EDF Net Profit Steady As Buys, Contracts Offset Demand Slump
July 30 2009 - 2:44PM
Dow Jones News
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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