Gérard Mestrallet, chief executive of GDF Suez, pledged a 32 per cent increase in operating profits over the next three years at the world’s biggest utility on the back of its acquisition of Britain’s International Power.
|Sales||Net profit||Earnings per share||Dividend|
|↑ 5.7%||↑ 3.1%||↑ 3%||↑ 2%|
The promise to take operating profits to €20bn ($28bn) by 2013 came as GDF Suez reported a 3.1 per cent rise in annual net profits for 2010 to €4.6bn, an increase that was held back by a painful gap between low gas prices and high cost long-term supply contracts.
The group announced that it would meet the 2013 target through new growth opportunities and a €900m cost reduction this year. It will also seek to renegotiate long-term supply contracts to reduce the gap with spot prices that has forced it to sell to industrial customers at a cost of some €800m over the last two years. The discovery of vast reserves of non-conventional gas has brought wholesale prices tumbling over the last year.
Jean-François Cirelli, vice chairman of GDF Suez, said renegotiating the contracts was “the major challenge for this year”, after the group already renegotiated with suppliers for a bigger link to spot prices in 2010.
Mr Mestrallet said 2010 had delivered “solid results”, with the group outperfoming all its targets in spite of the problems of the gas glut. Revenues had increased by 5.7 per cent to €84.5bn, and though net debt had increased by €3.8bn to €33.8bn, GDF Suez continued to have one of the strongest balance sheets in its sector. Net debt to ebitda (earnings before interest, tax, depreciation and amortisation) was 2.2 times, and borrowings as a percentage of shareholders funds, or gearing, was 47.8 per cent.
Mr Mestrallet said the group was committed to maintaining its strong A rating, and would sell some €10bn in assets over the next three years to ensure flexibility. This could include the sale of minority stakes to partners in certain exploration and production activities, and the sale of a share in its GRT gas transportation network.
New European rules calling for a separation between utilities and transport networks were expected to bring new opportunities on the market and it made sense to have a partner willing to help fund GRT’s growth, he said.
France’s state-owned Caisse des Depots, often called the armed wing of the state due to its role in helping to fend off unwanted foriegn bids for French companies, is expected to take a minority stake in GRT Gaz this year.
After taking control of International Power at the end of last year, GDF Suez intends to accelerate its expansion in fast-growing emerging markets. Capital investment of €11bn a year has been budgeted to reach an installed power capacity of 150 GW by 2015. The dividend was increased by 2 per cent to €1.50.