Financial Times Europe - 10.10.2019

14 ★ FINANCIAL TIMES Thursday10 October 2019

COMPANIES

DAV I D K E O H A N E —PARIS

French energyutilityEDF nnounceda
increased costs to itsmuch-troubled
flagship nuclear project at Flamanville
yesterday as it confirmed delays to the
opening of the plant due to faulty
welding.
The company said construction costs
would rise by €1.5bn to €12.4bn, with
the loading of nuclear fueldelayed until
the end of 2022. Thathad previously
been scheduled for the end of 2019 with
commercial activity starting in 2020.

The group hadflagged the delays ta

the plant in north western France to the

end of 2022 during itshalf-year results.

Flamanville had originally been

expected to cost €3.3bn and start oper-

atingin 2012. Analysts at Morningstar

saidtheincreased costs were in line with

estimates but warnedthe worst-case

scenario — lternative,a more expensive

plans — had “not gone away totally”

since EDF had to get approval for its

repair proposals by the end of 2020. The

current proposals involve he use oft

remotely operated robots.

In July EDF, which is 83.7 per

centowned by the French government,

confirmed that Flamanville would be

delayed for at least three years due to

faulty weldings.

Flamanville is considered a litmus

test for the next-generation European

Pressurised Reactor technology.

One EPR is already up and running in

China, but Flamanville remains the big-

ger test for EDF because it is 100 per

cent owned by the company and the

French regulators are known to be

exacting.

There are two other EPR projects

being built in Europe: the Olkiluoto

project in Finland, which is more than a

decade late, and the UK’s Hinkley Point,

which EDF warnedin September ouldw

cost an extra £2.9bn to complete.

The news comes as EDF pushed back

the formal presentation to the govern-

ment of an internal reorganisation plan,

called Project Hercules.

This hadbeen due to take place by the

end of the year, at the request of French

president Emmanuel Macron.

Project Hercules is to create a govern-

ment-owned mother company, EDF

Bleu, containing the nuclear assets as

well as hydroelectric assets.

Bleu’s main subsidiary, EDF Vert, will

house renewable energy, the networks

and the services businesses.

EDF Vert ill be listed, with some 20w

per cent to 40 per cent sold to raise

funds.

The quid pro quo for the reorganisa-

tion, as seen by EDF, is a new regulated

price for nuclear energy.

This is assuming the plans can be

agreed with the European Commission

in Brussels.

However, Project Hercules has been

deferred due to delays in discussions

with Europe.

In an internal email sent to staff,late

last week, EDF chief executiveJean-Ber-

nard Lévysaid “a reorganisation with-

out better regulation would not be

enough to give EDF the financial means

to play its role in the investments neces-

sary for the success of [France’s] energy

transition.”

Utilities

EDF adds €1.5bn to Flamanville plant costs

French group’s nuclear

project bill rises to €12bn

from €3bn envisioned

D O N ATO PAO LO M A N C I N I— LONDON

In 2015, Britain’s biggest housebuilder
Barratt started introducing small
changes to the way it built homes.
Expensive bay windows were axed and
the angle of the roofs ofhouses slightly
reduced to make them easier to erect.
The aim was to cut costs and raise
margins to give the company an edge
over rivals in the UK’s highly competi-
tive property market. Although incre-
mental, the initiatives have helped pro-
pel Barratt’s profits to records, even as
sales have fallen.
But fears arerising that these profits
may be about to come under severe
strain as the industry faces a triple blow.
Brexit, a potential global property
downturn, and the end of thestate sup-
port programme elp To BuyH hreatent
to takea toll.
“What we see now is that customer
confidence hasdiminished with the ref-
erendum and Brexit,” saidDavid Tho-
mas, Barratt hief executivec. But“the

mortgage availability for new builds is
unprecedented”.
Uncertainty over when and how Brit-
ain will leave the EU risks deterring
potential homebuyers, while any eco-
nomic downturn would hamper con-
sumers’ ability to afford houses.
So far, the Brexit debate has not seri-
ously damaged the balance sheets of
housebuilders, with profits holding up
despite some groups facing criticism
over the poor quality of their homes.
But the market has been buoyed by a
growing economy andHelp to Buy,
which has boosted demand for new
homes.
The risk to Barratt and its main rivals,
Persimmon,BerkeleyandRedrow, is
that the economy deteriorates just as
the Help to Buy scheme is set to taper,
with the equity loan programme
restricted to first-time buyers in 2021
and scheduled to end in 2023.
Hansen Lu, of research group Capital
Economics, expects the changes to
the Help to Buy scheme in 2021, with
different regional caps on prices
as well as its restrictions to first-time
buyers, to reduce demand for about 9

per cent of new home sales. He said

housebuilders might already be adjust-

ing for this by building smaller homes

priced below the new caps.But the end

of the scheme, which the Home Builders

Federation hascalled the “most success-

ful government home ownership inter-

vention for a generation”, is still

expected to strike a blow.

