Half Year 2019 Unaudited Financial Results
08 August 2019
Urenco Group (“Urenco” or “the Group”), an international supplier of uranium enrichment services and nuclear fuel cycle products, today announces its results for the half year ended 30 June 2019.
- Revenue up €32.7 million (4.2% increase on H1 2018) and EBITDA up €88.9 million (18.0% increase on H1 2018) due to favourable phasing of deliveries and continued strong operational performance.
- Net income up by €89.0 million primarily due to improved EBITDA performance.
- Strong cash generation from operating activities of €463.3 million (1.2% increase on H1 2018) and successful tender to buy back €215.6 million of Eurobonds.
- Contract order book has an approximate value of €11.2 billion (€11.9 billion as at 31 December 2018), providing visibility of future short to medium term cash flows.
- Strong safety performance with improved safety culture and no work-related lost-time injuries for 20 months.
- Continuing to deliver on our strategic objectives through cost savings, increased global reach and exploration of new business opportunities.
- The long term market outlook for enrichment continues to be challenging but Urenco remains well positioned to support future growth in the nuclear industry.
Financial highlights (€ million)
Six months to June 2019 (unaudited)
Six months to June 2018 (unaudited)
|EBITDA margin - %
|Income from operating activities
|Net income margin - %
|Cash generated from operating activities
(i) EBITDA is earnings before exceptional items, interest (including other finance costs), taxation, depreciation and amortisation and joint venture results. Depreciation and amortisation are adjusted to remove elements of such charges included in changes to inventories and net costs of nuclear provisions. EBITDA is reconciled to income from operating activities on page 7.
Boris Schucht, Chief Executive of Urenco Group, commenting on the half year results, said:
“Urenco’s half year results for 2019 reflect our strong financial and operational performance, in addition to the positive progress made in the delivery of our strategic objectives. We continue to focus on enhancing our impressive safety performance, minimising the environmental impact of our operations and further promoting the safe and inclusive nature of our culture across the organisation.
Revenue is up in the first six months of 2019 compared to 2018 reflecting the phasing of deliveries, with the second half of the year expected to account for a similar level of sales as the first six months of 2019. EBITDA is favourable due to higher revenue and lower total costs. Net income also increased reflecting the higher EBITDA together with lower net finance costs, partially offset by higher tax charges. The enrichment market remains challenging, with ongoing pricing pressures increasingly reflected in the decreasing value of our contract order book.
Nuclear plays an important role in meeting the global demand for a continuous and secure supply of low carbon energy. Urenco is well positioned to support this through our strategy. We will ensure we remain a global leader in enrichment services and are exploring new opportunities in Eastern Europe and Asia in particular. We are also looking to increase our business in the back-end of the nuclear fuel cycle, including decommissioning activities, through our UK subsidiary Urenco Nuclear Stewardship. This is complemented by the work of Urenco ChemPlants which will operate our new Tails Management Facility and manage the by-product of our enrichment services. I enjoyed meeting a significant number of our customers and other stakeholders at a celebration in June marking its completed construction.
Since joining Urenco in May 2019 I have been getting to know the company – its employees, its facilities, stakeholders and our core business. I have spent time understanding the challenges and opportunities facing the company as we approach 50 successful years of operation. I have been very impressed by the commitment of all of our employees and am confident that Urenco will continue to be a long term supplier to our global customers and support the nuclear industry in providing a reliable source of sustainable, low carbon energy.”
Revenue for the six months ended 30 June 2019 was €804.6 million, an increase of €32.7 million (4.2%) on the €771.9 million for the same period last year. SWU revenues were up by €78.8 million due to higher volumes which more than offset slightly lower realised hedged SWU prices. Uranium related sales were down by €32.7 million, with both volumes and prices lower than the same period last year. Other net movements in revenue showed a decrease of €13.4 million compared to the same period last year, primarily as a result of lower sales at Urenco Nuclear Stewardship. Overall, revenues for the first half and second half of 2019 are expected to be at a broadly similar level, which contrasts slightly with previous years where the second half of the year accounted for the majority of sales.
EBITDA and Net Income margins are at a higher level in the first half of 2019 compared to the first half of 2018, as a result of a combination of factors. These higher levels of margin are unlikely to be repeated in the second half of the year.
