EuroBusinessMedia (EBM): Poweo, France's first alternative independent electric and gas utility, has just reported earnings for 2007. Charles Beigbeder, welcome. You are the CEO of Poweo. What are your general comments on the company's performance in 2007?
Charles Beigbeder (CB) : 2007 was a key year in our development with several major achievements. First, it was another year of very strong growth with key wins in large accounts which compensated for a slow start in the residential market that was due to unfavorable regulatory conditions. We signed a capacity swap with EDF giving us direct access to nuclear power at attractive conditions allowing us to be competitive in the French market. We made our first steps as a power generator, with our first wind farms in operation. Concerning our financials, we made an operating loss at the level of EBITA of 17 million euros and a net loss of 20 million euros. This loss reflects our investment phase. We are building a leading alternative integrated operator in the French market, taking advantage of its recent liberalisation and the lack in flexible generation assets in France in the next decades. This implies that we bear first the costs of developing our industrial assets and our customer base, before we get the associated recurring revenues and margins. Our financial structure is sound, thanks to the 150 million euro rights offering carried out in June 2007, which allows us to finance the next steps of our development.
EBM : French lawmakers have only recently made it possible for customers to return to the national electric utility, EDF, after switching to an alternative power company such as yours. How important is this recent change in the regulatory environment in France and what is the impact for Poweo?
CB : Among the 27 members of the European Community, 16 countries have regulated tariffs for energy supplies. Until the decision you have mentioned, France was the only country that did not allow end-users to go back and forth between regulated and unregulated prices. As a consequence, French citizens were reluctant so far to join alternative operators. After several months of intense lobbying, we have convinced the French parliament to allow residential customers to go back to regulated tariffs for electricity after a minimum six-month period. This new law has boosted sales.
EBM : Precisely. Speaking of customers, what is your update today on the pace of new client acquisition, and your confidence in your ability to reach your year-end customer targets?
CB : We implemented in January of this year our own door-to-door sales force, and our acquisition rate increased from less than 300 customers per month in July 2007 to more than 6000 per month today. We intend to expand our sales force by the year end, in order to further increase our acquisition rate. We do not have enough visibility, however, at this time of the year to set an official target for 2008 but we are very confident that we will reach our mid-term target of 1,000,000 residential customers by the end of 2010, which means a 4% market share.
EBM : Poweo intends to become a power producer in its own right in the coming years; you have an ambitious plan to build your own combined-cycle gas turbine power plants. The turbines are only going to be available 9 to 12 months later than originally expected. Is this delay a serious upset in your medium-term business plan?
CB : We are acting as a project developer, aiming at identifying opportunities in power generation and developing the most interesting projects. As of today, our project portfolio exceeds 5,000 MW, of which 1,200 MW in renewable energy. Some of these projects will not be successful; some might be delayed; some might move faster than expected. All in all, we are in line with our goal, which is to be a vertically integrated operator. Fundamental trends to secure Europe's sourcing capacity remain more necessary than ever. This growing interest in building combined-cycle gas turbines is strong evidence that Poweo made the right move before anyone else.
EBM : The price of the turbines is also going to be more expensive than originally expected. How important is this piece of news to the profitability of your power production plan and for your ability to finance such a plan?
CB : We are facing a sector trend of increased costs for building new infrastructures, whatever they are. Regarding the expected profitability of our combined-cycle gas turbines, this increase should be offset by long-term electricity prices in Europe, which are due to increase for structural reasons like increasing peak consumption, aging of the current-generation assets, CO2 allocations. In terms of financing, we aim at funding our assets through project-finance facilities for at least 70% of the capex; and it seems that there is still a strong appetite for financing energy assets despite current turmoil on financial markets.
EBM : Poweo has recently launched some 'green power' commerical offerings. How important is this environmental component of your business model?
CB : Our customers are more and more concerned by environment and willing to change the way they use energy. Renewable energies are due to represent a significant share of our future capacity and we already have wind farms in operation. So we decided to meet consumer expectations with a full set of 'green power' offerings which are very well accepted. We propose to all customers a contract with 25% of a 'green' energy.
EBM : You have also decided to add services to your business mix to conquer the energy-savings market. Can you tell us more about what to expect from you in the area of environmental services?
CB : Energy efficiency services will enjoy a significant growth in the years to come since they will allow consumers to optimize their energy consumption and to answer growing environmental concerns. This market is highly fragmented with very small companies operating on a local scale only. So we are building a network of local branches which will provide installation and maintenance services for conventional heating systems and very soon for a new generation of products based on renewable energy like heat pumps or solar panels. Acquiring an additional and recurring customer base will ideally complement our energy supply business.
EBM : What is your update today about your outlook for 2008 and beyond? And, in particular, as you spend more to grow your customer base this year, it should weigh on profitability in the short term, so what would you like to tell investors today about this aspect of your business model, whereby you must accept short-term losses for greater gains in the future?
CB : Our increasing customer base should allow us to achieve at least a 20% sales growth in 2008. Due to the acquisition costs and expenses relating to our growing structure and our industrial development, Poweo will generate net losses this year to an extent that will mainly depend on the number of new customers we will acquire. These investments will create solid foundations for long-term recurring revenues and margins combining a highly flexible generation portfolio with an attractive customer base in the second largest energy market in Europe.
EBM : Charles Beigbeder, CEO of Poweo, thank you very much.
CB : Thank you.
