Electricite de France (EU:EDF)
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2 Mois : De Mai 2019 à Juil 2019
By Nina Trentmann
Aging nuclear reactors, soaring debt and operations that absorb more cash than they generate are just some of the problems facing Xavier Girre, the chief financial officer of French electricity supplier Électricité de France SA.
The room to maneuver is limited: Key operating decisions must be taken in conjunction with the French government, EDF's largest shareholder.
"We are not the decision makers," Mr. Girre told CFO Journal. "With regards to regulation, the state is."
Still, Mr. Girre has already taken steps to shore up the company's finances. EDF, under his management, tried new financing tools including green bonds and bonds issued in Asian currencies, expanding its sources of funding. EDF aims to have a mix of investors across geographies, said Mr. Girre.
France's largest energy producer has also sold assets worth EUR10 billion ($11.24 million), and assets worth a further EUR2 billion to EUR3 billion are to be divested by 2021. The government recently allowed EDF to give shareholders new shares instead of a cash dividend payment.
A planned restructuring of the company's assets and a new pricing structure for the French energy market could help Mr. Girre make further improvements, said Claire Mauduit-Le Clercq, analyst at S&P Global Inc.
The plan could allow EDF to separate its nuclear plants -- it currently operates 58 -- from the rest of the business, a move that would enable the company to focus on investments in renewable energy. A large part of the company's energy production comes from nuclear reactors.
As part of the plan, the French government is likely to abolish rules that currently force EDF to sell some energy output to competitors at a fixed price.
These changes would remove the drag on the company's balance sheet, said Ms. Mauduit-Le Clercq. "EDF will continue to be burning cash if there is no restructuring in place," she said.
French President Emmanuel Macron last year published a draft energy plan that involves an overhaul of EDF's structure. The company's chief executive officer, Jean-Bernard Lévy, is currently working on proposals for the restructuring, but no timeline has been decided, said Mr. Girre.
The company has until the end of the year to present its recommendations for what the overhaul should look like in detail. European regulators, the French public and the government must then approve them, making the task for EDF's management harder, said Meike Becker, an analyst at AB Bernstein.
Analysts say the challenge for EDF will be to fund the turnaround given its hefty debt load. EDF's net debt -- a measure of total loans and financial liabilities less cash and liquid assets -- was EUR33.38 billion at the end of 2018, up from EUR33.01 at the end of 2017.
But the company's financial standing is more vulnerable when other obligations, such as pension liabilities, future obligations to retire certain assets and costs for managing nuclear waste, are factored in. Adjusted net debt was EUR70 billion at the end of 2018, S&P Global said.
Further complicating the picture is EDF's large capital spending program. The company committed in 2014 to spending up to EUR45 billion by 2025 to extend the lifespan of its nuclear reactors fleet from around 40 to 50 years. The average age of an EDF nuclear power plant currently stands at 33 years.
New plants under construction, for example in Britain's Hinkley Point, are adding to that cost burden. Total capital expenditures were about EUR14 billion in 2018. "EDF would not have to sell business after business to fund new investments if this was a viable business model," AB Bernstein's Ms. Becker said.
Meanwhile, the company's net income slumped to EUR1.17 billion in 2018 from EUR3.17 billion a year earlier. Fluctuating energy prices, mean "the company lacks visibility into its future earnings," said Ms. Mauduit-Le Clercq.
"You have a company that faces major investment needs, that has a negative cash flow equation and that has high debt levels -- this creates tension in the balance sheet," she said.
Mr. Girre said EDF has resolved to take action to shore up its balance sheet. "We have to be in a position to be able to finance all the new investments," he said, adding that EDF plans to develop new nuclear assets in France.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
June 14, 2019 11:58 ET (15:58 GMT)
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