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Concerns over French security of supply and carbon tax application

  • 21 Oct 16

According to the press, the French government will most likely drop the current carbon tax plans. The government was planning to apply a carbon tax only to coal generation assets, but there are growing concerns over the measure being too complicated to implement given that it will be applied only to some assets. If implemented, it might be unconstitutional and not be accepted by the European Commission given that it can be considered state help for EDF in order to boost power prices and improve the profitability of lower emission assets. Moreover, EDF has been forced once again by the nuclear regulator (ASN) to close five additional nuclear reactors by the year-end to perform additional tests on the reactor vessel and steam generator of these reactors. With a third of the nuclear park already stopped in the country, there are increasing doubts over EDF’s ability to cover its supply needs over the winter and this has once again boosted wholesale prices across Europe. Driven by a spike in French wholesale electricity prices (as they are currently above the €70/MWh level) and an expected lower production from its nuclear fleet, EDF has demanded both the Minister of Economy and the Minister of the Environment and Energy to apply a temporary suspension of the ARENH mechanism (a regulated price given to competitors to buy nuclear electricity, set around €42/MWh). As a result, concerns over security of supply and a tight reserve margin for the coming winter have emerged and the output from coal and gas plants has more than doubled in recent weeks due to lower nuclear production. On the other hand, and despite the expected outages, EDF has maintained its nuclear production targets (which were already reduced twice in 2016) at 380-390TWh for 2016 and 390-400TWh for 2017. Moreover, EDF has finally provided the timeline for the five nuclear reactors outages that will be stopped for the additional testing demanded by the ASN: the period will be mainly (for four reactors) during the holiday season from 10 December 2016 to 15 January 2017, with one reactor stopped from 22 October 2016 to 19 December 2016.

Higher operating margin despite Gardena

  • 21 Oct 16

Husqvarna had a slightly disappointing Q3 16 below our expectations. This is tempered by the challenging basis of comparison last year at Gardena and the Construction business to a lesser extent. Q3 16 figures: Sales reached SEK7,349m (+1%). Organic sales were down 1% (vs flat on Q3 15) due to Gardena, -6% (vs +19% in Q3 15) and the Consumer Brands division, -10% (vs -18% in Q3 15). Conversely, Husqvarna performed well, +5% (vs +3% in Q3 15) and the Construction division grew slowly, +1% (vs +7% in Q3 15). The operating income increased to SEK431m, +6% and +2% at constant currency, and the operating margin improved to 5.9% of sales (+0.4pt). The currency effects were negative by SEK-60m (vs SEK-60m in Q3 15). The increase in group operating income was attributable to the Husqvarna division (SEK368m, +14%), the Construction division (SEK155m, +8%) and the Consumer Brands division which reduced its operating losses (SEK-80m vs SEK-119m in Q3 15). Conversely, the Gardena division had lower operating income, or SEK50m (vs SEK113m in Q3 15), due to the lower sales of the highly-profitable watering products. Group net profit was SEK206m (+5%) after a surge in net financial costs (+49% to SEK-124m including a negative currency effect) and a lower income tax rate (33.2%, -5.9pts) considering that there was a one-off tax item in Q3 15. On 9m 2016, the operating cash flow increased to SEK3.1bn (+22%) after a decrease in the change of WCR. FCF reached SEK2.1bn after net capex of SEK996m (+5%). On 30 September 2016, financial net debt (excluding the provision for pensions) was reduced to SEK3.8bn (-12%) and represented 27% of total equity (vs 32% on 30 September 2015).

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