Areva rethinks strategy after ditching targets

Thursday, November 20, 2014

PARIS (Reuters) - Areva must consider radical restructuring options after it abandoned financial targets in the face of continuing delays, writedowns and losses from its nuclear operations, analysts said, after the firm's shares plunged on Wednesday.

The state-owned group issued a third profit warning in four months, said it would review its funding options and dropped its 2015-16 financial targets, blaming delays to its Finnish Olkiluoto reactor, the slow restart of Japan's reactors and a lackluster nuclear market.

Analysts say Areva, which is 87 percent owned by the state, needs a 1 to 2 billion euro ($1.2-2.5 billion) capital injection. It has suffered three years of losses and risks seeing its debt downgraded to junk.

French Economy Minister Emmanuel Macron said the firm's viability was not under threat.

"We are monitoring the numbers closely but there is no anxiety about Areva's industrial activities. Areva is here to stay and is a priority for us," Macron told Reuters on Wednesday.

Among the options that could be considered are an alliance with state-owned utility EDF, a sale of its offshore wind unit, a "bad bank"-type structure for Areva's loss-making activities, a delisting and even a split of the group.

A source at the finance and economy ministry said Areva itself would review strategy and medium-term financing options.

"The state will study the conclusions of this review, which will take place over the coming months," the source said.

Areva's stock opened 23 percent lower in its biggest trading volume day of the year and closed 15.7 percent weaker at 10.18 euros. The shares have lost half their value this year.

"The weaknesses behind the warning are very real," Societe Generale analysts said in a "sell" note warning of further downside risk.

"Further provisions related to the delays on the Olkiluoto 3 and (French) Flamanville reactors cannot be ruled out," analysts at brokerage Natixis said in a note to clients, downgrading Areva to "neutral" from "buy".

Analysts say the expected government appointment of former Peugeot chief Philippe Varin as Areva chairman next month will be an opportunity for final writedowns.

Varin's arrival will cut the link to the era of former CEO Anne Lauvergeon, who ran Areva for a decade and was replaced by her former right-hand man Luc Oursel who left the firm for health reasons last month.

Areva went into the nuclear industry's post-Fukushima slump already weakened by billions of euros of losses on a failed investment in an African uranium mine and a multi-year delay on the Olkiluoto 3 reactor project.

In a return to core business, Areva could sell its offshore wind joint venture with Spain's Gamesa, as both are relatively small players in that industry.

Another option could be a "bad bank"-type structure that puts Areva's loss-making activities into a separate arm.

EDF could increase its 2.24 percent Areva stake, and the firms could cooperate on nuclear exports, although Oursel has argued that a utility buying its supplier would create conflicts of interest.

The most radical option would be to split up the group. Lauvergeon built Areva into an integrated group which mines uranium, sells nuclear fuel, builds and services reactors and recycles spent fuel. The French state auditor has questioned whether there are significant synergies.

"The integrated model allowed Areva to survive. Cut into pieces, each piece would be too small to compete," said a senior French nuclear industry source.

A delisting would not solve operational problems, but could remove some of the bad publicity that hurts Areva's image. With a market value just over 4 billion euros and nearly 90 percent in state hands, this would cost relatively little.

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