France's Areva is to spin off its nuclear-fuel operations this year, as New Co, to shield them from the financial difficulties facing the company's reactor business and to attract investors as Areva prepares to raise €5bn ($5.6bn) by selling shares. The company said New Co would be created as a wholly-owned subsidiary of Areva SA during the second half of this year, combining the Areva Mines, Areva NC, Areva Projects and Areva Business Support companies and their respective subsidiaries. Part of Areva SA's debt would also be transferred to New Co. Meanwhile, Areva TA, Areva Renewable Energies and Areva NP will remain as subsidiaries of Areva SA "until the date of their sale". Areva will also sell nuclear measurement and instrumentation specialist Canberra.
New Co will target earnings before interest, taxes, depreciation and amortization of about 25% of sales and operating income of more than 10% by 2020, Areva said a statement. The combined business had an order backlog of €33bn at the end of March, representing about eight years of revenue, Areva said. "New Co. has strong assets in terms of technology, backlog, skills and performance," Areva CEO Philippe Knoche said on a conference call with Bloomberg. "It will be very well placed for an expected rebound in demand, notably on international markets."
The decision is part of a €7.9bn refinancing plan intended to pay down debt, fund operations and complete unit 3 at the Olkiluoto NPP in Finland (OL3) that has been plagued by delays and cost overruns. The French government, which controls 86.5% of Areva, has pledged to take part in the bailout as the company contends with slumping demand after the 2011 Fukushima disaster and five consecutivr years of losses.
Areva is also hoping to raise €2.9bn from asset sales, including the disposal of small-reactor maker Areva TA and Canberra, a unit of Areva, in coming months, along with the sale of most of its reactor business to state utility Electricite de France in 2017, it said.
Areva and New Co will hold two separate share sales together valued at €5bn in early 2017. The split in proceeds will depend partly on how much debt Areva will transfer to New Co, Areva said. The government will own at least two-thirds of New Co, both directly and indirectly through Areva. Strategic partners from China and Japan as well as other investors may take up to 33% of New Co, according to Chief Financial Officer Stephane Lhopiteau.
The government is holding talks with the European Commission to get approval for the capital increases by the end of the year, Knoche said. The company will present a plan at the end of July to ensure that it continues to meet financial obligations if getting consent takes longer, he added.
Areva has €2.9bn of debt repayments due from 2016 to 2019, and another €800m of interest, the company said. It also needs €1.1bn to fund operations of New Co during this period, and another €2.3bn for other operations, including the completion of OL3. New Co's cash flow will remain negative in 2016 and 2017 because of ongoing investments to cover future dismantling of nuclear reactors, Lhopiteau said. The company may return to a positive cash flow starting from 2018, he said.
"The outlook ... is the reflection of a renewed ambition," Areva said. "As a pure player in the nuclear fuel cycle, New Co is in a unique position to play a dominant role for the redefinition of the French nuclear industry and in a market destined to grow, particularly in Asia."
Knoche said: "By means of the solutions it can provide for uranium supply, for its conversion into fuel, and for nuclear fuel recycling, waste management and dismantling, New Co will be in a good position to grow in global nuclear markets. The strengthened capital structure, the new industrial plants, and the reinforcement of New Co's technology and innovation base will underpin this strategy."