First reforms in Areva

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 turnover drops           debts rise             market price falls

Both Areva and the State implement the first steps of reform

VERONIQUE LE BILLON /DEPUTY HEAD OF DIVISION/ LE 26/11

Both Areva and the State implement the first steps of reform

Philippe Varin has been appointed in the Supervisory Board. The general assembly aiming at modifying the group governance will be convened on January, 8^th.

Areva started to implement its reorganization, a week after “suspending” its financial targets, thus making its market price drop by 15% and in consequence downgrading its financial notation. Wednesday, the Supervisory Board validated the short-listed administrators whose appointment shall be suggested to the January, 8^th general Assembly, and who will transform the company into a board of directors company.

Philippe Varin shall be the president and has been appointed as administrator this Wednesday, to start some brainstorming about the group future with the members of the strategy and audit committees. Philippe Knoche shall also be appointed as administrator and Managing Director. Although many have deemed Areva financial release as disastrous, his extended knowledge of the group makes him absolutely unavoidable today. Nevertheless, according to Pierre Auboin, the financial director, the group future is quite blurred.

Wednesday morning, in his speech to the Assembly, Philippe Knoche put the emergency in perspective. “We’ve got € 2 billion in bank, facing € 7 billion of gross debts, but there is no cash concern”, he said. “In the medium term, we must brainstorm to get out of this vicious circle of over-indebtedness”, he acknowledged, working about “a complete plan in medium term”, before the release of annual results statement in late February 2015.

According to our information, if the State, acting as a shareholder, intends to cope with Finland EPR, the State excluded the possibility of a “defeasance “ structure to limit its € 3,9 billion losses: this would condemn the reactor perspectives and thus the group’s on international markets. Moreover, the new delay of Flamanville EPR (Manche) arouses London’s concerns, whereas having just signed with EDF for two EPR. Bercy does not either favour an idea of recapitalization. Such idea is considered as only a “quick fix” by many and not as the structural reform highly needed in Areva.

A wide employment shift

Many possibilities remain open, particularly about a possible change of Areva perimeter; Areva  has always safeguarded its integrated model- from uranium mining to waste treatment, through reactors design and services. But “the logic does not imply trade bankers schemes”, an observer summarized. In other words, a capital increase or some assets stripping by some actors won’t be the preferred schemes.

Lately, EDF and Areva worked on an agreement about reactor design and marketing, which shall be detailed. Sharing some parts of engineering will be increased, aiming at reducing the cost of the EPR and diversifying the reactors range. Towards both groups’ customers, the State does want to give the image of one taking advantage over the other one. In that view, there will be only two common administrators, and not three, as it was considered – namely Philippe Varin and Christian Massé, the general director of Quai d’Orsay.

Areva will not avoid a wide employment shift. Yesterday, Philippe Knoche highlighted the need to increase “competitiveness and flexibility”: France records a third of the turnover but more than 50% of the workforce, he reminded; The workers’ status is deemed particularly generous, such as Cogema pensions schemes. Other points need to be addressed: Areva has probably no more means to invest in sea wind energy, even if the group is allied with Gamesa. Some arise the possibility of taking out the security of the exchange – in fact, only 4% of the capital is floating.