GDF-Suez in huge asset write-down

3 March 2014


Despite 'meeting all its 2013 targets' GDF-Suez wrote down €14.9 billion in assets during 2013, calling the move a glaring example of how Europe's large-scale power-generation industry has been crippled by wind and solar electricity. GDF reported a net loss of €9.3 billion for 2013, compared with a €1.54 billion net profit a year earlier. Excluding the effects of the write-down and asset sales, the company posted earnings of €3.4 billion for the year.

"We consider that the deterioration of gas storage and thermal-energy production in Europe is deep and long-lasting,' chief executive Gérard Mestrallet said on 27 February as the company published its annual results, reporting a loss for last year. He has said repeatedly that subsidies for renewable energy are turning traditional power production into a losing proposition.

Mr Mestrallet declared that the write-off 'shows our determination to transform the group quickly and decisively'. He believes that the company's future lies in emerging markets. "We want to become the leading power company in countries with strong growth," he said. Both statements seem to have rung true with the market, because GDF's shares rose 6% in Paris trading as analysts welcomed the move to clean the slate. GDF had already warned it would take the impairment charge.

The company has raised its forecast for 2014 net recurring income to between €3.3 billion and €3.7 billion, from an earlier forecast of between €3.1 billion and €3.5 billion.

Effects in Europe

Even for a large global company with annual revenues of almost €90 billion, the charge was extremely significant, cutting 12% from the value of its total assets.

"GDF, with German rivals RWE and E. ON, is among the utilities that have dominated Europe's power market for decades, but now the growth of subsidised renewable energy has undermined their traditional business models."

GDF, with German rivals RWE and E. ON, is among the utilities that have dominated Europe's power market for decades, but now the growth of subsidised renewable energy has undermined their traditional business models.

By the end of last year, GDF had mothballed around 10 GW of capacity. Another five GW are under review for closure. Elsewhere, in January RWE said that it would write down $4.5 billion of power-generation assets across Europe, and would report its first annual loss because of the charge. E. ON, Germany's largest utility by market value, has written down the value of its power plants by several billions of euros over the past two years.

Mr Mesrallet heads a group of utility CEOs lobbying to phase out subsidies to solar and wind power in Europe. GDF invests in renewable sources, but older traditional plants make up the vast bulk of its capacity.

Gas-fired power plants are the most vulnerable to the effects of subsidies. Coal-fired plants have done better - a result of the US shale-gas boom as power producers in the country have switched from coal. That has spurred US exports of coal, sending down its world price.

 

 



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