Analysts said companies in the prop-

erty sector were better placed to cope

with the shock of a recession or a heavy

hit to the sector now than they were dur-

ing the financial crisis.

Chris Millington, at stockbroker

and corporate adviser Numis, said

balance sheets had improved “almost

universally”, with the combined

sector in 2007-08 running a debt higher

than £4bn. Now, it is in a surplus greater

than £3bn.

Across the industry, profits have risen

sharply since 2012, while share prices

have soared.

“The whole sector looks better set to

withstand [a downturn],” said Mr Mill-

ington. “It would hurt, but it wouldn’t

hurt to the point where companies

would have to [raise fresh equity].”

Some of the big housebuilders are pre-

paring for a tougher market through

mergers and acquisitions.

Last monthBovis Homes made a

fresh attempt at buying rivalGalliford

Try’s housing businessLinden Homes

for £1.1bn, months after a lower bid was

rebuffed. The deal is expected to close in

December.

Bovis chief executiveGreg Fitzgerald

said a merger would put the company in

a much better place to deal with Brexit

or a downturn.

Aynsley Lammin, an analyst at finan-

cial services group Canaccord Genuity,

said groups uch as Persimmon,s Berke-

ley,Redrow,Crest NicholsonandTel-

ford Homes ere selling property in bigw

blocks, often to institutional investors,

as they aimed to reduce risks in a prac-

tice known as forward selling. Individ-

ual sales tend to be more exposed to

market swings.

Further political intervention to prop

up the housing market shouldnot be

ruled out, which could help the sector.

“Given the high ownership rate and

cultural proclivity to want to own their

own home, housing inevitably becomes

a politically charged area in the UK,” Mr

Lammin said.

But in the event of a darkening econ-

omy and a damaging Brexit, house-

builders would not want to be reliant on

the government forsupport. Now more

than ever, they may need to come up

with their own innovations and changes

to insulate profits, as Barratt did four

years ago.

Construction. low to confidenceB

Shadows lengthen for UK housebuilders

Sector feels under threat from

Brexit, subsidy tapering and

looming economic downturn

DAV I D C R OW —LONDON

M A RT I N A R N O L D —FRANKFURT

Italian bankUniCredit lans to chargep

customers to hold large deposits from

2020, in an attempt to offset the Euro-

pean Central Bank’snegativerates.

“Any negative rates would be passed on

to clients with deposits well above

€100,000,” chief executiveJean Pierre

Mustier aids yesterday in an interview

with BFM, a French news channel.

UniCredit confirmed the plans.

Banks are scrambling to protect prof-

itability in a protracted period of ultra-

loose monetary policy: the ECB last

month cut its key deposit rate from

minus 0.4 to minus 0.5 per cent.

Some banks in the Eurozone and

Switzerland have already said they will

pass negative rates on to individual cus-

tomers, includingUBS, whichplans to

charge clients with deposits over

€500,000. Negative interest rates are

already common for corporate clients.

Mr Mustier’s comments suggest more

widespread negativerates at UniCredit

— Italy’s largest bank by assets.

Earlier this month, Mr Mustiercalled

on the ECB to improve the “transmis-

sion mechanism” to ensure lenders pass

negative rates on to customers, encour-

aging them to invest their cash rather

than holding it in the bank.

“There needs to be a... message

from the regulator,” Mr Mustier told the

Financial Times, with “more clarity

about how [negative rates] can be trans-

mitted to the end users” such as busi-

nesses and wealthy individuals without

penalising “the small retail client”.

Mr Mustier told BFM that UniCredit

would offer alternatives to customers

affected by its plans, such as allowing

them to investcash in a money-market

fund without paying commission.

Negative interest rates wereintro-

duced in the eurozone in2014 to boost

the flagging economy by nudging banks

into lending money, rather than holding

it at the central bank. But the knock-on

effect has been to dent thestrained

earnings of Europe’s banks, which are

holding a combined €1.9tn of reserves

to satisfy post-crisis regulations.

The impact of negative rates has

divided ank executives. Mr Mustierb

told the FT the policy had been “net pos-

itive” for the sector because it had sup-

ported the eurozone economy.

He argued that while negative rates

had reduced net interest income — the

profits banks make from lending — they

had had a positive effect on “provi-

sions”, the amount of money lenders set

aside to cover bad loans.

