Areva SA (OTCPK:ARVCF) Q4 2013 Earnings Conference Call February 26, 2014 11:45 AM ET
Luc Oursel – CEO
Pierre Aubouin – CFO
Olivier Wantz – SVP, Mining Business Group
Philippe Knoche – COO
Good afternoon to all of you. I’m very pleased to welcome you in La Defense. I think it is the first time that we’re presenting our annual result at La Defense. It is reflecting our intention to have more people from the support functions and operational functions work together in the same building and it is also in-line with our cost reduction action plan 2016.
We’re here to give you key messages and highlights for 2013 then we will have a detailed presentation our group’s performance level per business group, then we will talk about the market environment which is very important for 2014 and beyond and then we will have a look the financial outlook and as Charles has said, we'll then be available for Q&A session. Before we start I suggest we watch a short video.
It's always pleasing to watch this video and which does reflect the high number of activities of our group. In 2013 was also a year of major milestone after the Action Plan 2016 because for the first time since 2016 our free operating cash flow has reached its breakeven it was objective we had said in 2011. It is on the original scope of course including renewables and for the very first time indeed we have generated cash that has helped us to fund a 100% of our CapEx and that’s very important for the growth and this is mainly due to the very good level of our nuclear business close 7.1% on the like for like business that is outperforming of the targets with an EBIT that is at 39% versus 2012 reaching 11% of our sales revenue and it does take into account at the disposal plant and the insurance claim that we cashed in 2012 and significantly positive free operating cash flow for the nuclear business compared with 2012 and we’re very happy with this and we still are managing in spite of a difficult market environment and in spite of the projects that was launched in the years 2000.
There are some uncertainties on the nuclear market today that have reflected in declining prices for enchainment prices and this unfavorable setting has led €220 million as it's depreciation for ETC which is joint venture manufacturing centrifuge systems that we have at Urenco and for the Eagle Rock enrichment plants in the United States and we have had difficulties with three projects, well three for which total provision of €425 million was planned. We had planned a €150 million in first half. There was also a lost completion provision for the contract of an upgrading of nuclear power plants in the Nordic countries, a €141 million and we’re negotiating with a client for a research reactor that is going through a center number of difficulties.
For renewables as you noted the environment was difficult, generally speaking the market it's a market that has declined since 2011 by 20% worldwide because many customers have had great difficulties in assessing financial resources and because of the uncertainties that have emerged in some countries as to incentives or subsidized systems will remain and we have also had some problems in two important projects that are landmarks in solar power and the negative impact of these offshore activities and solar power have been of €238 million on our net revenue for 2013 but faced with this difficulties we have decided to not to remain idle and if you consider OL3 for instance it's a project that has improved since we have reached 86% of progress significant progress with dialogue with the STUK, the Finnish authorities, on instrumentation and control.
2014 will be a year of focus on activities of critical path and earlier this year we have made a very important test which is the leak-tight test for the vessel of the reactor containment area. And we’re also working on the conditions that will help to have a commitment of the customer on the share schedule or shared schedule in particular during the testing phases where the clients will play an essential role in parallel to that we have carried on with our claims presenting a new claim to the customer leading to up to €2.7 billion in the framework of the upgrading of nuclear power plant in Nordic countries, outage campaign is underway. It should be completed in 2014 in an easier market conditions, we have been able to negotiate a serious of waivers with the customer to cover some of the cost of the projects and as to the research reactor the vessel was laid for the main reactor. Now we’re mainly working of finalizing the detailed technical studies and we’re negotiating with our customer as to the over cost of the future upgrades.
For renewables our strategic is clear, we want to be on the markets of renewables and we have decided to do that through a systematic partnership because indeed we’re convinced that renewables will need to have an enhanced competitiveness and to grow without subsidies, and public subsidies so there is a huge technological breakthrough that is ahead of us and we want to work with those players who will be sharing with us the financing of these initiatives and also those who will be bringing in their technological experience and helping to opening the doors to the markets.
For offshore wind farms we have signed a JV of 50-50 JV with Gamesa. The ambition is to be very aggressive. We have also started for solar energy in the second half of 2013 some negotiations with potential partners to boast this business area and we will soon announce a finalizing of a joint venture agreement for the storage of energy through electrolysis. And finally, regarding bioenergy and biomass, we've carried on with our restructuring plan in Brazil to adjust ourselves through a market which has been particularly sluggish and these are strategic moves that are once again demonstrating that we want to be present with renewables with this intention of signing partnership so much so that IFRS 5 accounting standards will have to be factored in and therefore the solar and wind far activities do not contribute to our sales revenue. Their results is therefore shown in columns which is activities to be discontinued or disposed off in our income statement.
Now further to our Action 2016 Plan, we still have a solid backlog and accelerated decline in investment, and net debt which is well-maintained with a high liquidity and more generally speaking the performance level has improved in the five pillars of these action plan. Nuclear safety, operations and customers, economic competitiveness, technology and innovation and the development of our human resources. Now if we consider the offer group performance in 2013 on the left column you see what was our target in terms of growth rates for nuclear for renewables in terms of EBITDA and free operating cash flow and if we consider the scope for 2012 as I said an organic growth of 7.1% in nuclear business. For renewable, we have had some difficulties on the depressed markets as I said with the sales revenue which was lower than expected and EBITDA which is slightly less also compared with our target and our free operating cash flow which is break even with minus €2 million.
