The EDF and International Energy Markets, Research Paper Example

Introduction

Contents of the Report

This report will provide an analysis of the financial information of Électricité de France (EDF) focusing on its operations in the international marketplace. A summary of operations will be provided, explaining the geographical extent of the company’s business ventures, in addition to the geographic regions in which the company operates the most frequently. The profitability and performance of the company will be detailed from year 2004 to the present.  Furthermore, the advantages and risks of operating in several geographical markets in several energy areas will be analyzed utilized PESTEL framework. The goal of this analysis will be to determine whether EDF likely to sustain its performance. As relevant, the limitations of PESTEL for strategic analysis will be noted.

Background Information About EDF

EDF is a listed company which remains 85% owned by the French government.  It is a leading energy developer and has grown from its home market (France) to be active within Europe and globally in energy generation including renewable energy, nuclear energy, transmission and supply. The company boasts a 120,000+ megawatts of generation capacity in Europe, South America, North America, Asia, the Middle East, and Africa. At the end of 2010, its total revenue was €65.17 billion and its total profit was €1.020 billion. The company’s international operations contribute to its overall success. It is able to gain widespread access to foreign markets due to its ability to partner with already established energy companies as affiliates. France was able to corner this particular market because it is the main country to utilize energy of nuclear origin (Tiersky, 2004). It is likely that the company will continue to be successful due to the uniqueness of its ideas, which is reflective of its current business practices.

Source: EDF Annual Reports

EDF had increasing sales and net income between 2012 and 2013. The intention of this report was to demonstrate an improvement to investors. However, this information failed to mention the sales of previous years, indicating that there may be a greater discrepancy in overall profit in the past decade. However, this information showcases the most up-to-date financial information reported by the company, which was published at the end of 2013.

Source: Modified EDF Annual Reports

Overall, EDF’s sales increased between 2004 and 2012. This was generally a steady increase, with the exception of a slight decrease in 2009 which coincided with a growth of electric companies outside of France. However, the company continued to expand and therefore make more sales in the following years. If this trend continues, there should be a greater amount of sales in 2014 than there was in 2013.

Source: Modified from Morningstar

According to the debt ratio, the company had some long-term debt in 2004, which was likely due to the initial investments the company made in order to spread to further geographic locations. Between 2005 and 2010, no debt was reported. This debt was reestablished in 2012, which has been lowering since and will likely be repaid in several years. Furthermore, long-term liabilities have decreased since 2014 and inventory has increased. Overall, cash and short-term investments have increased significantly; this value nearly doubled between 2004 and present.

Extent of Reach

Current company data demonstrates that EDF is present on most of the world’s continents, with the exception of Antarctica and Australia. It is possible that the company intends to expand to Australia in the future, although it may not because the distance from France in addition to the small landmass may not make for ideal profitability conditions.

PESTEL Analysis

Political Factors

Since the main intention of EDF is to produce energy, it must gather energy from a variety of sources. Political factors come into play in terms of the price of fossil fuel exports and imports. France does not have the number of refineries necessary to produce this fuel on their own, and therefore EDF must engage in political deals in order to ensure the acquisition of this product. When the demand for fuel increases, the price increases if it is not readily available. Therefore, France must actively make political partnerships with countries in the Middle East in order to ensure that this supply will be available. This can involve reaching many undesirable political agreements, but these will be done to ensure the trade continues as normal.

Economic Factors

Since there is a decreasing demand for fossil fuel, EDF adjusted to the changing demand by ensuring that more than 84% of the power that was offered came from a nuclear source. Therefore, the company has found ways to avoid being impacted from the natural market trends of energy sources by utilizing combinations of nuclear, hydroelectric, gas, charcoal, and fuel energy to provide power to its customers (Point.fr, 2010). As long as the company is able to remain flexible according to these terms, the company will be able to maintain its profitability goals.

Social Factors

It is likely that more customers will wish to receive EDF power because this is one of the major power companies that are willing to offer clean energy. Despite this initiative, the company hasn’t been favorable amongst environmentalists or volunteers. In February 2013, EDF attempted to gain £5 million in damages from environmental activists from the No Dash for Gas campaign that occupied the EDF-owned West Burton CCGT power station (Ball, 2013). Furthermore, there is evidence that the company actively spied on the activities of Greenpeace. Therefore, even though the company has great potential, it doesn’t necessarily have good press.

