said on a conference call
that, given the difficult circumstances, GDF Suez coped
relatively well, thanks to an unusually cold winter and spring
and growth in its business outside Europe.
First-half net profit fell to 1.7 billion euros ($2.3
billion) as the group took 441 million of impairments on assets
The company nonetheless said it was confident its net
recurring income - down 1.7 percent to 2.4 billion euros in the
first half - would reach its full-year target of 3.1 billion to
3.5 billion euros. In 2012, it stood at 3.8 billion euros.
"There is a higher probability to be closer to the upper end
of this range than to the bottom of this range," chief financial
officer Isabelle Kocher said.
Core profit, or earnings before interest, tax, depreciation
and amortisation (EBITDA), fell 6.6 percent to 7.6 billion
euros, while revenue fell 1.5 percent to 42.6 billion.
Brian Garnier analyst Julien Desmaretz said in a note the
earnings were solid and in line with expectations at the EBITDA
level and slightly ahead at recurring net income.
In GDF Suez's key European business, core earnings fell 15.5
percent to 2.1 billion euros, despite the cold winter and spring
and despite higher gas tariffs in France.
French wholesale forward electricity prices, at around 42
euros per megawatt-hour, are at their lowest levels since 2005.
GDF Suez has closed or mothballed 12 gigawatts of
electricity capacity - the equivalent of about 12 nuclear plants
- since 2009 as its gas-fired plants cannot compete with cheap
coal imported from the United States.
It mothballed 1.6 gigawatts in the first half and has put
another 2 gigawatts under review - its gas plants turning at
only a third of their capacity in the first half of 2013.
Mestrallet said GDF Suez hoped to announce a divestment in
traditional generation in Europe in comings weeks, but declined
to be more specific.
The firm said in February it planned to sell another 11
billion euros of assets in 2013-14, focusing on mature markets
with limited growth potential, non-core assets and minority
stakes in non-strategic locations or activity.
The sales should help cut net debt, which fell 4.4 billion
euros to 32.2 billion at the end of the first half.
Core profit at GDF Suez's international business was up 0.6
percent to 2.16 billion euros. In 2012, 40 percent of the
group's 117 gigawatts of power capacity was located in emerging
markets in Asia, the Middle East and Latin America.
The firm focuses nearly half of its growth capital spending
on fast-growing countries. At the end of June, it had 7.1
gigawatts of capacity under construction, with about 75 percent
of that in fast-growing markets. In Europe, GDF Suez focuses
investment on renewable energies like wind and solar, and on
energy efficiency services for corporate and public clients.
($1 = 0.7531 euros)
(Additional reporting by Benjamin Mallet; Editing by James
Regan and Mark Potter)