However, executives at some lenders

have criticised the ECB’s “lower for

longer” policy.Christian Sewing, chief

executive ofDeutsche Bank, recently

warned that “negative rates ruin the

financial system”, whileRalph Hamers,

theING oss, said the policy was back-b

firing because uncertain consumers

were starting to “save more not less”.

In Germany, Bavaria’s state premier

Markus Söder has suggested that banks

should be banned from charging retail

customers who hold deposits of less

than €100,000, although the country’s

financial regulator BaFin, has signalled

it would be sceptical about doing so.

See Lex

Banks

UniCredit

customers

with large

deposits set to

face charges

Participants in

the industry are

said to be better

placed to cope

with the shock

of a recession

now than they

were during the

financial crisis

Jason Alden/Bloomberg

The Help

to Buy

changes are

expected

to reduce

demand for

about 9%

of new

home sales

‘There needs to be more

clarity about how

[negative rates] can be

transmitted to end users’

Analysts said costs were in

line with estimates but the

worst-case scenario had

‘not gone away totally’

TO M W I L S O N— LONDON

The privatisation of thelargest tele-

coms monopoly has moved a step

closer after Ethiopia launched a search

for an adviser on the sale of a stake in

its national operator.

Ethio Telecom, whose 44m subscribers

give it the biggest single-country cus-

tomer base of any operator in Africa, is

the crown jewel in a sweeping privatisa-

tion programme that will open the

nation’s market to foreign investment

for the first time.

The transaction adviser, to be

appointed this month, will help Addis

Ababa structure the process, determine

a minimum value and select the right

partner, according to Eyob Tolina, the

minister leading the country’s economic

liberalisation.

Ethio Telecom, which generated reve-

nues last year of 36bn birr ($1.2bn), had

separately appointed KPMG to assist

with its own valuation of the business,

Mr Eyob said.

While the government has previously

only signalled it would sell a minority

stake of up to 49 per cent of Ethio Tele-

com, Mr Eyob said it now had a specific

number in mind and that the adviser

would help gauge market sentiment.

International companies including

Vodafone,MTN,Orange,Etisalat nda

Zain ave all expressed interest in gain-h

ing access to Ethiopia’s fast-growing

market.

Telecoms monopolies were once com-

mon across the world. The UK and the

US each had one until the early 1980s,

controlled respectively by British Tele-

com and AT&T. But with the advent of

mobile communications in thepast 30

years, most markets have invited com-

petition.

At the same time as selling shares in

Ethio Telecom, Addis Ababa plans to

issue at least two new telecoms licences

to other operators as part of a “synchro-

nised process”.

Mr Eyob added that the government

planned to appoint a different adviser to

consult on the licensing process as it

wanted to create “a Chinese wall”

between the two processes, but was yet

to send a request for proposals.

He added that it planned to announce

the winning bidders in both the share

sale and the licensing process in March.

Since taking office in 2018, Prime

Minister Abiy Ahmed has promised a

programme of sweeping economic and

political reforms, with the liberalisation

of the country’s telecoms sector a key

component.

After years of state-led double-digit

growth, Ethiopia’s economic progress

has started to stall and a dynamic tele-

coms sector is now seen by Mr Abiy as

vital to drive future growth.

While neighbouring Kenya has built

thriving digital payments and ecom-

m e rc e i n d u s t r i e s, t h e l a c k o f

competition and foreign expertise in

Ethiopia’s telecoms sector has held back

development.

In June the government passed the

legislation needed to set up a telecoms

regulator, a move Mr Eyob said had

been well received by potential inves-

tors.

“What we hear from the stakeholders

is that we have put a solid foundation for

the sector,” he said. “We need to create

an enabling environment for the opera-

tors to thrive but also making sure that

the public interest — by that we mean

access and affordability — is fully

aligned.”

Mr Eyob said the government was

committed to running the process as

transparently as possible.

“The determination from the leader-

ship, from the prime minister, is to show

the world that we can run a very trans-

parent, competitive and fair process

and we will deliver that,” he said.

Telecoms

Addis Ababa launches search for adviser on sale of Ethio Telecom stake

Sweeping privatisation is opening

Ethiopia to foreign investment

Help to Buy home completions in England

Number, rolling  quarters (’)

Source: ONS















     

3 £ bn

Surplus for

combined sector,

against £4bn debt

in 2007-

1.1£ bn

Value of Bovis bid

for rival Galliford

Try’s Linden

Homes business

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OCTOBER 10 2019 Section:Companies Time: 9/10/2019- 18:41 User:alistair.fraser Page Name:CONEWS3, Part,Page,Edition:USA, 14, 1