Areva Plunges After Company Cuts Full-Year Forecasts

Areva SA fell the most in 22 years after reducing its 2014 forecasts and announcing a new cost-cut target as the French maker of nuclear reactors and fuel posted a first-half loss on weakening demand.

Areva had a net loss of 694 million euros ($929 million) after breaking even a year earlier, the company, based near Paris, said today. Like-for-like sales dropped 12 percent to 3.89 billion euros. The shares fell as much as 23 percent, the biggest intraday drop in since June 1992.

“This is the consequence of losses recorded in renewables operations, additional project-related provisions, asset writedowns and a nuclear market environment that has still deteriorated,” Chief Executive Officer Luc Oursel said in a statement. “Actions will be reinforced in the second half of the year to adapt to market conditions.”

Oursel decided in December 2011 to sell assets, pare investment and cut costs by 1 billion euros by 2015 to shore up a balance sheet hurt by construction delays at the OL3 nuclear plant in Finland, soured investments in African uranium mines and nuclear plant closures in Japan and Germany following the accident in Fukushima. The company has secured the 2015 cost-cut objective and raised it to 1.2 billion euros by 2016, Areva said today.

The shares were down 18 percent at 12.74 euros as of 1:28 p.m. in Paris trading.

Weaker Demand

The company, which is about 87 percent owned by the public sector, today predicted a 2014 margin for earnings before interest, taxes, depreciation and amortization of about 7 percent of revenue. That compares with its previous forecast of more than 11.3 percent.

“We view this set of first-half numbers and the cut in the full-year outlook negatively,” Nicolas Hue de La Colombe, an analyst at Credit Agricole, said in a note.

Areva said its reduced forecasts are due to issues on a power plant modernization contract in northern Europe, a delay in the start of major overhaul operations in France, weaker-than-expected demand from utilities in Europe and the U.S., and commercial concessions granted to Electricite de France SA regarding a fuel recycling contract.

The company also cited delays in the start of new projects abroad and a slower-than-anticipated ramp-up on a power plant project in Brazil.

Finnish Dispute

Areva recognized no revenue for the OL3 reactor project in the first half as it remained embroiled in disputes with Finnish customer Teollisuuden Voima Oyj. It booked provisions and writedowns at its reactor and recycling businesses, and had a net loss of 373 million euros for discontinued renewable business.

The company today predicted a 10 percent decrease in organic revenue in 2014, free operating cash flow before taxes close to break-even, and 1.1 billion euros of capital expenditure. That compares with its previous forecasts of a decrease in organic sales of 2 percent to 5 percent, a positive operating free cash flow before tax, and 1.3 billion euros of capital expenditure.

Barring new asset sales, net debt will stabilize or start falling from 2016, Chief Financial Officer Pierre Aubouin said on a conference call.

For the 2015-2016 period, Areva now forecasts organic revenue growth of 4 percent to 5 percent a year, an Ebitda margin of about 10 percent to 11 percent in 2015 and 14 percent to 15 percent in 2016. Free operating cash flow before taxes will be close to break-even in 2015 and “distinctly positive” in 2016, the company said.

The 2015-2016 forecasts “appear challenging,” Alok Katre, an analyst at Societe Generale, said in a note.

Before it's here, it's on the Bloomberg Terminal.