Slowdown will cost GdF-Suez €600m this year

Nonetheless GdF-Suez was sticking to its 2009 performance targets, according to Gérard Mestrallet, chairman, who said the overall performance in the first half had proved the resilience of the group’s business model.

Total revenues for the first half rose 2.3 per cent to €42.2bn and free cashflow was up by 65 per cent to €6.7bn. This allowed GdF-Suez to finance its €30bn three year investment programme, and to reduce debt by more than €1bn, Mr Mestrallet said.

GdF-Suez also suffered a €363m loss on a tariff shortfall in the first half, given the government’s failure to abide by its obligation to raise gas prices to cover acquisition costs. Under French rules the government is supposed to offset higher gas purchasing costs with tariff increases, but this had been repeatedly deferred as being politically too contentious.

However tariffs were adjusted on April 1 which meant GdF Suez was now recovering costs, the group said. The net loss on tariffs for the year was likely to be close to €200m, against a first-half shortfall of €363m.

Executives said the group had continued to negotiate with the government over the recovery of last year’s E680m tariff shortfall. “We will get some of it back,” one executive said. However it may not be a straightforward payment or tariff increase, he said.

The news came after the group had been forced to report results a day earlyfollowing leaks from unions on interim profits in their campaign to force pay increases.

The CGT union, which fiercely opposed the merger that privatised GdF, published details of first-half trading on Wednesday after the board met to review the first half.
The union, which has representatives on the board, said the relative stability of trading in the first half justified their fight for a 10 per cent increase in pay for electricity and gas workers – “which would cost €500m against net profits of €3.3bn”.

An industry dispute over pay led to widespread strikes earlier this year at both GdF and EDF, the nuclear power operator. “As at EDF, the CGT will make a pay increase for all workers one of the main axes of the autumn,” the press release said, in a clear signal that more disturbance is on the way.

Meanwhile GdF-Suez, in its full statement on interim results, said earnings before interest, tax, depreciation and amortisation rose by 2.2 per cent to €7.9bn as the group benefitted from higher availability of lower-cost nuclear power.

These factors and solid performances from the regulated operations and the Suez Environment subsidiary helped to offset a decline in energy demand and the shortfall in tariffs on natural gas sales in France.

On future trading, GdF-Suez remained relatively cautious, warning that the third quarter was also expected to be lower than the same period last year. Growth was expected to be “more noteworthy” in the fourth quarter, and GdF-Suez said it was still on track to meet its 2009 and medium term growth targets.

The group has pledged that 2009 earnings before interest, tax, depreciation and amortisation would be greater than last year.

Revenues for the first half rose 2.3 per cent to €42.2bn. Free cashflow was up by 65 per cent to €6.7bn, which allowed GdF-Suez to finance its €30bn three year investment programme, and to reduce debt by more than €1bn.The global slowdown will trim €600m from GdF-Suez profits this year, the recently merged French gas and electricity group said on Thursday after announcing a 6.3 per cent drop in net interim profit to €3.3bn ($4.7bn) for the first six months.

Jean-François Cirelli, deputy chairman of the French utility, said “a reduction in industrial activity” had depressed gas sales in the first half and this was expected to continue into the third quarter.