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UPDATE 2-EDF's Dalkia deal rounds off years of restructuring
November 7, 2013 / 2:45 PM / 4 years ago

UPDATE 2-EDF's Dalkia deal rounds off years of restructuring

* Utility raises cost-cut targets 20 pct to 1.2 bln euros

* Energy services unit Dalkia split up by mid-2014 earliest

* Distribution grid tariff talks the focus for coming weeks

* EDF outperforms European peers with government help

By Geert De Clercq

PARIS, Nov 7 (Reuters) - Four years after EDF’s top two executives arrived from Veolia, their restructuring of the French power firm is nearly complete and there is room, they said on Thursday, for more cost-cutting.

EDF is to take over the French businesses of energy services firm Dalkia and leave the international activities to joint venture partner Veolia - the water utility that EDF chief executive Henri Proglio and chief financial officer Thomas Piquemal left in 2009 and 2010.

The deal, which involves a 550 million euro ($744 million) payment from Veolia to EDF, will reduce EDF’s debt by a billion euros and will be finalised in mid-2014 at the earliest, after union consultation and antitrust clearance, Piquemal said.

Dalkia France had 2012 revenues of 4.1 billion euros and employs about 12,900 staff. It operates hundreds of district heating and cooling networks and manages thousands of collective housing units and industrial facilities. It also runs biomass and geothermal power plants.

Piquemal said on an earnings conference call that the Dalkia joint venture had been the last complex partnership situation that Proglio had wanted to unwind.

EDF’s strategy is to be the controlling shareholder in its core business units, selling minority stakes or boosting stakes where it can become the dominant shareholder.

In 2010, EDF left Germany by selling a minority stake in utility EnBW, and earlier this year it pulled out of its U.S. nuclear joint venture Constellation.

In 2011, EDF bought out partners in its EDF Energies Nouvelles renewable energy unit and last year it took majority control of its Italian Edison unit.

The Dalkia partnership had been difficult to unwind because of acrimony between Proglio, and his successor Antoine Frerot at Veolia. Frerot has spent years cutting debt and selling assets in the wake of Proglio’s debt-fuelled expansion spree and has survived a boardroom coup to unseat him last year.

Piquemal said that, with the major restructuring out of the way, EDF’s priority for the coming weeks and months was for its electricity distribution unit ERDF to negotiate new grid usage fees with the French state. The new tariffs are due to take effect for four years from Jan. 1.

“We need visibility and a stable regulatory framework so that we can invest in the capacity of our networks,” he said.

PRICE HIKES BOOST SALES

EDF said that government-approved power price increases helped lift January-September sales by 6.9 percent to 55.2 billion euros, with French power sales boosted by cold weather and an increase in regulated tariffs. Higher British wholesale electricity prices also helped.

The state-owned utility also said it had increased 2013 cost-cutting targets to 1.2 billion euros ($1.6 billion) as 80 percent of the planned 1 billion euro cuts, mostly in operating and capital spending, had been done by September.

EDF slightly lowered its 2013 target for electricity production from nuclear power in France to 405-410 terawatts/hour from 410-415 TWH because of maintenance-related outages but confirmed its earnings guidance.

In July, EDF - Europe’s biggest utility by market capitalisation - raised its outlook for core profit growth in 2013 to at least 3 percent from a range of zero to 3 percent.

EDF shares traded about 0.9 percent lower in light volume.

Nine-month earnings data were not released, but first-half 2013 net profit rose 3.5 percent to 2.9 billion.

REGULATORY HELP

EDF, the world’s biggest operator of nuclear plants, gave no further details about its 18.5 billion euro deal to build two nuclear plants in Britain, announced last month, but said the project would boost its business outlook.

Due to France’s continued commitment to nuclear power and limited use of renewable energy, EDF has weathered the European utilities industry crisis better than most peers.

As others struggled with regulatory changes, EDF’s stock rose 87 percent this year after the government agreed to reimburse it for a 4.9 billion euro shortfall in renewables subsidies and allowed it to increase prices by 5 percent in 2013 and 2014.

Iberdrola, Europe’s first major integrated utility to release third-quarter earnings this year, said last month that nine-month net profit fell 3 percent to 2.27 billion euros due to the impact of regulatory changes.

Italy’s Enel, Europe’s No. 2 utility in terms of capacity, presents its third-quarter results after market close today.

French GDF Suez and German market leader E.ON release results on Nov. 13, Germany’s RWE on Nov. 14.

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