Now if you consider the reported figures that is the right hand column, applying IFRS 5 accounting standards with a consequences resulting wind farm power and solar power. It doesn't change anything for nuclear because it's still at 7.1%. The revenue for renewables is on that biomass and bioenergy therefore it is less. The EBITDA stands at 1.43 billion so it is really significantly higher and the free operating cash flow is positive, sending up plus €204 million.
Another example of the significant improvement of our performance backlog still accounts for 4.5 years of revenue with a slight decline in 2013 because of the postponement of some contracts like Hinkley Point, which will be discussed later on, or a contract with EDF regarding fuel reprocessing. Revenue is on the rise as you can see it does include renewables, EBITDA has a significantly improved in 2012 in the billion EBITDA that we had there was disposals and there was also the insurance indemnity of roughly €300 million from OL3 so reprocessed it means that we have a significant growth of EBITDA by €291 million and finally as I said and I’m quite happy about it, which is the rapid improvement of our cash flow position. We were standing at minus 1.277 billion in 2011 minus 723 million in 2012 and now we’re at plus €204 million.
I will now give the floor to Pierre Aubouin. Who is going to give you more details about these financial aspects?
Pierre Aubouin – CFO
Thank you Luc. Now our backlog as it was said it accounts for 4.5 years of revenue, €41.5 billion. It's being high last year without having to have new build contracts except for the completion of Angra 3 in Brazil so you have the two and they are two EPR reactors in the Hinkley Point in the UK. We've signed an important agreement with EDF last year but these are not included in our backlog at the end of December 2013. Talking about a backend we still haven't cashed in in our backlog, the value of the contract for the 2013, 2017 of the recycling reprocessing contract with EDF with whom the negotiations are still underway. But we have signed important contract for recurring item such as Angra 3, an important system contracts for the EDF nuclear fleet.
Enrichment contract with U.S. based or Europe utilities and also several contracts on additional stress test studies, provision of safety solutions that are coming after Fukushima to various utilities in Latin America, Asia, North America and Europe in the framework of the safety alliance which was set up in 2011. Regarding our sales revenue as we said we’re standing at plus 71% for nuclear operations plus 47% in reported data mainly driven by the mining business group with a sharp improvement of its volumes and we will be able to talk about this later on again and the front end which has renewed with growth because of the transition in the enrichment business. These increases compensate for the expected decline in the reactor and services BG it is also to be noted there hasn’t been any revenue for the second half of the year for OL3 and it did have an impact on EBITDA and this zero revenue from OL3, those account for more than 50% of this decline in revenue year in year out.
Regarding EBITDA there is also an improvement here with restated for us a disposal and insurance received from OL3. It's plus 39% profitability of nuclear business has improved better than the rest of the group with an EBITDA margin which 11% of revenue for the whole year reflecting all the efficacy and efficiency of the levers that we have actuated in the framework of this strategic Action Plan 2016 and in spite of the legacy project from the years 2000 they still have an impact on this indicator. Three of the four business groups of the nuclear sector have shown an improvement in EBITDA the only one that has any decline is reactor and services for the reasons that I explained earlier, mainly due to all three and the upgrading of power plants.
It is also to be noted because of the reorganization and restructuring project that 2013 EBITDA includes 53 million of cost due to this restructuring plans.
And I'll give the floor to Olivier Wantz, who is going to give you more details about the cost reduction plan.
Thank you very much Pierre. Good evening everybody. Indeed you will probably recall that the competitiveness plan that we rolled out comprises an objective concerning the reduction of our operating cost in 2015 compared to 2011 a €1 billion worth of cost be driven down and this program is successful insofar as by the end of 2015, 75% of our objective was achieved representing savings as you can see here.
On an annual basis 750 million on annual basis up by €300 million compared to the end of 2012. By 2015 we’re talking about €950 million of savings already secured hence representing 95% of our objective. However we’re working on continuing to look for savings, we have already identified so as to go through the €1 billion mark allowing that implementation of the more difficult actions will require bolstering by further efforts.
Now the contribution to the EBITDA in 2013 stands at more than €200 million and in particular there was a drop in the cost of the support functions and we won't go into all of the details but I just like to show you on the next slide that you will see here the improvement that was indeed observed in the case of our support functions. You will see, you will look out perhaps that the objective we set ourselves was that the support functions wouldn’t have more than, wouldn’t consume more than 10% of revenues at the end of the plan period 2016, we now stand at 12% of the savings already made and the last year 74 million as you said and we are hopeful of achieving our 10% objective that we set ourselves.
To this development we saw improvements feeding into the process which were the reduction of the number of legal entities for example. Efforts are made in that regard to and we have gone from 283 legal entities at the end of 2011 down to 245 at the end of 2013 that’s a drop of 13%. Also we should note that in the context of these efforts there will be a further contribution expected thanks to the negotiations currently going on with Capgemini regarding Euriware and that was no doubt feed into this savings effort in the future. Thank you.
