A Note on EDF’s Financial Results by Prof Steve Thomas

(EDF published its 2019 financial results on 14 February. We asked Professor Steve Thomas for some analysis and here is what he said.)

In presenting its 2019 results, [1] EDF focused on its improved levels of profits compared to 2018. Its gross profits, EBITDA, (earnings before interest, tax, depreciation and amortization) increased from €14.9bn to €16.7bn on sales of €71.3bn (up from €68.5bn). This figure comes down to €3.8bn compared to €2.5bn for 2018 when interest etc are taken off and excluding one-off items like sales of assets. 

What is conspicuous by its absence is any mention of ‘Opération Hercule’, the plan to split EDF into a renationalised ‘bad bank’, the nuclear assets, and a part-privatised ‘good bank’, renewables, electricity sales to consumers and power networks. Nowhere in the presentations is there any hint that EDF will need a massive restructuring effort underwritten by government if it is to remain a viable company. Also essentially absent is any mention of the Sizewell C project.

A key priority for EDF is to put itself in a position to finance the vast investments it will have to make in the next decade. The largest of these is the so-called Grand Carenage, the project to life extend its 58 operating reactors in France from 40 to 60 years, that cost it €4.3bn in 2019. The expected spend between 2014 and 2025 when perhaps half the reactors will have been life-extended went down from €55bn to €45bn presumably because of the decision to close the two Fessenheim reactors in 2022 and perhaps the four Bugey reactors by 2025. However, the French safety regulator, ASN, is not expected to specify exactly what upgrades will be required for life-extension until early 2021 and life-extension expenditures will continue beyond 2030. 

€1.76bn was invested in Hinkley Point C in 2019 compared to €1.61bn in 2018, leaving about €17-19bn to be spent assuming no more cost increase occur. If the project is completed near to time, about €2.2bn per year on average will be needed from now on of which two thirds will come from EDF, the rest from CGN (China).

The result of this was that net debt, after years of being relatively stable went up from €33bn to €41bn and EDF forecasts it will increase to €46bn in 2020. This is despite EDF forecasting that it will sell assets worth €2-3bn in 2020 compared to €0.5bn in 2019. It is not clear which assets are expected to be sold but there have been reports of EDF reducing its stake in British Energy (the UK’s AGRs and Sizewell B) from 80% to 51% perhaps generating up to €3bn. However, given that two of its station (Dungeness B and Hunterston) have been offline for a year or more with their return to service dates continually being put back, it is hard to see why anyone would take a gamble on such a risky set of assets. If this sale does not happen, EDF’s debt will increase further, which in turn will mean credit rating agencies may downgrade its rating increasing its cost of borrowing. Flamanville 3 continues to be a drain on EDF with €0.8bn invested in 2019 for a project that should have been generating income 7 years ago.

However, the end is not near for Flamanville. The method of dealing with the well reported problem of defective welds that cannot be accessed by humans is not expected to be approved by ASN until end 2020. This makes the target of loading fuel at the end of 2022 look very tight.

See https://www.edf.fr/sites/default/files/contrib/groupe-edf/espaces-dedies/espace-finance-en/financial-information/publications/financial-results/2019-annual-results/pdf/fy-results-2019-consolidated-financial-statements-20200214.pdf

and https://www.edf.fr/sites/default/files/contrib/groupe-edf/espaces-dedies/espace-finance-en/financial-information/publications/financial-results/2019-annual-results/pdf/fy-results-2019-appendices-20200214.pdf

and https://www.edf.fr/sites/default/files/contrib/groupe-edf/espaces-dedies/espace-finance-en/financial-information/publications/financial-results/2019-annual-results/pdf/fy-results-2019-appendices-20200214.pdf