PREVIEW-GDF Suez seen unveiling steep cost-cutting plan

PARIS Mon Dec 3, 2012 11:55pm IST

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PARIS Dec 3 (Reuters) - GDF Suez was expected to outline more cost cuts to cope with Europe's downturn, when the French utility updates its outlook this week for what it has said will be a difficult 2013.

GDF Suez's main challenge at Thursday's investor day will be to demonstrate its ability to offset the impact of a glum economic environment which is hurting the group's outlook in the gas and electricity sectors, analysts said.

Europe's biggest utility, which cut 600 million euros ($780 million) costs this year, said at the end of October it could carry out a major asset disposal by the year-end to protect its credit rating.

"We estimate that GDF Suez has a controllable cost base of about 20 billion euros," UBS analyst Per Lekander said in a note. "This should allow it to step up the gross cost cutting from 600 million euros per annum to 1.2 billion euros per annum for 2014-15."

At this level, Lekander said, the plan could boost annual core earnings by around 500 million euros.

GDF Suez will have to detail the new measures and quantify the impact on net earnings to convince markets of the plan's benefits, Morgan Stanley analyst Emmanuel Turpin said.

Analysts said GDF Suez may not be able to predict anything better than stable EBITDA (earnings before interest, tax, depreciation and amortisation) for 2013.

Last month, E.ON, Germany's No. 1 utility, cut its 2013 outlook amid signs of weakening demand.

According to a Thomson Reuters I/B/E/S analyst poll, EBITDA next year is expected at 17.5 billion euros against a GDF Suez target of 17 billion.

"FIFTEEN YEARS AHEAD"

Analysts also said they hoped GDF Suez would forecast strong enough cash flow up until 2015 to imply a stable or slightly stronger dividend. The group was also expected to focus on investment and asset sale plans.

GDF Suez has said its investment in 2013 and 2014 will likely remain at the lower end of a 9-11 billion per year range.

The target was initially announced for the 2012-15 period and GDF Suez said those levels should remain unchanged until the economic situation in Europe recovered.

GDF Suez announced earlier this year the speeding up of its asset disposal plan to finance the minority stake purchase of International Power.

An analyst, who declined to be named, said the company was likely to announce a deal to buy Spanish group Repsol's liquefied natural gas (LNG) assets. Wansquare reported last week that GDF Suez was close to sealing a deal.

"This makes sense on a strategic level, but the market is really looking at the group's debt right now," the analyst said.

Analysts say GDF Suez is healthier financially than European rivals because it acted early to seize investment opportunities in emerging markets.

"They are 15 years ahead of their competitors. Everyone is now looking for new markets," the analyst said. ($1 = 0.7689 euro) (Additional reporting and writing by Muriel Boselli; Editing by Dan Lalor)

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