Technology Factors

The company will continue to invest in developing and creating new power sources. Current ventures include determining how to more effectively cultivate and utilize nuclear power into determining how to enhance the popularity of natural energy options such as solar and wind power. Doing so will help create market diversity for the company, which will allow them to provide many types of energy products to customers. If a preferred means of power generation becomes unavailable, the company will be able to continue service, but in a different form. This is an important consideration, as it overlaps with political factors. For example, a refusal of Middle Eastern trading partners to provide France will fossil fuels will not impair all aspects of EDF’s business.

Environmental Factors

Although the company is not popular among environmental activists, it has helped to develop recharging points for the Toyota Plug-in HV in France (Environmental Leader, 2008). This contributes greatly to the development of energy efficient cars in the area. EDF aims to continue such partnerships in the future. Doing so will help expand business as well, as developing uses for power will generate a greater demand for it. Thus, EDF’s investing in environmentally conscious technology provides them with a double benefit.

Legal Factors

The company generally does not need to be concerned with legal factors, as it is operated with the French government. In this particular situation, political factors should be considered in lieu of this category. Ultimately, this is related to the extent to which policies that are acceptable in France can be applied in the foreign nations in which EDF is doing business. There is currently little concern for these factors, but it is essential to consider that these issues may arise during future business practices.

Future Prospects

It is likely that the company will continue to use its political ties to expand business in foreign nations. The area that it will want to solidify its relationships with is most likely South American countries, as it is a large landmass with infrastructure already in place. Therefore, this land is the area with highest potential. EDF will want to continue considering the value of its variety of energy sources and utilize them in a manner that enhances their value according to market laws (Bennhold, 2005). It will be beneficial for EDF to cease attacking environmentalists and demonstrate to these individuals that the company is willing to support their ideals. This will also keep them out of legal trouble. In the case of EDF, environmental and technological prospects are closely related; the technology that the company will develop and invest in is clean air technology and these will likely result in new and innovative power designs.

Limitation of PESTEL Analysis

– Due to the nature of this company, many factors of the analysis, such as social, technological, and environmental overlap

– Realistically, all factors of the PESTEL analysis are related

– EDF does not wish to and is not required to release a majority of the data that would make this analysis maximally useful

– The business may operate differently in each of its geographic regions

– The company’s strategies and practices are subject to change

– Each region has different needs and therefore modifications in business practices will be necessary for these needs to be met

– It is difficult to determine the political value of legal moves that the company makes, when these legal moves impact citizens to a greater extent than the country

– It is expected that the most profit will be made in Europe purely based on the proximity of its infrastructure to the base of operations, making this independent of market trends

Conclusion

This report has:

– Demonstrated the relationship between the geographical regions of EDF and the company’s ability to do business

– Provided a profitability report for the company from 2004 to present

– Provided a PESTEL analysis that focuses on the development of technology and trade related to political factors

– Determined that the PESTEL analysis isn’t sufficient to analyze a variety of aspects of the company due to EDF’s tendency to keep many of its actions private

– Indicated that EDF is likely to continue to profit in the upcoming years as a consequence of the extension of its current business tactics

References

Ball J. (2013). EDF drops lawsuit against environmental activists after backlash. Retrieved from http://www.theguardian.com/environment/2013/mar/13/edf-lawsuit-environmental-activists-backlash

Bennhold K. (2005). EDF shares fail to light up market. Retrieved from http://www.nytimes.com/2005/11/21/business/worldbusiness/21iht-edf.html

Environmental Leader. (2008). French President Gives EVs, Hybrids Green Light. Retrieved from http://www.environmentalleader.com/2008/10/13/french-president-gives-evs-hybrids-green-light/

Point.fr. (2010). The top ten power producers in the world. Retrieved from http://www.lepoint.fr/economie/les-dix-principaux-producteurs-d-electricite-dans-le-monde-10-08-2010-1223756_28.php

Tiersky R. (2004). Europe Today: National politics, European integration, and European security. London: Rowman & Littlefield.