Engie SA is planning a retreat from its much-touted energy services business, instead following the playbook of a number of its peers in the European utility sector by sharpening its focus on renewable energy generation and regulated power and gas grids.
The French utility said July 31 that it has launched a strategic review of its client solutions unit, a sprawling collection of businesses that had been a key growth area under former CEO Isabelle Kocher, who was ousted by Engie's board in February.
Engie could also sell minority stakes in listed companies it co-owns, including water and waste group Suez SA and gas transmission operator GRTgaz SA, to fuel further growth in renewable energy as well as grid assets outside of France.
As part of the client solutions review, Engie will consider options for two-thirds of the unit, measured by revenue, although it said it would hold on to the decentralized infrastructure assets that fit most closely to the rest of its activities: district heating and cooling networks as well as on-site power generation and related services, which are mostly backed by long-term contracts.
Engie's chairman, Jean-Pierre Clamadieu, said the group was looking at all options for the asset-light remainder of the unit, including a sale or a spinoff and IPO. Client solutions also spans activities as diverse as infrastructure for electric vehicle charging; the operation of data centers; public lighting and CCTV; heating, ventilation and air-conditioning; and plumbing services, according to company documents.
French business news channel BFM Business had reported the potential divestment July 20, noting that smart city service Ineo, the company's video surveillance entities, and the Axima fire safety and refrigeration unit were among those on the chopping block. French newspaper Les Echos reported in May that Engie was considering a sale of its nuclear maintenance arm.
In parallel, Engie plans to increase annual renewable energy additions from about 3 GW to 4 GW in the midterm, reduce its exposure to French gas assets within the networks business, and double its €4 billion divestment program.
Aside from the potential sale of the client solutions businesses, Clamadieu said the higher divestment target could see a sale of its 32% stake in Suez and a minority stake in GRTgaz, in which Engie holds a 75% stake. The utility also owns GrDF SA, France's major gas distribution network operator.
Engie has emphasized in the past that Suez would remain part of its portfolio, but Clamadieu said "anything is open" now. "We have a pretty large basket of opportunities in front of us, and we will make sure that we choose the best ones," the executive said on a call with analysts.
'Simplify and focus'
Engie expects to appoint a new permanent CEO in September, and Clamadieu said the new strategy is supposed to provide a clear direction for new leadership. It is based on "a strong recognition that the group needs to simplify and to focus," the chairman said.
Engie's latest strategic pivot is the result of a yearlong review of the utility's activities, but the coronavirus crisis has lent it added urgency. During the first half of the year, current operating income in client solutions dropped to a loss of €142 million, compared to a profit of €414 million during the same period in 2019.
While results in renewables, networks and thermal power generation were largely stable, national lockdowns in almost all of Engie's markets meant work sites were shut down and services had to stop as clients closed up shop, Engie CFO Judith Hartmann said.
The effects of the pandemic shaved €850 million off Engie's current operating income in total, including nearly €500 million in client solutions and €240 million in its supply business. Exceptionally warm weather in France also dragged down results in supply and energy networks, the company said.
"The second quarter was the low point of our financial performance for this year," interim CEO Claire Waysand said. However, Engie is expecting a fairly swift recovery in the second half, with business activity having already improved close to levels before the crisis and energy demand also picking up, Waysand said.
Some analysts were surprised at Engie's decision to get rid of most of its services business and questioned whether the utility would be selling assets at the bottom of the cycle, after their valuations had been impacted heavily by the pandemic.
Clamadieu stressed that the company was not in a hurry to make deals, and Hartmann added that disposals would be timed so they would dilute earnings as little as possible.
The added financial firepower could go toward more gas and electricity networks outside of France. Engie recently completed its acquisition of Brazilian pipeline operator Transportadora Associada de Gás SA, and Clamadieu said the company is interested in similar opportunities as well as more decentralized infrastructure such as district heating and cooling networks.
In wind and solar, the chairman said that from now on, Engie would keep more assets on its balance sheet following a "pretty aggressive sell-down strategy" in recent years. Engie only recently agreed to sell a 49% stake in a 2.3-GW renewables portfolio in the U.S.
The company's latest refocusing follows a yearslong retreat from coal-powered generation and previous announcements to scale back Engie's geographic focus overall. The company said it would exit 25 countries by the end of 2021 — it had previously targeted 20 — and has already stopped development in some countries. Engie said it has also streamlined by merging regional business units, for example in Africa and Asia.