EDF Net Profit Steady As Buys, Contracts Offset Demand Slump

French utility Electricite de France SA(EDF.FR) Thursday posted flat first-half profits in a deteriorating market, aided by higher prices on power contracts and acquisitions that helped offset costs related to its British Energy purchase.

The company reported net income of EUR3.11 billion for the six months ending June 30 even though sales increased 8% to EUR34.9 billion, buoyed by a strong performance in its international business operations.

Contracts in some European countries such as Germany and Poland were settled at high prices before the financial crisis began to take its toll on energy demand. Meanwhile U.K. profits jumped due to increased operating rates from its recently acquired U.K. nuclear power stations.

Interest expenses and other charges related to this year's GBP12.5 billion (EUR14.60 billion) acquisition of U.K. nuclear power operator British Energy weighed down the net profit, though the consolidation of the UK unit also provided a boost to EDF's earnings.

French electricity consumption fell 0.9% in the first half while German and U.K. electricity consumption dropped 6.5% and 5% respsectively during the same period.

EDF's chief executive has called publicly for the French government to increase regulated electricity tariffs , arguing for a 20% increase in French regulated power tariffs over three or four years to fund investment.

The proposed increase has heightened sensitivity about how much money the group has spent on foreign development.

The French government, including Finance Minister Christine Lagarde, has reacted sharply to the request, saying it wouldn't endorse such a steep rise.

EDF's chairman and chief executive officer, Pierre Gadonneix, said international operating capital expenditure is "self-financed through international cash-flow" and not linked to its operations in France. For instance, financial expenses related to the British Energy purchase will be covered by cash generated from the U.K. nuclear power generator.

EDF will also book a net cash gain of EUR1.2 billion by selling a 20% stake in British Energy to the U.K. utility, Centrica PLC (CNA.LN), subject to regulatory approval. The deal includes the sale of a 51% stake in Belgian utility SPE to the French utility.

Centrica's CEO Sam Laidlaw doesn't foresee any regulatory issues since the board had already agreed to EDF's purchase of the nuclear operator even though it already has a large presence in the U.K. power market. Laidlaw expects to receive a ruling sometime in August although it could potentially face further review.

Centrica also launched a hostile bid for the 70.1% of U.K. independent oil and gas company Venture Production PLC (VPC.LN) that it doesn't already own. Venture's management has recommended that shareholders reject the offer, which values Venture at GBP1.3 billion.

Laidlaw said during the company's first-half earnings that the company wouldn't increase its final offer unless another bidder steps in and has other options it could pursue that could "replicate the opportunities that we see with Venture."

Centrica, the U.K.'s largest utility by customers, Thursday posted a 28% rise in first half net income to GBP537 million from GBP418 million in the same period a year ago due to strong performance in its downstream retail business which more than offset lower profits from its upstream gas and power generation business. Revenue rose 20% to GBP11.66 billion during the same period as its retail division.

U.K. wholesale gas and power prices fell more than 50% during the first quarter, prompting the company to buy cheaper gas in the market rather than produce its own gas in order to supply customers.

Both companies reconfirmed their 2009 earnings forecast. Centrica shares closed down 2.9% or 6.75 pence at 224.25 pence a share while EDF shares closed 5.4% higher r EUR at EUR34.93.

Company Web site: http://www.edf.com

-By Alex MacDonald, Dow Jones Newswires; 44 20 7842 9328; alex.macdonald@dowjones.com

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