1 1/10

Case Analysis: AREVA

AREVA provides solutions for CO2

free electricity generation,

transmission and distribution

I. Areva as a whole

II. Fuel Fabrication: rods assembly line

Outline:

Daphnée Hus - Elodie Ragot - Hélène Falipou - Maïté Saulnier - Nicolas Janin

2 2/10

Income Statement, 1st Semester 2007In millions of euros H1 2007 H1 2006 2006

Sales revenue 5 373 5 036 10 863   

Other income from operations 12 7 55

Cost of sales -4 301 -4 088 -8 698

Gross margin 1 084 955 2 220

   

Research and development expenses -197 -161 -355

Sales and marketing expenses -252 -244 -493

General and administrative expenses -424 -375 -778

Restructuring and early retirement costs -17 -43 -131

   

Income from cash and cash equivalents 20 31 50

Gross borrowing costs -32 -35 -78

Net borrowing costs -12 -4 -29

Other financial income 130 36 126

Net financial income 118 32 97

   

Income tax -53 -36 -51

Net income of consolidated businesses 273 110 453

   

Share in net income of associates 34 104 220

Net income from continuing operations 306 214 672

   

Net income from discontinued operations 0 2 0

Net income attributable to equity holders of the parent 295 245 649   

Average number of shares outstanding 35 442 701 35 442 701 35 442 701

Basic earnings per share 8.31 6.88 18.31

Adjusted earnings per share 8.31 6.92 18.31

Gross Margin: 1084 M€;

Net Financial Income: 118 M€

Overheads

Big difference = a lot of Overheads

I. 1)

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Simplified balance Sheet, 1st Semester 2007

In millions of euros 

6/30/07 12/31/06

ASSETS 

 

Goodwill  

2 602 2 515

Property, plant and equipment and intangible assets 

5 265 4 988

Assets earmarked for end-of-life-cycle operations  

5 205 5 077

Investments in associates  

1 474 1 521

Other non-current financial assets 

2 685 2 376 

 

LIABILITIES AND EQUITY 

 

Equity 

7 288 7 016

Provisions for end-of-life-cycle operations 

4 680 4 585Other provisions (including net deferred tax liabilities)  

3 401 3 274

Net working capital requirement 

298 736

Put option held by Siemens 

1 117 1 117

Net debt (excluding Siemens’ put)  

448 -251 

 Simplified balance sheet total  

17 232 16 478 

 

Net debt (including Siemens’ put) 

-1 565 -865Net debt (excluding Siemens’ put)  

-448 251

VARIATION: 60 %

working capital = net balance of operating uses and sources of funds

If WCR>0: uses of funds exceed sources of funds, if WCR<0: sources of funds higher than uses

WCR<0 corresponding to a net use of customer advances and prepayments

I. 2)

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Fuel assembly factory

Value Chain:

Cost object:

Fuel rod

Caps

Tube

Fuel

Fuel assembly

Skeleton

Fuel rods

Cost object

Research and

Development Design Supply

Marketing and sales

PRODUCTION Distribution Customer

service

Developing

Make to order

Adaptation to customers’ needs

Internal suppliers

Core process

Pull production

Market decisions: Price setter

Long-run pricing

High quality/High price

Product-life cycle: Maturity

II. 1)

5 5/10

Costs

Example of product costs:

Direct materials: raw materials (skeleton, caps, tubes, nuclear fuel…)

Direct labour: people who work more than 75% in production (workers of the production process line)

Manufacturing overheads:

Indirect material: paper, gloves to protect workers…

Indirect labour: employees from maintenance of machinery…

Indirect manufacturing expenses: lighting, heating and insurance…

Example of period costs: marketing and sales, accounting…

Variability of costs:

Fixed costs: salary, maintenance…

Variable costs: row materials…

II. 2)

6 6/10

ABC system

Hierarchy Examples Cost drivers

Unit-level Assembling a fuel assembly Duration:

Number of hours of direct labour

Batch-related

Setting up machines to control the level of uranium enrichment

Processing a purchase order (fuel assemblies with the same uranium enrichment)

Transaction:

Number of set-ups

Transaction:

Number of orders

Product-sustaining

Designing the fuel rods (length, soldering) and the skeleton given the uranium enrichment

Duration:

Number of product development hours

Facility-sustaining

Renting the plant Transaction:

Number of square metres

Costing systemJob-costing : Each fuel assembly has its own characteristics and is unique,

ABC : - More details and focuses on activities and cost drivers

- Talks the language of the organization

II. 3)

7 7/10

EU, Normal, Abnormal losses

Abnormal losses Uranium loss

Normal losses Bad soldering (due to worker´s mistakes),

Tube and cap losses (0,5% of tolerated losses due to suppliers)

1 Fuel assembly

= 200 rods + 1 skeleton

Equivalent Unit ?II. 4)

We can count the number of components integrated at each stage of the process

we can determine the cost of a product not yet finished

without using the concept of EU

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Management Control

Result Control Graph results

Information display, where everybody can see the results, the objectives and so on…

Responsibility centre Profit centre

The fuel assemblies are sold to another branch of AREVA company

Cybernetic control system Weekly meeting

Feedback from the workers

Continuous improvement policy

0

10

20

30

40

50

60

70

80

90

Week A Week B Week C Week D

Budget limitation

AN INFORMATION DISPLAY

II. 5)

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Budgeting process

REACTORS SECTOR

AREVA NC

Factory B

AREVA NP AREVA T&D

FUEL SECTOR NUCLEAR SERVICES SECTOR

DESIGN & SALES BU

FUEL MANUFACTURING

BU

ZIRCONIUM MANUFACTURING

BU

FBFC

Factory A Factory C Factory D

Activity based budgeting: Estimation of the customers’orders for the next year.

Estimation of resources needed

Bottom-up system

EQUIPMENT SECTOR

II. 6)

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Relevant Costs

Should a second assembly line be created?

In the fuel assembly factory, old machines are not allowed to be resold after use (remaining radiation)

No disposal value

Qualitative aspects Quantitative aspects = relevant costs

• Meeting of the customers’ needs

• Changes in the labour organization

• Meeting of the standards (nuclear regulation)

• Modernity

• Set-up costs

oconsultancy firmsobuilding firmsonew equipments

• Operating costs

odirect labour (new workers)ofactory overheads (electricity…)odirect materialsoproductivity (cost per unit)

II. 7)