Unidentified Company Representative
Concerning cash generation, (indiscernible). You can see there is an effect that’s quite visible here too. We have returned to a positive free operating cash flow that is excluding wind farms and solar power, €204 million is the level. That’s the first off the time and it's the very first time that we have done this in the rework for the last eight years and the progression is €927 million compared to 2012. We have used all the levers to improve profitability to keep a cap on CapEx and also to optimize our working capital requirement.
Let’s have a look in particular now I think that impact our accounting metrics in particular the operating income in the group. Like last year provisions and impairments impacted our operating income. They are the dark blue bars on the bar chart. The provisions is mainly the three factors that Luc touched on earlier that is the OL3 provision upon €25 million the revamping of plants and also the impairment in respect to enrichment, assets 120 million worth, all of those add up to €686 million that’s less what featured in the P&L statement last year for those particular topics.
The total was more than €99 million at the time but last year however we did have some favorable operational factors like the capital gains on disposal of assets €278 million and also we had reversals of provisions substantially so concerning the IAS19 revised standard concerning employee benefits.
Now another item we should flag up here concerns the way in which we recognized OL3 in our accounts. This is closely linked with the difficulties we have encountered in our relationship with the client.
What we have got to say is that there is a lack of commitment by TVO, as Luc said earlier concerning the scheduling of this project and specifically concerning the test phases that will have to take place in the coming few years. At this point we therefore cannot assess with any finesse the amount of completion of some of the categories of cost for this project in particular in the test phase of the reactor also to do with the engineering work, to do with the finalization of the I&C architecture under the (indiscernible) of the STUK. So that extent what we have done, we have is a following we have implemented what’s provided for an IAS11 paragraph 32 that is we have opted for the system you see here referred to on the slide. We did not recognize revenues in the latter half of the year for that contract. As of the second half of the year for 2014 as well, the consequences of this change in accounting principles will be stronger demands on the recognition of the revenues. So there could be residual revenues from the contract about €300 million, that cannot be freed up until we get through contractual milestones not on a basis pro rata basis at the completion of the project as it goes forward.
Also regarding the recognition of the costs they will be recognized as charges and only if the cost that we think are definable that will feed in effectively to the physical progress of the project will give rise to any consumption of a provision for the losses at completion. The part that we deem to be ineffective of the cost committed will go directly down as charges and then we have to estimate the rest of the project that remains to go especially to do with the completion of the physical construction of the reactor and that we will do as we go forward at each time we close our accounts.
Now if we look at the bottom part of our P&L the operating income published €11 million, last year the result published was €306 million but we stated to take account of the impact of the capital gains on disposal of assets, we think that’s the comparable figure €80 million will be the comparable figure. The difference between the EBITDA and the damages received for OL3 had no impact on the operating income because it was really factored in the income of the contract. The negative financial income €248 million improving substantially by $70 million worth compared to last year that’s because of the part to do with the end of cycle obligations thanks to the capital gains. We freed up through proper management and stewardship of our portfolio earmarked assets to funds and of life cycle obligations.
So the attributable portion attributable to the equity holders of company standing at zero and the result of the activities that would be discontinued operations that is offshore wind farms and solar power plants and negative as you see here which is a relatively comparable level to last year. Like in 2012 this has to do with the impairment of certain substantial piece of property plant and equipment especially the goodwill after the acquisition of the solar power business and losses incurred in respect of contracts where we had problems with the first of a kind of solar plants.
So you see the figures on the screen here 2013 compared to 2012, having taken account of minority interest of course.
Next let’s go on to the way the cash flow is made of. You can see also the combination of EBITDA slightly higher than the €1 billion and the improvements substantial improvement of our working capital requirement for operational purposes thanks many to the stock release that we did mainly in the mining business and also because of the tension we granted to collecting in our trade receivables so recovering our receivables so we could fully fund for all of the CapEx more than €4 billion worth over the period and that was done on the previous year. So we are able to achieve our key milestone within our action plan between now and 2016.
Regarding the net debt then in the group, as of this financial year we’ve been enforcing the new definition done by the accounting standards authority for the recognition of cash flow items, cash items. So the net debt as we opened our accounts for €0.3 billion that figure is higher €350 million higher than the figure published last year and the development of our net debt really contained in the period up $108 million thanks in particular to the operating cash flow that was positive, freed up in the nuclear part of the business and also this figure is down by about €200 million compared with the 30th of June with the half yearly results. So that shows you the attention we’re granting to keeping a tight lid on our debt level.
Now the structure of the debt is next, we bolstered the structure of the debt in 2013. At the end of 2012 and the start of 2013 we renewed our credit lines, bilateral credit lines now mainly with the maturity of 2015 and this indicated credit lines with the maturity of 2018 that haven't been drawn down and we will probably remain on drawn down. Total amount of about €2 billion so that really is a good backup, good cushion for the group to have. We have $1.25 billion worth of net cash available at the end of December that’s an amount that’s almost stable compared with the end of 2012. So we have managed to get through the financial year without impinging on our liquidity status.
