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The nuclear-energy company's CFO says the group, which is well placed for growth, doesn't need a merger with Alstom.
Eila Rana, CFO Europe Magazine
April 7, 2008
When a company gets caught up in drawn-out merger manoeuvres, it's often tempting for their CFOs to put growth and investment plans on hold until the deal is sealed. Not so for Alain-Pierre Raynaud, CFO of Areva, France's €12 billion state-owned nuclear energy company. The proposal to merge Areva with Alstom — a publicly listed French engineering firm that the government controversially saved from bankruptcy in 2003 with a €2 billion rescue plan — has been on the table for several years, in various states of urgency. The arrival of a new president last spring moved it back up the to-do list. Opposed to the merger, Areva CEO Anne Lauvergeon and Raynaud, who joined the company in 2006, have forged ahead with an ambitious growth strategy. This includes plans to nearly double annual capital spending to €2.2 billion over the next four years in an effort, among other things, to corner a third of the global nuclear energy market by 2011.
The marriage of Areva with Alstom is favoured by Nicolas Sarkozy's government and Bouygues, a French conglomerate and Alstom's majority shareholder. But Areva's management are less than keen. Its strong performance in 2007 — including a 14.5% increase in profit — has certainly helped to shore up its opposition to a merger with Alstom. And in February, Finance Minister Christine Lagarde agreed with the merger's critics that a deal would be unpopular with the public. Since then, the government has put a decision on hold until later this year.
That buys Raynaud more time to strengthen Areva's position. Here, he discusses his plans.
It's no secret that your CEO prefers an IPO to a merger with Alstom. Why does Areva continue to dig in its heels?
We are not pushing for this merger for two reasons. When you observe Alstom and Areva, we're unable to identify significant synergies. On top of that, we think there may be negative synergies. Thanks to a partnership with Siemens — which owns 34% of Areva NP, a subsidiary dedicated to the development of our nuclear reactors — we are leaders in the German nuclear market, generating sales of around €1.5 billion. If Siemens is pushed out of Areva just because it is German and because it's not compatible with Alstom, we will suffer negative consequences from our German utilities customers. Also, we don't observe in the nuclear market today any movement driven by an alliance between nuclear technology and turbine technology.
What we are defending is an enlargement of our free float because we need new resources to fund our growth. [Four per cent of Areva's capital was issued in the form of investment certificates in 1991.] Obviously, it would be a good idea for some of our existing partners to be major shareholders in Areva. Our business model, which opens us up to technical partnerships, drives our efficiency. We have a partnership, for example, with Urenco [of the UK] to develop centrifuge technology and we ally with Mitsubishi to develop new reactors. We need a high level of flexibility to do this. To freeze that flexibility through an alliance with Alstom does not sound like a good way of maximising value creation for [Areva's government] shareholders and the efficiency of the company.
Your growth plans include capturing one-third of the global nuclear market by 2011. Are you on schedule to achieve this?
At the moment, yes. In [uranium] mining, for example, we plan to increase our yearly production by 2012 from 6,000 tonnes to 15,000 tonnes. We acquired UraMin of the UK last year, which brings 90,000 tonnes of additional reserves and two sites in pre-production — the first of which will enter into production in 2009. In [uranium] enrichment, we know that the market demands we grow mainly in the US, so we have built a plant with new technology. In terms of new reactors, we are winning a lot of business and we have a lot of prospects. Anywhere that you have a project to build a nuclear reactor or set up a nuclear industry, you will find Areva on the bench.
Nuclear energy is an emotive issue. Does public opposition to it pose a risk to those growth targets? And how do you mitigate that risk?
We're doing a lot to be transparent and give our stakeholders access to information. But it's not just about communication. It's about building relationships. For example, in mining we created health observatories in Niger and Gabon — and plan to do so in Canada and Kazakhstan next year — to help people feel comfortable about working in, and living near to, the mines. The observatories offer access to easy-to-understand information, controlled by an independent third party.
As for nuclear technology, our third-generation reactors guarantee safety. You have to imagine a box of concrete and steel protecting the reactors against any external aggression, such as missiles or aircraft. Where risk has been identified in our second-generation reactors — in certain parts of Russia or other eastern countries — a network of observation and technology support prevents that risk. As for the back end — pre-treatment and recycling — we have very good technology, which is economically and environmentally viable. So in each segment of the fuel and reactor cycle, safety is covered.
What we're observing — considering problems of climate change and energy dependency — is that nuclear is now considered to be part of the solution. Some people are positive about it, others still have some reservations, but are accepting it.
Areva is exploring growth opportunities in renewables. How quickly will you be able to show a return on this investment?
The demand for [renewables] is growing everywhere, not only in wind but also in biomass, two sectors in which we are investing. We recently acquired Koblitz — a Brazilian biomass company — and Multibrid — a German wind power company. Before the end of our strategy plan in 2012, we would like to see these companies contributing around 10% to group margins. Both acquisitions are in line with our strategy to be a provider of CO2-free energy solutions.