French gas major GDF Suez cuts spending amid weaker oil, lower profits

By TARA PATEL
Bloomberg

GDF Suez SA, France’s former gas monopoly, will cut costs and delay spending as lower oil prices erode earnings this year. Profit in 2014 dropped 9% following outages at a nuclear reactor in Belgium and a Brazilian drought.

“We’re reacting quickly,” to lower crude and gas prices, CEO Gerard Mestrallet said Thursday on a conference call.

The “hit” on earnings before interest, taxes, depreciation and amortization in 2015 will be about 900 million euros ($1 billion) and on net recurring income about 350 million euros, Mestrallet said. Plans to spend 2 billion euros ($2.3 billion) this year and next on acquisitions, mergers, exploration and production will be pushed back, he said.

“Guidance sits below our expectations mainly as a result of a larger than forecasted impact from oil and gas price declines,” KBC Securities analyst Dieter Furniere said in a report. The outlook for 2015 is “uninspiring,” he said.

GDF shares rose as much as 1.8% to 19.64 euros and traded at 19.59 euros as of 9:41 a.m. in Paris.

Net recurring income was 3.1 billion euros ($3.52 billion) in 2014 from 3.4 billion euros the previous year, the Courbevoie, France-based utility said. That compares with the 3.15 billion-euro average estimate of 20 analysts surveyed by Bloomberg. It’s expected to increase from 2016, the company said.

Lower Forecast

GDF Suez had lowered its 2014 profit forecast because two nuclear reactors in Belgium remained halted due to safety checks of cracks in their cores. Earnings were also hurt by warmer than-average temperatures in France that led to lower demand for heating, as well as decreased hydroelectric output in Brazil because of the lowest levels of water in reservoirs in half a century.

A dividend of 1 euro/share will be paid for 2014 and at least the same amount will also be paid this year, the company said. Costs will be lowered by 250 million euros in 2015 and spending this year and next would be cut by 400 million euros for exploration and production and by 1.6 billion euros for mergers and acquisitions.

GDF Suez operates oil and gas fields and trades in liquefied natural gas (LNG) cargoes. Many natural-gas contracts are linked to crude prices.

“There could be a slight decrease in LNG margins in 2015,” deputy CEO Isabelle Kocher said during a presentation. “Competition is very hard” in natural gas distribution in Europe with some competitors making unprofitable offers, she said.

The utility, which operates atomic reactors, offshore gas platforms and hydropower dams, has closed or mothball more than 11,000 megawatts of capacity because of waning demand for gas- fired electricity in Europe. Mestrallet has sought to expand in Asia, Latin America and the Middle East to counter the slowdown.

The utility is expecting net recurring income of between 3 billion euros and 3.3 billion euros this year, and said a cost-savings plan since 2012 would reach a cumulative of more than 1 billion euros by the end of this year when the focus will be on cutting staff and costs in Europe.

Ebitda this year is expected to be between 11.7 billion euros and 12.3 billion euros due to “persisting weak conditions in mature markets” and continued poor rainfall in Brazil this year.

Earnings before interest, taxes, depreciation and amortization decreased 7% to 12.1 billion euros last year including an impact of 900 million euros from the cost-cutting plan.

GDF Suez had a net income of 2.4 billion euros in 2014, compared with a loss of 9.6 billion euros in 2013 after taking impairments on European power assets. Net debt was 27.5 billion euros at the end of December, down 1.3 billion euros.

The company expects net capital spending of between 6 billion euros and 7 billion euros a year on average for 2014 to 2016 as well as a “stable” dividend policy.

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