French gas and power utility Engie will pull out of about 20 countries in the next three years and target new markets in developing nations, while probably steering clear of big acquisitions, its chief executive said.
Isabelle Kocher said that as Engie focuses its investments on energy services, renewable energy and infrastructure in the next three years, it will sell another 6 billion euros ($6.8 billion) worth of assets. It has sold 14 billion euros of mainly coal-related assets in the past three years.
Engie shares fell more than four percent as weaker-than-expected 2018 earnings overshadowed the strategy announcements.
At a presentation in London, Kocher said she wants to simplify the sprawling firm, present in some 70 countries.
She said Engie would focus on 20 countries where it is well established as well as on 30 metropolitan areas mainly in Southeast Asia and Africa where huge power needs can bring earnings growth.
CFO Judith Hartmann added that after Engie had simplified its business lines in the past three years, it now wants to simplify in terms of geography.
She said Engie would exit from some 20 countries with too much political risk, or where it cannot reach sufficient scale to be a significant player.
Investment will focus on three areas, she said, notably developed countries with high environmental sensibility in Western Europe, North America, as well as some Asian countries such as Australia and Singapore, where customers want renewable energy, infrastructure renewal and sophisticated energy solutions.
A second type of countries such as Brazil, the Gulf or Romania, already have good energy infrastructure but have room for more power demand growth. Despite lower ecological awareness, these countries too want major renewable energy investment, Hartmann said.
A third focus will be on countries with rapid urban development where not everyone has easy access to energy, such as in Africa, India, China, and parts of Southeast Asia. There, Engie will invest in offgrid power, microgrids and home solar.
Dangers of big M&A
Engie plans to invest 11 to 12 billion euros over the 2019-2021 period, of which about 4 billion per year will be for general capital expenditure and smaller bolt-on acquisitions.
The investment program will allocate 4 to 5 billion to energy services and 2.3 to 2.8 billion euros to renewables in order to finance about 9 gigawatt of new capacity. Another 3 to 3.3 billion will go to grids.
Kocher said that if a major acquisition could boost Engie's strategy, she would consider it, but added that the firm needs to be cautious and selective.
"We are, I am personally, very conservative regarding big M&A. That is probably a lesson I have learned from our past," said Kocher, in a rare reference to the billions of euros that Engie has had to write down following its disastrous acquisition of International Power in 2011-12.
Engie will cut costs by 800 million euro in 2019-21. In 2018, Engie revenue rose 1.7 percent to 60.6 billion euros and core earnings edged up 0.4 percent to 9.2 billion.
But current operating income fell 0.9 percent to 5.1 billion and net profit fell to 1.0 billion from 1.3 billion, partly due to extended outages of Engie's Belgian nuclear fleet.
Engie confirmed it would pay a 75 cent dividend. For 2019, Engie anticipates net recurring income of 2.5 to 2.7 billion euros, based on core earnings of 9.9 to 10.3 billion.
Engie shares trade at a third of their pre-financial crisis levels and have one of the lowest valuations in the European utilities industry index.