Also the structure of our financing was bolstered by a liability management efforts in managing our bonds so bonds issue which was quite successful, total amounts of 500 million worth 7 year maturity, 2020 with the coupon value the lowest since we ever started doing bonds issue 3.25% so that enabled us to fund the buyback of €330 million worth partial buyback of the ones with maturities of 2016-2017 as you see on the graph and that was supplemented by a private placement of a bond issue, ¥8 billion with a 5 year maturity. So all of this is a start of the phase of refinancing of our group and therefore we should be able to attain the funding we need and we’re going to pursue in 2014 and what we did throughout 2013 and just to plan for the future and stagger our debt maturity deadlines.
So regarding end of lifecycle obligations you know in doing our balance sheet management and per French law, too we have to of course earmark assets that will be dedicated to the end of lifecycle obligations regarding dismantling and so on and the commissioning under our law of the 20th of June, 2006 in France [ph] requires us to self-finance these efforts via earmarked assets.
Now at the end of 2013 we will see for the first time since the recession in 2008 coverage rate that’s greater than the 100% standing at a 102.2% to be quite precise in the area covered, the scope covered by the 2006 act and as EDF did recently we used hypothesis regarding inflation rates and discounting rates that are stable compared with our previous closing of accounts.
These provisions remain sensitive to any possible heightening of the quote that might be given us to the deep storage facility concerning the deep storage facility, the CIGEO quote is what I’m talking about here and the figures are under screen showing you the economic conditions that prevails in 2003. I will give the floor to Olivier to start talking about the different BGs in Areva.
As you see on this slide 2013 regarding the lining BG, we had an exceptional levels of activity and performance in the uranium market, which has remained rather uncertain because as you probably know the price of natural uranium went on declining in 2013 and in the year a $35 about for the spot price and for fixed price at $50 a pound.
So less orders were taken in 2013, our backlog nevertheless stands at $9.6 billion at the end of the year that is more than five years’ worth of sales revenues for the mining BG it provides us with an excellent visibility.
Our revenue is standing at €1.756 billion plus 40.6% on the like for like basis. This is revenue that is high mainly thanks to the selling of highly enriched uranium volumes that is the and stocking of the or destocking of military activities, a program which was completed at the end of last year but also destorage program of natural uranium under the Action Plan 216. It has helped to compensate for a slight decrease of production and price average selling price for this contract of the period and we have solid contracts allowing us to absorb the shock of ups and downs of our uranium prices I was referring to earlier.
The restating operating income stands at €509 million as opposed to a €134 million in 2012. So a significant improvement here. Again in 2012 our losses of the mining assets were worth a €165 million restated EBITDA is at $655 million versus 425 million in 2012 and during the selling of large volumes over the favorable mix and control of production cost. We have also put some pressure on investment effort and this is declined which is mainly due for the mothballing of the Trekkopje mine. In 2013, investments have mainly focused on the mining projects in Cigar Lake and Imouraren and investments to upgrade the production sites.
Free operating cash flow for this BG has improved by more than €300 million for this period. Now if I consider the highlights for this activity, just like in the video I would like to remind the how happy we have been with the release of our hostages and all our friends who were prisoners in Niger. It was really the major event of the year but also we would like to remind that there are still ongoing discussions with the Niger government for the Somair and Cominak mine in order to ensure the sustainability of this two mines with a tax regime which would be compatible with the uranium markets and Canada the work is still going on in order to start Cigar Lake mine really soon, hopefully the first truck of ore will be send to our processing plant of McLean Lake in March 2014 regarding exploration we have set up a joint venture in Mongolia to develop our mining business and we’re still working with local authorities to start a pilot project on the innovation side as it was said.
I wanted to mention it, Areva Med has started the production of lead-212 with the Maurice Tubiana Laboratory in Bessines for the treatment of cancer. And this is also a highlight for 2013. I will now give the floor to Philippe Knoche who is going to talk about the other business groups.
Thank you Olivier. Good evening to all of you. I will talk about the front end, the backlog standing at €16.770 billion. We’re not renewing the very long term contract for nuclear fuel enrichment which we started at this time of GB2. Nevertheless we have had important successes in the United States and in other places, plus 7% for our revenue, €2.188 billion as starting as from the GB2 delivery particularly to EDF regarding the operating income at €21 million, it has been impacted just like the previous year by €120 million a loss of asset value due to the declining prices of enrichment and therefore Eagle Rock enrichment facility and ETC the joint venture with Urenco, assets have had their value declining the €145 million of 2012 was due to capital gain after disposal of assets and also the payment of some insurance indemnity with a provision for restructuring.
All these moves and changes, insurance and restructuring costs do account for this difference in the operating income. While the EBITDA has increased thanks to the cost reduction plan and the increase in the GB2 production, EBITDA stands at €320 million as opposed to €294 million in 2012.
And as we had mentioned the net capital expenditure for the front end BG is decreasing and they have decreased by €455 million year in year out standing at 727 million in 2013. It does not allow us to have break even, free operating cash flow but because of all the efforts that have been made on the working capital requirement we’re now at minus €191 million that is an improvement by €766 million which is also significant for the overall improvement of the group’s performance.
As you know there has been improvement with Georges Besse 2 and Comurhex 2 which is gradually starting and in Pierrelatte this year, the first element of the chain has started with hydrochloric acid. In Malvesi, the first element of the chain started and the commissioning will carry on gradually with facilities in Malvesi in 2015 and ’16. Less modules will start but after 2016 this program will be completed.
