EDF Raises Cost-Cut Target and Reviews Strategy, Spending
EDF expects to cut costs by 1.2 billion euros ($1.6 billion) this year, 20 percent more than planned, according to a statement published today detailing revenue for the first nine months. Sales rose 2.9 percent on a like-for-like basis to 55.1 billion euros, due partly to higher power prices in France.
A forecast for 2013 French atomic output was cut because of longer-than-planned reactor outages in the third quarter, the Paris-based utility said.
EDF is expanding nuclear operations abroad after reaching a deal this month to develop two reactors in the U.K., where it already owns eight plants. The utility’s oldest reactors are entering a period of prolonged safety halts to determine whether they can run for another decade.
Part of the industrial strategy review will include “our ability to manage planned outages,” Thomas Piquemal, chief financial officer, said on a conference call. He said he couldn’t reveal longer-term targets because of unresolved issues on wholesale nuclear power rates and spending at its ERDF distributor.
“We are experiencing a high level of outage extensions related to important technical issues at a handful of nuclear plants,” Philippe Sasseigne, head of French nuclear production, said on the conference call. Problems including restarting reactors were experienced at plants such as Cattenom, Chinon and Saint-Laurent-des-Eaux and cost EDF about 400 days of production in September and October.
As a result, EDF cut a target for atomic output this year to 405 terawatt-hours to 410 terawatt-hours compared with 410 terawatt-hours to 415 terawatt-hours. Production declined to 405 terawatt-hours last year from 421 terawatt-hours in 2011.
The company operates 58 nuclear reactors in France that provide three-quarters of power output in the world’s most nuclear-dependent country.
The company reiterated targets for 2013, Chief Executive Officer Henri Proglio said in the statement. French tariff increases added 500 million euros in sales, while cold weather resulted in 625 million euros more, according to the statement.
In Italy, EDF’s distributor Edison SpA “continues to be hit by the drop in the price of gas which continues to weigh heavily on sales and margins,” the utility said. It reiterated earnings before interest, taxes, depreciation and amortization would be about 1 billion euros this year for Edison.
“Volatility” of Edison earnings may continue next year as EDF seeks to resolve contract disputes for long-term gas supplies through arbitration, according to Piquemal. EDF is “prepared to go to the final stage of the arbitration process so it might take longer than expected.”
The utility maintained a forecast that Ebitda will grow at least 3 percent this year, excluding results from the utility’s Italian Edison unit. Piquemal said he was “comfortable” with earnings consensus for 2013.
Executives have declined to hold an Investor Day to discuss longer term spending plans and strategy, citing too many regulatory unknowns. Piquemal again today said the utility had to get agreements on future spending at ERDF power networks as well as the price level for wholesale nuclear power to rivals before it could hold an event.
“Our investors deserve to have a mid-term vision again,” he said. “As soon as we can do it, we intend to do it.”
The utility this month reached a deal with the U.K. to develop two reactors for about 16 billion pounds ($26 billion). EDF will earn at least 92.50 pounds a megawatt-hour over a period of 35 years from the reactors. The U.K. will offer loan guarantees to help 65 percent of the cost of construction.
EDF faces an estimated 55 billion euros of costs to improve safety and extend lives of French plants through 2025 after regulators tightened rules following the 2011 disaster at Japan’s Fukushima nuclear plant.
President Francois Hollande has vowed to cut dependence on atomic energy and shut EDF’s oldest French plant in 2016.
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