EDFs Profitability and Performance - Essay Example

Running head: edf and international energy markets 10th December Introduction Energy is a resource that many countries are working on to attain and be independent. Energy generation boost the economy of a country and thus increase the revenue of the government through exports. EDF is an international company which is owned by the French government. The company has expanded globally due to high demand of its products which have enjoyed customer’s loyalty. For example, EDF is active in energy generation in Europe by providing renewable energy, nuclear energy, transmission and supply. The company is owned by the French government by about 85%. EDF is known for energy control in United Kingdom and a British energy supplier. EDF is also known for the supply of gas and electricity that are supplied to homes and businesses. The company has employed 13, 158 employees, due to the increased customer trust it handles 5.7 million accounts that the customers use to pay with. This paper seeks to discuss EDF which is an internal energy generator that is responsible of generating and supplying renewable resources, nuclear energy, transmission and supply. EDFs profitability and performance from 2004 to the present Through the chief executive Vincent De Rivas, the financial performance of EDF has been increasing since the production of energy is sustainable to their customers. The energy produced by EDF has low carbon that makes the customers to trust the EDF for long term contract in the extraction of energy. The nuclear power that EDF has been controlling has resulted to tremendously increase in profit for almost eight years. The existing nuclear that has been stored can be handed over to the next generation without considering additional of fossil fuel (Garvin, 2013). To ensure customer satisfaction, EDF ensures that the prices of energy do not rise and if the prices fluctuate, they are reduced to maintain good relationship between EDF and their customers. France derives its electricity from the nuclear energy which is estimated to be 75%. The country is known as the world largest exporter of electricity due to technology that is used to generate the energy. The low cost of generation makes France to attain revenue of EUR 3 billion annually. Due to the usage of nuclear technology the country is able to export reactors, fuel products and other services in most parts of Europe (James, 2002). Through collaborating with EDF, the government will ensure production of sufficient energy and other nuclear energy that will boost the economy of the country. EDF profit from 2004 to 2014 Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 profit €3.7m €5.4 m £865m £530m £571m £1.3b £2.34b £2.1 b £3.3b £4.9 £5.9b EDF profitability ratio Gross Margin 21.24% Operating Margin 12.02% Pretax Margin 6.44% Net Profit Margin 4.26% As indicated from the tables above, EDF has continued to increase its profit. With the improved competition, the company will embark on innovation an aspect that will make it to remain competitive despite the cut-throat competition in the energy industry. EDF PESTEL analysis Political factors EDF experiences political influence in France since the majority of the company ownership is by the government. The company has a competitive advantage in France since it creates revenue for the government. Political disturbances in part of Europe where nuclear energy is exported may affect the supply. This causes a lot of challenges during exportation and it may affect the prices of energy where they will keep on fluctuating. EDF needs clearance together with the French government from the European commission for the supply contracts (Finch, 2008). Additionally, to-up payments to the operator must be paid if the prices of power fall below the specified prices. Economic factors Countries are importing fossils fuels to solve the issue of fuel security and thus the demand of energy that is renewable is high. The advantage of EDF operating in several geographical markets has increased since Europe needs more energy for the ever increasing population. EDF exporting of nuclear energy, renewable energy, transmission and supply boost the economy of both France and Europe. Revenue that is generated from exporting of energy to Europe boost the economy and this is the reason why the company is almost entirely owned by the government. On the other hand, without adequate supply of energy in Europe, then the economy would be doomed causing the economy to be unstable. Social factors Since EDF is concerned with increasing its customers, the company must receive complaints since it is not 100% excellent. For example, in 2011 and 2012 EDF was being accused of not handling consumer efficiently. This is one of the risks that EDF has encountered by operating in several geographical markets for example in Europe (Florczak, 2002). In May 2011 and 2012 the company received 30% complaints from the consumers when the company was in migrating stages to a new IT system. This was a risk since EDF is operating in Europe and failure to handle the complaints may lead to consumers not trusting the company any more. Technology factors Technology is embraced by EDF, for example, Generic Design Assessment (GDA) is an advantage to where the company operates in. Through the use of GDA, EDF is able to submit information concerning the reactor and then send to the nuclear regulator. For a nuclear power station to be designed, then assessment must be done to avoid destruction of leaving organisms. Environment Due to the production of nuclear energy, EDF has a risk by operating in different geographical areas (Ball, 2013). For example in Europe environment degradation is not allowed and thus the production of nuclear energy tends to be a treat to the residents. Legal factors In order for EDF to operate effectively, it must attain clearance from the government where they are operating. Expanding globally will need license and permits that provides different requirements depending with the country. Certain amount of revenue that is generated by the EDF group must be deducted by the European government which is a risk to the company due to its establishment different geographical areas. Is EDF likely to sustain its performance? Due to high ethical performance that the company embraces, EDF is likely to sustain its performance. The favorable environment that the management of EDF embraces will make it possible for the company to increase its revenue despite the stiff competition locally and globally. The high quality energy that is produced and meets the consumer needs will sustain the performance and increase the consumption rate (Kallrath, 2009). The prices are not high and the consumers are able to pay without any challenge thus enhancing the performance of the company. EDF is the cheapest energy supplier and this makes the consumers to trust the company for its continuous supply thus attaining a strong positive consumer-company relationship. What are the limitations of PESTEL for strategic analysis? Constant reviewing The external factors of any company keep on changing which is a limitation to PESTEL analysis. It is the role of the management to keep on reviewing the external factors for example, if the government of Europe increases taxes. Tax increase will mean that the profitability of EDF will be reduced according to how the tax has been increased. Numerous people needed To engage for a thorough study of external environment, numerous individuals need to be involved in the study and thus a company like EDF must be prepared to cater for the cost. Knowledge from different individuals and domains will be required for assessment in order to get accurate results. Need for resources Another limitation of PESTEL is that it requires more resources to be attained. For example, to ensure that the consumers are loyal then, EDF will need to provide high quality energy that will not have effect on the environment and individuals. This will require a lot of resources to cater for the taste and preferences. More time and money will be used to ensure that the consumers taste and preference are addressed. From the Subject area: International Business Strategy, I have learnt that the high technology in a country may result to extraction of energy which is renewable and be able to sustain other countries. Countries that do not have sufficient energy resources can import crude oil products that are later converted to an energy that any particular country wants. I have also learnt that customers’ needs must be addressed by any company such as EDF in order to ensure that sales are increased. Additionally, consumer complaints should be addressed to avoid customer mistrust of the management and the entire organization. I have also learnt that nuclear energy should be supplied in a way that should not cause destruction to the environment since it is a health hazardous. For a company to work without challenges, legal issues must be addressed. Lastly, I have learnt that to attain business expansion, the quality of services and products regardless of the industry cannot be overlooked. Another aspect that I have learnt from the course is how to analyze a company and indicate the implications of political, economic, social, legal and environmental factors. References Ball, J. 2013. EDF drops lawsuit against environmental activists after backlash. New York: New York press. Finch, B. 2008. Operations now: Supply chain profitability and performance. Boston: McGraw-Hill/Irwin. Florczak, C. 2002. Maximizing profitability with safety culture development. Amsterdam: Butterworth-Heinemann. Garvin, D. 2013. How to occupy a power station: exclusive footage of No Dash for Gas as they prepare to shut down the West Burton plant. San Francisco (CA): Jossey-Bass. James, K. 2002. Making the nation safer the role of science and technology in countering terrorism. Washington, D.C.: National Academy Press. Kallrath, J. 2009. Optimization in the energy industry. Berlin: Springer. Read More