Now for the front end still regarding China, beyond the joint venture that has been highlighted in the video, there is also a possibility for potential other joint venture for zirconium with the same partner the Chinese utility, CNNC. For innovation in Vattenfall reactor, we have loaded the GAIA fuel assemblies. GAIA stands for generation of advanced innovative assembly. These are new fuel assemblies providing a higher performance level and that are more solid more robust to withstand reactors. Now reactors and services. The backlog has improved thanks to the recurring contracts but also thanks to two important contracts beyond Angra 3 in Brazil. There is the I&C contract for the unit 5 and 6 of the Chinese power plant Hujing [ph] and the revenue has declined in spite of high level of activity on the installed base in the Europe but the business group has been impacted by the lower level of activity for new built and no revenue from OL3 in the second half of the year as was reminded by Pierre Aubouin.
OL3 still has an impact €425 million impact on the operating income of our business group. Close to a $141 billion for the upgrading of nuclear power plants in Scandinavia. These two provisions that do have a major impact on our group do not explain the decline of EBITDA but this decrease is mainly due to the fact that in 2012 its included €300 million of insurance indemnity from OL3.
The net capital expenditure have gone down even though capital expenditure is low in this business group compared with others. We are mainly talking about development of mechanical items and products. There are some minus 147 leading to operating cash flow of minus €242 million because of this absence of insurance indemnity from OL3.
Carrying on with the highlights of 2013 I would like to say that under the safety alliance program more than somewhat €400 million in orders have been taken in with 53 clients in 19 countries and almost all clients in the nuclear industry have recognized our level of excellence. Therefore we have developed two new offerings Forward Alliance aimed at extending the service life of nuclear power plants. You know that in the United States most nuclear reactors will have service life of 60 years possibly more and the value alliance offering which is currently under development is about offering a portfolio of solutions to our customers faced with major economic challenges particularly in the North America market.
In 2013 we have carried on with our effort to improve the EPR to optimize it. In the licensing context that hasn’t changed and since we’ve started we have reported some 10% reduction in standard cost of the design and also the good piece of news for 2013 is exclusive negotiations that have started for ATMEA. One reactor is in Turkey and also regarding innovation. We have new contracts in the area of cyber security that are only for our nuclear clients.
I would like to recall two important aspect, on the right hand side the signature of a contract to complete the Angra 3 power plant and €1.25 billion mainly for engineering support services to the customer, it started several decades ago. It was then stopped and we’re helping them to complete the construction of the plant with some components and instrumentation and control. At the left hand side Hinkley Point is not in the backlog but we have come to an agreement with EDF as to the content, the scope and the services to be provided in the area of that is for the nuclear steam supply system, instrumentation and control, and long-term fuel supply. That is quite comparable to Flamanville, except that we're talking two units instead one and we’re talking about a very long term fuel supply while the fuel supply contract for Flamanville is slightly different.
This is here Flamanville on the upper right hand side, we’re now at 57% of progress, the latest event the vessel head in the reactor building, which has been late in this critical phase because it's the assembly of the primary circuit component and the auxiliary systems on site in addition to the completion of engineering studies.
To be compared with Taishan, which is much more advanced because we’re not involved in the final assembly so we’re at 89% here but reversely the primary system has been completed in Taishan so the support solutions that we have providing are much more advanced there. We’re no longer talking about the intensive assembly, we’re now starting getting prepared for the future commissioning. And the leak-tightness of the reactor building in Olkiluoto 3 and the upper left side the first full scope test was carried out. It's a 15 or two weeks test and it has being completed to the great satisfaction of TVO, our customer, and STUK, the Finnish nuclear safety authority.
And for the second quarter of 2014 we are going to start the I&C platform tests. These tests have been postponed for several times because we have to wait for the green light to be able to start this test. It has been confirmed by TVO and STUK. And we have gathered all of the necessary means and resources that should help us start this testing platform in the second quarter of 2014.
Now for the bank end, the business has also been quite buoyant because, the EDF contract is not included yet. It is a contract that will cover the treatment or the reprocessing of spent fuel up until 2017.
It's mainly cash and EBITDA that should be the focus, EBITDA has gone up from €417 million to €531 million because at the end of the 1990s certain number of foreign customers of Areva in Germany and Japan signed with Areva and its competitor European competitor some contracts for the reprocessing and manufacturing of MOX fuel. And added to that, the Dutch, the Italian and the Belgium customers came. And 20 years down the road Areva has benefited from partial failing of its competitor and has manufactured some MOX and has contributed to this contract so that it will be completed to the satisfaction of its customers and to that of Areva and therefore our free operating cash flow is non-recurrent this year and it's very high, and it has had an impact on EBITDA while the investments are well maintained. The operating income has declined because in 2012 it had incurred an extra-ordinary item because of the IAS 19 standards in terms of a commitment.
And then there are also the EDF, on top of the EDF contracts with foreign customers La Hague, we've reached the highest production level for the last 10 years because under the settling of the 2008, 2012 contract with EDF. The production was higher in 2013. So we have terminated the past contract with EDF. It has been complete and now when it comes to the construction of plant you have seen that in the video a signature of letter of intent for our recycle plant in China and we also have some negotiations underway at the moment, pretty well ahead of time as to the technical aspects related to that.
