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Gaz de France says 2006 profit rose 29% on higher margins

Gaz de France SA, the owner of Europe’s biggest natural-gas network, said profit climbed 29% last year on better margins from sales to large

The Paris-based company, which is planning to merge with power and water utility Suez SA, said net income rose to €2.3 billion ($3.03 billion) from €1.78 billion a year earlier. That’s in line with the median estimate from ten analysts surveyed by Bloomberg News of €2.31 billion. Gaz de France SA, which has long-term contracts with large industrial customers, has been helped by a drop in the price of the gas it buys.

The fall in wholesale gas prices at the end of last year will further improve margins on unregulated rates to large customers, Merrill Lynch said in the report. GDF should benefit from „falling wholesale gas costs, which should boost earnings into 2007 and 2008,” Merrill Lynch analyst Simon Flowers, who has a „buy” rating on the group, said in a report published March 9. „There is scope for an upside surprise on dividends in the 2006 full year results.”

Gas prices in the UK, Europe’s biggest market for the fuel, rose to record levels early last year because of supply disruptions and freezing weather. Prices for the fuel have since fallen because of a warmer than normal winter which has meant less of a need for the fuel to heat homes and offices. „Despite the difficult weather and market conditions in early 2007 the group is confident in the robustness of its fundamentals,” CEO Jean-Francois Cirelli said in a statement, adding that GDF teams „stand ready” ahead of full market deregulation in France in the middle of 2007.

 

GDF’s rates to French residential consumers are regulated by the government and were capped at a 5.8% rise from May 2006. The company has benefited on the rate from the drop in its cost of gas. The former French natural gas monopoly said on January 23 it would meet targets for net income of €2.2 billion and earnings before interest, tax, depreciation and amortization of more than €5 billion. Suez reported on March 8 that its net income rose 43% in 2006 to €3.6 billion. Chief Executive Gerard Mestrallet reiterated his support for the 42.7-billion-euro tie-up with GDF to form Europe’s second-largest utility.

 

The merger has hit legal and political roadblocks. The French government-arranged plan to combine Suez with GDF can’t be completed before July, France’s highest court ruled in November. That has pushed back completion of the deal to after the French presidential elections, raising doubts it will happen at all. „The uncertain outlook of presidential elections will be decisive for GDF tariffs and the success of its merger with Suez,” Steven de Proost, an analyst at Dexia in Brussels said in report published March 12. (Bloomberg)