EBITDA for the first half of 2019 was €582.9 million, an increase of €88.9 million (18.0%) from the same period last year (H1 2018: €494.0 million), corresponding to an EBITDA margin of 72.4% (H1 2018: 64.0%). The increase in EBITDA is principally due to the margin impact from increased revenue together with reduced net costs of nuclear provisions (€25.6 million) and lower other operating and administrative expenses (€30.6 million).
The net costs of nuclear provisions were €18.0 million for the six months ended 30 June 2019, a decrease of €25.6 million (H1 2018: €43.6 million) primarily as a result of lower net costs for tails provisions partially offset by higher costs for other nuclear provisions. The net costs for tails provisions in the first half of 2019 were €30.8 million lower than those for the same period last year. This decrease was due to optimisation of operations and the impact of the reduction in higher assay tails associated with enrichment services contracts. The net costs for decommissioning provisions in the first half of 2019 decreased by €4.6 million primarily driven by releases of provisions associated with cylinder inventories. The net costs for other nuclear provisions in the first half of 2019 increased by €9.8 million as a result of optimisation of the operations and changes to the forecasts for future re-enrichment of low assay feed.
Other operating and administrative expenses in H1 2019 were lower by €30.6 million (H1 2019: €203.7 million, H1 2018: €234.3 million) reflecting a lower average unit cost of sales as a result of both the sales mix realised in the period and the continued management of costs across our business.
Depreciation and amortisation for the six months ended 30 June 2019 was €171.4 million, compared to €161.0 million for the half year 2018.
In the six months ended 30 June 2019 there were no exceptional items (H1 2018: nil).
Net finance costs for the six months ended 30 June 2019 were €51.4 million, compared to €75.1 million for the same period last year, with the reduction largely due to lower losses incurred in the period as a result of foreign exchange movements. The net finance costs on borrowings (including the impact of interest rate/cross currency interest rate swaps) were higher at €45.0 million (H1 2018: €39.5 million) due to the premium of €9.9 million paid on the early redemption of certain bonds due in February 2021 (which completed in January), with the underlying costs reflecting the lower levels of net debt in the first half of 2019.The other key elements of net finance costs were capitalised interest of €30.1 million (H1 2018: €24.2 million) and the unwinding of discounting on provisions of €34.3 million (H1 2018: €29.5 million).
In the first half of 2019 the tax expense was €94.0 million (an effective tax rate (ETR) of 25.6%), an increase of €22.0 million over the tax expense of €72.0 million for H1 2018 (ETR: 28.1%). The increase in tax expense arose primarily as a result of the increase in accounting income before tax, partially offset by changes in the amount of foreign exchange financing gains and losses that are excluded from tax under the UK Disregard Regulations.
In the first six months of 2019 net income was €273.5 million, an increase of €89.0 million (48.2%) compared to net income of €184.5 million in the same period of 2018. The net income margin for H1 2019 was 34.0% compared to 23.9% for H1 2018. The increase in net income reflects the impact of higher EBITDA, with lower net finance costs in the period being offset by a higher tax expense.
Operating cash flow before movements in working capital was €593.1 million (H1 2018: €523.9 million) and cash generated from operating activities was €463.3 million (H1 2018: €457.7 million). Higher cash flows from operating activities result from higher revenues and lower cash operating costs, partially offset by a less favourable movement in working capital compared to H1 2018.
Tax paid in the period was €112.2 million (H1 2018: €98.1 million) with the increase principally driven by higher net tax payments in the UK, partially offset by lower net tax payments in the Netherlands. Accordingly, net cash flow from operating activities after tax was €351.1 million compared to €359.6 million in H1 2018.
In the first six months of 2019 the Group invested a total of €54.2 million (H1 2018: €96.3 million), reflecting a lower level of expenditure on core enrichment assets in line with our strategy and the decline in the level of investment in the Tails Management Facility (TMF) (H1 2019: €20.6 million, H1 2018: €46.1 million).