Regarding MOX the first fuel assemblies were delivered to the Borssele plant in the Netherlands. The Netherlands have become the 7th country in the world using MOX fuel. It is important to be reminded, regarding innovation, you have this little robot here. It is robot for the inspection of large diameter tubes allowing to perform some visual inspection where the radiation level is too high for people mainly for a Superphénix reactor.
Now I'll give the floor back to Luc who is going to talk about renewables. Thank you.
Thank you Philippe. Concerning renewable energies by virtue of IFRS-5 this presentation will comprise only the revenue figures of the energy storage activities limited to bioenergies. So all the backlog has gone down a bit during the year. We have got in some good orders in Thailand and in France and in the Philippines too. The revenue figure goes down because of the drop in bio-energy in Brazil in business volumes because some calls for tender were suspended and the results of the BG down because of some operational difficulties. Now operational CapEx 12 million going up compared with 2012 because as you know we’re rolling out a torrefaction process, so as to make kind of fuel that would be more in line with the development of biomass based energy.
Now the highlights were of course in the 220 wind turbines being setup currently in the North Sea. We rolled out the development of an 8 megawatt turbine which was selected by the consortium to take part in the second call for tender in France. It will be the largest size turbine in the market. We also delivered biomass plant in the Netherlands, it's the 95th biomass plant that we've delivered in the world, and this to Eneco. And it's 50 megawatts, it's the most powerful in Europe. We also signed a commercial partnership agreement a commercial agreement with Schneider Electric to promote together solutions for storage and energy management.
And if we talk about the market environment, well what are the challenges ahead of us in the short term. We got to contend with certain uncertainties in the business cycle as we said those uncertainties are weighing on prices uranium selling prices, for natural uranium, for enrichment, of course, those prices are below what we had in 2011. We also see a slower restarting than initially forecast of the Japanese reactors and Japan is 50 reactors I don’t 440 up and running around the world right now. And as we speak 17 of them have asked to be restarted but none of them has yet been authorized officially to restart. You know that in the United States shale gas has led to low prices, so there's a lot of pressure on the power market in the context for economic growth hasn’t yet been translated into an increase in power consumption and that has constrained some of our clients to close down four reactors for economic reasons.
And finally, in Europe, as you know economic growth is somewhat in the doldrums and then there are new rules concerning the organization of the power sector they have been enforced for some years. There was excessive investment of course in renewable energy sources and that has led to a decline in the financial status of Western utilities. So in the short term we have got to live with all those uncertainties.
Going forward however we got to reassert also our conviction that in the medium and long term nuclear we will continue developing. We have 437 reactors up and running around the world at the end of 2013. Therefore new ones that were hooked up and there are 72 on build and they are new in nuclear power program that have been rolled out in Turkey and Poland and Vietnam and probably in Saudi Arabia too and there are the countries like UK with Hinkley Point that we talked about or Brazil which with Angra 3 which have confirmed their intentions to renew or develop their nuclear fleet in the coming decade.
So it's a contrasting situation that we’re in. Uncertainties in the short term, all right, but I think the work that’s been done by the group to enhance its performance will make us more robust to address those uncertainties and at the same time we’re firmly convinced we’re on the buoyant market in the medium term, in nuclear and in renewables.
At this point I will give the floor to Pierre Aubouin for the financial outlook for the group which will be the conclusion of our prepared presentation this evening.
Thank you Luc. So after these useful details about our short term market environment and the more longer term prospects I would like to present the financial outlook of the growth for 2014 and also for the period for the end of our plan right up to 2015 and 2016. So let’s start off by talking about the accounting standards as they evolved in 2014. As you know that other groups disclosing under the IFRS rules we have to enforce in 2014 for the first time IFRS-11 which to simply things puts an end to the option regarding consolidation on a proportional basis of joint ventures. So mainly concerned in the Areva group you’ve the ETC, joint venture with Urenco, ATMEA with Mitsubishi Heavy Industries, you've got the Cominak mine in Niger, and two joint ventures in China in the front end and reactors and services businesses.
Also, we should add to that list the once we finish the partnerships finalize them the wind farm energies Gamesa JV and solar power businesses. So after that preliminary I would like to show you on this slide the main impacts concerning the reference point in 2013 of the new accounting rules, the proportional integration of these joint ventures. It will bring down by a €180 or so the revenue figure, the EBITDA margin is slightly less than 11% capital expenditure more or less flat and operational working capital going down as you see.
Now for 2014 we’re expecting consolidated revenues for the group to go down by something between 2% and 5% that can be explained by the end of the effects that Olivier alluded to earlier about the business volume of the business group on mining that is the end of the stock release program for enriched during and that’s 4 percentage points of our revenues in the group in 2013. They were impacted so see that in the light of the 2% to 5% (indiscernible) mentioned a minute ago and also the end of the destocking of our own of natural uranium down in-line with our objectives as stated last year.
Concerning the EBITDA we are expecting the EBITDA margin to go up slightly compared to 2013. Capital expenditure we will keep a lid on and we hope to have CapEx standing at €1.3 billion or so and operating free cash flow before tax should be positive.
