EDF Profit Holds Steady as Areva Partnership Takes Shape

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Electricite de France SA, Europe’s biggest power generator, reported stable first-half profit after reaching an agreement to take control of Areva SA’s nuclear reactor business. The shares rose.

Net income was 2.5 billion euros ($2.7 billion), compared with a restated 2.5 billion euros a year earlier, Paris-based EDF said Thursday in a statement. The first-half 2015 net was cut by 348 million euros due to a July European Commission tax decision.

The utility kept 2015 financial and nuclear production targets. Earnings were overshadowed by the unveiling of a deal with loss-making Areva that will see EDF take over at least 51 percent and as much as 75 percent of Areva NP, a division that maintains and builds reactors and will be valued at an indicative price for the whole company of 2.7 billion euros.

The deal to reshape France’s nuclear industry will be done “without endangering the overall balance of the group,” EDF Chief Executive Officer Jean-Bernard Levy said on a conference call. The financial terms will allow EDF to “preserve its financial trajectory” and be neutral on 2018 cash flow, he said.

EDF rose as much as 2.8 percent to 21.72 euros a share before trading at 21.52 euros by 10:25 a.m. Paris time.

The company has been in government-imposed talks for months with its biggest supplier for the takeover ultimately aimed at rescuing unprofitable Areva. At the same time, EDF is grappling with a slump in European power prices and the need to fund investments of 55 billion euros through 2025 in its aging French reactor fleet as well as projects from the U.K. to China.

The coming months of due diligence on the Areva accord could see the terms “adjusted” ahead of finalization around November, Levy said Thursday. The price is “fair and attractive” and will encourage partners to join the project.

Reactor Projects

The deal would also see the setting up of a dedicated company to manage new reactor projects for export that would be 80 percent owned by EDF and the rest by Areva. This will improve efficiency of France’s efforts to sell reactors abroad and get them built, Levy said.

EDF will gain “complete control” over building of its showcase EPR model under construction in Normandy and China as well as in Finland, where Areva spearheaded a project that is years behind schedule and mired in a legal wrangle.

“The memorandum also provides that EDF, Areva NP, and their subsidiaries will be completely immunized against any risks related to the Olkiluoto 3 project” in Finland, EDF said.

As part of a strategic review, EDF plans to “thoroughly examine” its fossil-fuel assets and plans to allocate more money to renewables, Levy said. As the largest nuclear reactor operator in the world, the utility will remain focused on atomic generation.

Power Tariffs

EDF earnings before interest, taxes, depreciation and amortization climbed 3.6 percent to 9.15 billion euros, reflecting an increase in French power tariffs.

EDF results were “supported in particular by good nuclear operating performance and by the control of financial expenses excluding non-recurring items in a market price environment that continues to be negative,” the utility said in the statement.

Investment in the first half rose 14 percent to 6.4 billion euros, with most of the growth in the U.K. and Italy and most of the spending on the French reactor fleet, according to the statement.

Net financial debt widened to 37.5 billion euros, an increase of 3.3 billion euros from the end of 2014, EDF said.

In reiterating a goal of positive free cash flow after payouts to investors in 2018 and a targeted Ebitda growth for this year of as much as 3 percent, Levy said the company would focus on cash-flow generation.

The utility aims for 410 to 415 terawatt-hours of nuclear output this year.

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