GDF Suez Posts Higher First-Half Net; Seeks Nuclear Expansion

By Tara Patel

Sept. 1 (Bloomberg) -- GDF Suez SA, the world's second- biggest utility, reported first-half profit that beat analysts' estimates on higher power and natural-gas prices and said it wants to expand in nuclear energy production in Europe.

Net income rose 14 percent to 3.38 billion euros ($5 billion) from 2.96 billion euros last year, the Paris-based company said today in a statement. That exceeded the 3.16 billion-euro median forecast of 10 analysts surveyed by Bloomberg.

The results are the first since the merger of Gaz de France SA and Suez SA last month. The combined company, which is seeking to challenge Electricite de France SA by gaining more power customers in the domestic market, has said it may unveil plans for a so-called future generation nuclear reactor in Western Europe next year.

``The earnings report was very good, with profitability better than expected,'' Salah Seddik, a fund manager at Richelieu Finance in Paris, which oversees $6.2 billion, said in a television interview.

GDF Suez is vying to build and operate an atomic reactor in Bulgaria and is also considering a new project in the western part of the continent, including France. A French plant would be designed for industrial customers in need of large power volumes, Chief Executive Officer Gerard Mestrallet said in an interview today. ``We are interested in all countries'' in Western Europe, he said.

Confirm Targets

The company confirmed financial targets and announced an interim dividend of 0.8 euro a share. It plans to buy back 1 billion euros of shares before the end of the year.

GDF Suez added 1.9 percent to 40.15 euros as of 2:50 p.m. in Paris. The shares have dropped 4.5 percent since their trading debut July 22.

The utility said its average number of shares in the first half of 2008 was 2.17 billion, giving earnings per share of 1.56 euros, according to Bloomberg calculations. It didn't provide its own figures.

Earnings before interest, taxes, depreciation and amortization, or Ebitda, climbed 20 percent to 8.1 billion euros. The median forecast in the survey was for profit of 7.76 billion euros on this basis.

Vice Chairman Jean-Francois Cirelli said five out of nine wells drilled at the exploration and production division were ``successful.''

Higher Production

GDF Suez reported a 24 percent increase in production to 25.7 million barrels of oil equivalent after commissioning new fields in Norway, the U.K. and the Netherlands.

``The exploration and production division exceeded all expectations, related to a much higher achieved price and sound production growth,'' Steven de Proost, an analyst at Dexia NV, wrote in a note.

Gaz de France's net profit rose 13 percent to 1.7 billion euros, while that of Suez increased 11 percent to 2.05 billion euros, the statement said.

Overall sales rose 17 percent to 43.1 billion euros due in part to ``growing energy sales in Europe,'' the statement said.

Power sales volumes increased 6.8 percent in Europe outside the Benelux region with prices rising to 62 euros a megawatt from 52 euros a megawatt, Chief Finance Officer Gerard Lamarche told analysts.

Regulated Rates

French utilities' earnings are capped by regulated household power rates that are among the lowest in Europe. The Finance Ministry last month allowed regulated power rates for households to rise by as much as 2 percent. Charges were allowed to climb by 2 percent for small companies, 6 percent for mid- sized businesses and 8 percent for large consumers. Natural-gas tariffs were allowed by climb by an average of 5 percent.

Gaz de France, which has 10 million household customers in France, said French regulated prices cost the company 179 million euros in lost revenue during the first half due to higher supply costs.

It lost 148,000 natural gas customers to rivals in the French market, which was opened to competition in July, 2007, in the first half. GDF Suez has gained 300,000 electricity customers since the market was opened up.

The ability to offer customers both fuels ``is the motor of of the energy sector,'' Mestrallet said in an interview. ``We want to offer this flexibility.''

The French government has a 36 percent stake in GDF Suez, compared with a controlling interest in Gaz de France.

Ebitda Target

GDF Suez expects growth of more than 10 percent this year for Ebitda, which is expected to reach about 17 billion euros in 2010. The company has said it will make 1 billion euros in cost savings annually by 2013 and invest 10 billion euros a year through 2010.

The company is seeking to double gas reserves to 1.5 billion barrels of oil equivalent from 2006 levels, mainly through external growth, as well as boosting European gas- storage capacity by more than 35 percent by 2013. It also wants to gain as much as a fifth of the French power market by pushing dual gas and electricity supply to clients.

Suez has long signaled its interest in investing in so- called third-generation nuclear reactors. Suez's Electrabel SA unit is Belgium's biggest power company and the owner of the seven atomic generators at the country's two nuclear plants. It's competing with RWE AG to build and run a nuclear plant in Bulgaria at an estimated cost of at least 4 billion euros.

The availability of Electrabel's reactors dropped to less than 85 percent because of planned maintenance that lasted for longer than anticipated, Electrabel Chief Executive Officer Jean-Pierre Hansen said. The reactor availability will improve in the second half, he said.

GDF Suez still backs the building of so-called third generation nuclear reactors along the lines of the European Pressurized Reactor model developed by Areva SA, Mestrallet said. The company is also targeting the Middle East for nuclear energy and is bidding to build a plant in Abu Dhabi with Areva and Total SA.

To contact the reporter on this story: Tara Patel in Paris at Tpatel2@bloomberg.net