Now between now and the end of the plan, between now and 2015 we should get back to cruising speed and average growth over the period should be 4% to 5%, an increase in profitability with an improvement in the margin ratio of the EBITDA, 2 percentage points per annul on average, gross capital expenditure that should continue to go down, be brought down to €1.1 billion per annum on average and significant growth in the free operating cash flow to be positive before tax. So at the end of last year we mentioned points that we wanted to specific in the light of the accounting standards developments that took place in the meanwhile, so the dividend payout policy in line with the enforcement of the policy to find for 2013 there won't be a pay out of a dividend given the negative income level but as of 2014, with respect to 2015we hope to continue with the previous policy, that it's payout within a limit of 25% of the net attributable profit and at this point that completes our prepared presentation and we will be happy to take questions if you have questions.
I’m from Nataxis, I’ve a few small questions or maybe I will ask them in a couple of turns. So the first question has to do with Niger. Could you give us some additional details about Niger please because it's been in the headlines of the newspaper several times and negotiations are going on, they were supposed to be closed in November and they always seem to be postponed? I mean the talks haven't come to fruition yet. Is there a risk that they won't come to fruition, do you think we should anticipate a drop in profitability substantially in Niger because 16% of a rate was mentioned that from 12 to 16 were mentioned in the press recently because the Niger state wants a little bit more perhaps now. Regarding the losses at completion, €75 million were mentioned for OL3 for the second half of the year and you mentioned definable cost. Should we consider that overall the 425 million that were set aside this year on the basis of the new definition, the new accounting recognition, is that recurring?
Will that be recurring in 2014 or could we have some idea of those identifiable costs or definable costs? Will they be offset by a reverse of provisions maybe? Will they recur again? Well, it's a complex matter, it seems to me. Also what about the restructuring in Brazil the cost of it and what it netted in by way of gains, if possible? And a last question, cost cutting you mentioned your cost cutting drive 200 million net for 2013 is the figure mentioned and the deployment rate is 300 million growth isn't it? That’s about it isn't it? Now you’re heightening the objective you’re setting the bar higher by how much?
I would like to have some kind of rule of thumb there. Now the transformation rate is it sustainable do you think overtime vis a vis between now and 2016 vis a vis the end of 2016 for example?
On Niger, this is Oursel, I think we should be quite clear. As you’ve seen we’re not part of the media campaign on that, we’re not taking part in it because we don’t think it's the right way to manage talks. These talks are obviously complex ones because on the one hand you have got legitimate aspirations in Niger to increase the tax income from this activity given the development situation of that country. Also on the other hand and it's shared interest, there are two mines being operated and we want to sustain the activity in those mines with an acceptable profitability level.
Now those two mines are mines that are now go back some time, they started to be mined a long time ago. Now so their cost prices these days that the cost of operating them rather it's not among the most performing in our portfolio. So these talks are talking time, they are taking time especially as the natural uranium market as we recalled. as Olivier Wantz recalled, is just not conducive at the moment that market. So one has to be patient in these situations and come to a good agreement that would be a balanced agreement. So we haven't set ourselves a deadline to come to fruition in those talks. We were told that the talk is going on. We will be to everybody's satisfaction, to the satisfaction of the parties involved and on what basis sorry the gentlemen speaking without a microphone the interpreters can’t hear the question.
For the moment we’re continuing on the base of 2013, also some new agreement is devised. The other devised. On the other question, Pierre?
Yes the question concerning the mechanism for the setting side of provisions for OL3 on the definable cost, the results at completion that comes out at the end of 2013 is our best estimate of the situation given the risk opportunity analysis that we had to do especially to do with that physical construction. The definable cost it's a physical construction we’re talking about. So really we wouldn’t, it's not intended to be recurring. Given the accounting principle that was implemented as of this year now but could happen would be if in the context of the cost incurred in 2014 there were to be some cost that would not feed in as effectively as we might think to the advancement. Well the completion there would be a sanction by this accounting mechanism we would have to put those cost down directly as charges so impact the operating income.
Regarding the EBITDA and cash flow however you should note that 2014 is probably going to be a year whether it be substantial reduction in the pace of expenditure compared with 2013. 2013 was particularly sustained in that respect because of all of the physical construction work going on and the fact is also in 2014 we will be concentrating on the progression on the I&C and the testing of the platform and as mentioned by Philippe, so that we will be expert in that way to a lesser degree than in previous years.
On Brazil, restructuring costs, it's a few million euro. We're talking here about restructuring on the small scale with a long payback time but we want to be very responsive in adapting our organizations for renewable energies and we demonstrated that recently by setting up in conjunction with the local authorities a program for short time working, you’ve seen that in our German facility concerning a 160 people and also on the cost cutting side, yes maybe I didn’t put it very well to the speaker but we’re not heightening the general objective, the 200 million as I referred to that was the impact of our cost cutting activities in 2013, 300 million is in the full year you see. So it's a full year and non-full year that’s the difference.
