Friday, March 5, 2010

Areva posts 2009 financial results

Net income is down 6% on higher costs from the Finland reactor project

Olkiluoto_3_dome_(TVO)Areva, the French state-owned nuclear giant, posted better than expected financial results for 2009. Net income for the year was EUR552 million compared to EUR589 million in 2008. Earnings per share declined from EUR16.62 in 2008 to EUR15.59 in 2009.

The company provided guidance to stock analysts that it expects a substantial rise in revenue, an increase in the backlog of contract work, higher operating income, and a “strong increase in net profit.”

The company projects revenue in 2010 of EUR12 billion which is affected by the fact the company sold off its transmission and distribution unit in 2009.

Areva took a charge of EUR550 million for delays at the OL3 reactor project in Finland. The company said in its financial statement that the total provisions for delays and cost overruns for the OL3 project are EUR2.3 billion.

The firm cited progress at the project including the installation of the reactor dome. However, new delays occurred in 2009 centered in piping inspections as well as testing and startup of instrumentation and control systems.

Capital requirements and spending

George_Besse_(Areva)Capital spending in 2009 increased to EUR1.8 billion from EUR1.4 billion in 2008 primarily in uranium mining and enrichment. Work proceeded on the George Besse II uranium enrichment plant in France.

Construction won’t start on the Eagle Rock Enrichment Facility, a $3 billion project, until late 2011. A license from the U.S. Nuclear Regulatory Commission is expected in the first half of 2011. At a Senate Appropriations Committee hearing March 4, Energy Sec. Chu said his agency is close to awarding Areva a $2 billion loan guarantee for the plant which will be built in Idaho.

To raise cash to meet new capital requirements Areva sold its transmission and distribution unit for EUR4 billion to two French companies – Alstom and Schneider Electric.

Stock analysts estimate Areva needs EUR11 billion over the next three years to fund construction of a new EPR reactor in Flamanville, France, and for its worldwide operations that span the entire nuclear fuel cycle. Areva is also working on two new EPR reactors in China.

Reuters reported that Mitsubishi Heavy Industries and sovereign wealth funds from Qatar and Kuwait are possible sources of investment capital. According to Reuters, Areva CEO Anne Lauvergeon said at a press conference on Mar 4 that the talks with potential partners are underway and could result in additional capital by mid-2010.

Previously, Lauvergeon has said Areva could offer as much as a 15% stake in the firm. With a market cap of EUR12.24 billion, that would raise EUR1.84 billion.

"They are speaking with our major shareholder to negotiate the conditions of their entry, both on financial terms and on governance," she said. "The capital increase will be done on the basis of the 2009 results."

Areva’s shares closed March 4 at EUR345 against a 52-week range of EUR343-to-EUR475.

As of Dec. 30, 2009, Areva's order book in its nuclear and renewable activities reached EUR43 billion up about 2% from 2008.

Loss of UAE deal a major setback

In December 2009 Areva’s global expansion in the nuclear energy field was dealt a substantial setback when it was underbid by a South Korean consortium for a $20 billion contract with the United Arab Emirates for multiple nuclear reactors.

Anne LauvergeonAreva Chief Executive Anne Lauvergeon (right) said at the time that the firm had sharpened its pencil as much as practical. She defending the firm’s bid against political criticism.

The French government has repeatedly denied rumors she will be replaced. However, French President Nicholas Sarkozy announced this week closer supervision of all state-owned corporations due to rising unemployment and declining exports.

Andre Gauron, economist at the Cour des Comptes, France’s top economic watchdog, told Reuters March 5 the contraction of the country’s industrial base resulted from “a priority given to investment abroad,” as well as “the idea that we are now a post-industrial economy.”

This view is at odds with the world-beating salesmanship President Sarkozy has shown personally closing Areva’s deal in China for two new nuclear reactors and signing an agreement with India to build two reactors there as well along with multi-decade deals for nuclear fuel.

Despite some European preferences for other priorities, it is unlikely France will impose the “post-industrial” paradigm on Areva.

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