Net cash outflow from financing activities was €753.2 million (H1 2018: €336.2 million) which includes the placement of €175.0 million in short terms deposits, the majority of which mature in March 2020. In January 2019 Urenco announced a tender offer which resulted in a repurchase of €215.6 million of our €750.0 million bond due in February 2021. The total amount paid in January 2019 to the bond holders was €230.5 million, which included accrued interest of €5.0 million and at the purchase price of 104.6%, a premium of €9.9 million. Hedge instruments associated with the bonds that were repaid were closed out resulting in cash proceeds of €4.2 million. In March 2019, €300.0 million in dividends for the year ended 31 December 2018 were paid to shareholders (2018: €300.0 million).
Total provisions as at 30 June 2019 were €1,810.4 million (31 December 2018: €1,776.5 million) of which €6.0 million (31 December 2018: €7.5 million) was included in current liabilities. In H1 2019, additional provisions and the unwinding of discounts were €171.0 million, while utilisation and release of provisions (including exchange differences) were €137.2 million. Nuclear liabilities and the associated provisions, together with underlying macro-economic assumptions and the required funding capability, are kept under constant review by Urenco.
As at 30 June 2019, the Group held cash and cash equivalents of €109.5 million (31 December 2018: €531.2 million) as cash was utilised in the repurchase of the bonds in January 2019, and €175.0 million placed in short term deposits. Net debt was €1,428.7 million (31 December 2018: €1,370.9 million).
The Company’s debt ratings were reconfirmed in April 2019 by Moody’s (Baa1/Stable) and S&P Global Ratings (BBB+/Stable).
Market conditions remain challenging and current price levels would not support reinvestment in our enrichment facilities. Our order book extends to the 2030s with a value as at 30 June 2019 of €11.2 billion based on €/$ of 1 : 1.14 (31 December 2018: approximately €11.9 billion based on €/$ of 1 : 1.15), providing visibility and financial stability of future revenues.
Since 2011, the global enrichment market has been in a state of oversupply and high levels of inventory. We believe that enriched uranium inventories will start to decrease and, therefore, that the uranium enrichment market will improve. However, the timeframe in which this will occur and the extent to which the market recovers remain uncertain.
There is an increasing global demand for sustainable, low carbon energy. Energy demand is set to grow by more than 25% (1) by 2040 and nuclear has a key role to play to meet long-term climate goals under the Paris Agreement.
As a leader in the nuclear industry with a clear strategy for the future, we are well positioned to meet this need. We are unique in the world enrichment market in having four enrichment facilities in four different countries. This gives us the expertise, diversity of supply and the capacity to manage the market risks and ensure we continue to serve our customers long into the future.
We also continue to monitor the various political uncertainties that could impact our business. We are prepared for the UK’s withdrawal from the European Union and EURATOM treaty. Stock, equipment and other materials have been built up to continue production at our UK site, agreements are in place to satisfy customer needs in case transport is disrupted and export licences are arranged post Brexit.
Urenco has provided input to the US Department of Commerce investigation into the potential impacts of imported uranium, in all its forms, on US national security. This followed the launch of a section 232 investigation conducted under the authority of the Trade Expansion Act of 1962. We welcome the decision by the President of the United States that imports of uranium do not impact national security and there will be no immediate remedy imposed on this basis. We will closely monitor the findings of a Working Group established to develop recommendations for reviving and expanding US domestic nuclear fuel production, expected to report in October, and will continue to demonstrate that our involvement in the US uranium market is in the best interests of our US customers.
Thomas Haeberle retired as Chief Executive Officer in March 2019. Stephen Billingham (Chairman) acted as Chief Executive Officer in April 2019. Boris Schucht was appointed Chief Executive Officer in May 2019 when he joined from 50Hertz, the North-East German Transmission System Operator.
(1) International Energy Agency, World Energy Outlook 2018: https://www.iea.org/weo2018/
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Urenco is an international supplier of enrichment services and fuel cycle products with its head office based close to London, UK. With plants in Germany, the Netherlands, the UK and the USA, it operates in a pivotal area of the nuclear fuel supply chain which enables the sustainable generation of electricity for consumers around the world.
Using centrifuge technology designed and developed by Urenco, the Urenco Group provides safe, cost effective and reliable uranium enrichment services for power generation within a framework of high environmental, social and corporate responsibility standards.