EDF Sees Profit Rebounding This Year as Power Prices Recover

(Bloomberg) -- Electricite de France SA expects profit to rebound this year as the state-controlled utility benefits from higher power prices and improves the availability of its French nuclear reactors after prolonged halts for safety checks in 2017.

“2018 will be the year of the rebound on solid bases,” EDF CEO Jean-Bernard Levy said on a conference call. “2017 is the low point.”

Lower tax rates in the U.S. and Belgium, a favorable tax treatment on the sale of its 50 percent stake in France’s power grid operator and a government reimbursement of a dividend surcharge combined to cut EDF’s tax bill by 1.2 billion euros ($1.5 billion) last year, Chief Financial Officer Xavier Girre said on a conference call. That helped net income beat analyst estimates, while the company paid a 2017 dividend of 46 euro cents per share.

“Good surprises exceed bad ones this morning in our view with the bottom line and proposed dividend per share, for 2017, being way above expectations,” Pierre Antoine Chazal, an analyst at Bryan, Garnier & Co., wrote in a note.

EDF shares rose as much as 6.3 percent, the most in almost three months, and were trading up 6.1 percent at 10.75 euros at 10:05 a.m. in Paris.

EDF is in the process of slashing costs and prolonging the life of nuclear reactors amid depressed European power prices and increasing competition. While the French government wants to reduce the country’s reliance on nuclear power, the utility plans to invest 48 billion euros from 2014 to 2025 to keep most plants running for at least an additional decade.

Earnings before interest, taxes, depreciation and amortization will rise to between 14.6 billion euros and 15.3 billion euros in 2018, Paris-based EDF said in a statement Friday, reiterating a forecast made in November. Ebitda slumped 16 percent to 13.7 billion euros last year, in line with analysts’ estimates.

Nuclear Recovery

While net income excluding non-recurring items fell 31 percent to 2.82 billion euros last year, that still beat analyst estimates of 1.76 billion euros.

The company’s French nuclear output will recover to more than 395 terawatt-hours this year, after dropping 1.3 percent to 379 terawatt-hours in 2017, EDF said. Production should fall back in 2019 as the company closes its Fessenheim reactors while the new Flamanville plant ramps up. EDF faces more long-term inspections at some reactors.

The company cut operating expenses by 700 million euros in 2017 compared with 2015. It confirmed its goal for an extra 100 million euros of cost cuts in 2018. For 2019, EDF increased its target by 100 million euros, to achieve 1.1 billion euros of savings compared with 2015.

• The utility’s 2017 dividend represents a payout ratio of 60 percent. EDF reiterated a payout ratio of 50 percent of net income excluding non-recurring items for 2018, and confirmed a 2019 ratio of 45 percent to 50 percent.
• The company confirmed that it expects its cash flow excluding investments in smart meters called “Linky,” new developments, disposals and the interim dividend for 2018 -- which will be decided in the second half -- to be “slightly positive or close to balance.
• Net debt fell to 33 billion euros at the end of last year from 37.4 billion euros at the end of 2016 as the company sold 4 billion euros of new shares to weather the decline in power prices.
• EDF raised funds in 2017 with the sales of half of its stake in the French power-grid operator, coal-fired power plants in Poland and some real estate assets. At the same time, it bought 75.5 percent of Framatome, Areva SA’s nuclear reactor business, and took control of wind farm operator Futuren SA, as well as Imtech’s U.K. and Irish units.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net.

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Dylan Griffiths, Rakteem Katakey

©2018 Bloomberg L.P.