So the equivalent of 300 million if we annualize it we’re not raising the objective now to achieve the billion mark for savings in 2015 values compared to 2011 as we said we think it will be prudent to secure to lock in the achievement of our objectives having identified actions that will enable us to achieve more to go an extra mile if we’re successful in all of our efforts that’s the thing. We’re anticipating maybe not making all the numbers if we don’t achieve the results expected we’re working on more so as to achieve 100% of our plan if we possibly can.
I have a question, well two questions really firstly I would like you to focus on the profitability of Georges Besse 2, please. For me that is interesting potential and the second question on the disposals of assets, will there be other things to come in that respect?
On the profitability of Georges Besse 2 it's contributing to the effort to reduce our operational cost compared to the period for the production for enrichment was done in the Eurodif plant. Now we indicated previously that as of end of June 2012 when we discontinued the production Eurodif we freed up, garnered in savings on an annual basis of full year basis of €180 million worth minimum in terms of our electricity bill. To that we must add operating cost savings as well and other kinds of costs.
Now these savings will be gradually seen in the P&L and we have started to see them in 2013 even because of the ramping up on the production GB2 because those savings will be generated in the corresponding margin only when we have an industrial scale activity and go through the stock the inventories in the meantime so it's when you sell your production you delivered your clients that you finally materialized your savings but in terms of cash flow the savings the cash savings were immediate and were garnered in as of the second half of 2012 and of course contributed substantially to the improvement of the cash flow situation of the front end BG, as Philippe commented on earlier.
On the disposal of assets in our action plan we have provided for disposal plan, €1 billion to €2 billion worth or so and we have achieved that plan. So we didn’t dispose of Canberra. The purchaser wasn’t capable of sticking to the commitments that had been given.
So we’re now pursuing certain disposals small businesses, I’m talking about subsidiaries here marginal for the scope that is and we also finalized our agreements with Capgemini so as to take over our software business our IT business, it's not just to dispose there is a contribution to the performance plan, too, because we hope that when Euriware is taken over by Capgemini, and when services are provided to us by Capgemini that there will be productivity achieved in the period.
(Indiscernible) from Reuters. Two questions, do you still intend to sell 10 EPRs in 2016 like it was announced a year ago or so and another question about Niger again it seems that the problem is the enforcement of mining law of 2006 but what is really the bone of contention in this negotiation process. Is it the payment of royalty fees? What is the actual problem with the law in Niger and how do you intend to solve this problem.
Indeed we confirm our objective of selling 10 EPRs by 2016 the first confirmation of the two EPRs in the UK for 2014 and we’re expecting income from future calls for tender which should be launched in Poland and Saudi Arabia and we’re also actively negotiating in India and China for two EPRs in India and China the first two EPRs of a potential series of six. So these discussions negotiations and the fact that Taishan 1 and 2 has been really successful as well as the Hinkley Point negotiation as well as the excellent cooperation with EDF to try and tackle the Saudi and Polish market is helping us to assert our intention to sell 10 EPRs by a 2016. Regarding Niger indeed a new law was passed in 2006 with different tax regimes leading to different interpretations that is making us working it hard and trying to understand what will be the tax supplied on the mining sector in this country. What will be the result of the negotiation? Well just like any negotiation it will result in an agreement which will be considered as satisfactory to both parties I assume.
(Indiscernible) from Tradition Securities. I have a question regarding wind power and solar power. I’ve understood from the partnership that you would keep some joint ventures for this particular business but what about the future it will be, there will be consolidated companies and it's not in your guidance that the fact that is separate is indeed there are partnerships and IFRS-11 standard will apply to us. So this business will improve because in 2012 and in 2013 the negative result for more than €200 million that have been reported included significant parts of assets depreciation for two years. There was a full goodwill depreciation of the Ausra acquisition for solar power, and now it's a 100% depreciated so it is a non-recurring item and we have also provisioned losses for first of a kind project for solar power that are about to completed in 2014 so there is no reason why it should occur again in the coming years.
The objective of these partnerships is to perform better and if we were on our that is we need to select to the right business partners and technical partners that would help us to perform better as opposed to a standalone solution. Typically for wind farms 50% of the business income will be consolidated and not a 100% since it won't be joint venture.
It will be less than in 2013, the question wasn’t heard.
For the second series of questions since I always keep to my promises what about your working capital requirement for 2014? Could you give us any clue and same thing for our taxes a 150 down to a 60 million in 2013 what should be the figures for 2014? Because the tax regime is always difficult for them to understand for you and not for the backend export contract. What about these impact of the non-recurring items on these income? Now for 2014 we’re still expecting an improvement of the working capital requirement not as important as in 2013 but still there would be an improvement and more generally there has been a significant improvement in 2012 and 2013 so we’re in a phase of improvement and in 2013 the end of plan the working capital requirement should stabilize. The second question taxes there are many deferred or postponed taxes that do have cash impact but while the charge of cash taxes is mainly due to our operations in Canada and Kazakhstan, therefore, the change is.
Finally for the third question, non-recurring contract for the backend and I will give the floor to Philippe later on. Our guidance for 2014 do take into account these non-recurring contracts. There have already been faxes in our outlooks. The year 2012 is self-explanatory, if you look back in history.
If there are no further questions, I would like to thank you for your attention and you’re invited for a cocktail in the room next door.