Areva Nuclear Power Case Study Solution
After analyzing the case and the condition of Av era in the market, it can be determined that the company had increased its share in the market along with its revenues, which, in turn, allowed it to enhance its economies of scale by developing and finding new ways to introduce nuclear power energy into the French market and the other parts of the world. On the other hand, it was assessed that the demand of the energy was high and the company could potentially take advantage of the situation caused by the rising petroleum prices and the real concern of raising C O 2 emission level, which had significant adverse impact on the environment and the health of the people.
Furthermore, Av era had been able to gain significant area of the French power market through vertical integration in which the company had been divided into four major divisions, including Front End, Reactor and Services, Back End, and transmission and Distribution. However, it can be assessed that its vertical integration initiatives-gave it a competitive advantage in the market, which, in turn, enabled the company to effectively fulfill the need of a wide variety of customer needs.
However, it was analyzed that Av era had enhanced its backlog from 39.8 billion in 2007 to 48.2 billion in 2008, showing a 21% growth.Furthermore, it also increased its revenues stream from 11.9 billion in 2007 to 13.2 billion in 2008, which showed a 10.4% increase in its revenues stream. Moreover, it was assessed that 80% of the business generated by the nuclear industries was based on long-term contracts, which were recurring in the market. Hence, through vertical integration, the company had enabled itself to effectively reach its customer sand fulfill their requirements, which, in turn, led the company to develop effective relationships with its customers while expanding onto its input and output logistics. This, as a result, made the company get better control over its inbound/outbound logistics and operation of the company. Furthermore, enhancing its competitive advantage in the market and gaining additional potential client present around the world enhanced its share and profitability in the market.
However, in light of the issues faced by Av era mentioned above, these issues were the root cause of the increase in the company’s net debt, which decreased its operating income and reduced its earning per share for the year 2008. Therefore, in order to counteract the adverse effect of the issues, the company incorporated the following strategies, as illustrated below.
Moreover, it was assessed that the front end division accounted for 27.6% of the entire revenues generated by the company, whereas, back end accounted for 25.5% and T&D accounted for 16.5%. However, the growth of the front end was attributed towards the contract gained from E D F, U.S and Japanese utilities. On the other hand, the growth of Back End division was attributed to the contracts established with U.S department of energy, E D F and the N D A of Great Britain, which in turn, increased the revenues generated from these divisions as well as it enhanced the overall position of the company in the market.
After assessing the Exhibit 3 & 4 below, it can be seen that the individual revenues generated from each the major divisions has increased in 2008 from its prior year 2007. However, it can be further evaluated that certain divisions outperformed others. Additionally, the operating income of Front End, reactor and services decreased in 2008.
In Exhibit 2, the percentage change of income statement over the three year period has been illustrated in which it was assessed that the revenues of Av era increased by 9.76% from 20062007 and in turn, the revenues started growing inwards to 10.37% in 2008. Additionally, the cost of sales increased by 5.58% in 2007 and 18.76% in 2008, however, it can be determined from the exhibit below that the Gross margin increased by 24.41% in 2007 and decreased by 17.23% in 2008. On the other hand, the operating income increased by 84.52% in 2007 and showed a significant decline by 44.47% in 2008, therefore, it can be determined that the company’s financial position has been adversely affected in light of the recent issue it has faced in the market.
Issue Additional Stock to the Public
In order to counteract its liquidity situation, Avery could issue additional stocks in the stock market, which would allow the company to meet its financial obligations including ling-term and short-term debt and could also enable them to gather enough capital to expand its business in other potential market with high energy demands. However, it was evaluated that the issue of additional stocks could potentially decrease its earning per share, attributed to the increased volume of stocks in the market. Furthermore, it could also decrease investors’ confidence in stocks of the company, which would reduce the price of stocks, hence compelling the investors to trade on short-term basis, while gaining returns from short-term fluctuations in the stock prices, attributed to the volatility of the trading market and investor behaviors, where the demand for stocks . Therefore, it allowed the company to meet its liability obligations as well as it allowed to expand its business in other market globally and gaining additional returns…………….
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