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Energy secretary Grant Shapps to launch an international competition for modular reactors

Rolls-Royce is in a “good position” to develop technology for a new generation of small nuclear power plants in the UK, according to Britain’s energy secretary, who will on Tuesday launch an international competition for the work.

Grant Shapps told the Financial Times that small modular reactors would help hit the UK’s target of producing 25 per cent of its electricity from nuclear by 2050, up from about 15 per cent currently.

Shapps said British engineering group Rolls-Royce was “obviously in a good position” to build the reactors, having already received £210mn of government grants for its project, but that up to four different technologies could be selected. GE Hitachi and X-energy are among the other companies developing proposals.

He also admitted small modular reactors would not come online until the 2030s, but said by the autumn he wanted a shortlist of “finalists to go through to the final design stage”.

Shapps is seeking to develop nuclear to help reach the UK’s target of net zero carbon emissions by 2050 and said he wanted Britain to have some of the “lowest energy wholesale prices in Europe by 2035”.

He said he hoped to see final investment decisions on small modular reactors in the next parliament. Asked when he thought they might start producing energy, he said: “probably the 2030s”.

The energy secretary will on Tuesday formally launch Great British Nuclear, an arm’s length government body, to oversee development of the new reactors and what he claims will be a nuclear “renaissance”.

Shapps will also announce a grant funding package of up to £157mn to help finance the reactors.

A long-running attempt to get a new UK fleet of nuclear power stations up and running has been dogged by numerous delays and setbacks over the past decade.

Since 2010 only one large nuclear power station has begun construction, at Hinkley Point C in Somerset, led by France’s EDF with investment from CGN of China.

Last week parliament’s intelligence and security committee expressed concerns about Chinese influence in the civil nuclear industry.

But Shapps said he had examined the CGN stake in Hinkley and had been “satisfied” the Chinese involvement was confined to a funding stake, with no access to the project’s technology or infrastructure.

“The Chinese don’t have any access to the tech, to the infrastructure, in terms of the way that it’s built and connected,” he added.

An energy department source said CGN was not involved in any major supply chain contracts at Hinkley Point C, nor was it involved in the instrumentation and controls systems, or any other critical function of the plant.

By contrast, security concerns prompted the government last year to force CGN out of a second planned large nuclear power station that EDF hopes to build at Sizewell C in Suffolk.

EDF and the government now co-own the company behind Sizewell C, which needs to raise nearly £20bn of private funding in a mixture of debt and equity before construction can begin.

The project might not be completed until the mid-2030s, despite EDF embarking on public consultation about the plans in the early 2010s.

Shapps insisted the Sizewell C fundraising was in good shape, saying: “We have been pretesting and I had a brilliant response — really, really positive — speaking to at least half a dozen serious, serious investors.”

Britain’s vulnerability to high gas prices was exposed by Russia’s full-scale invasion of Ukraine, but Shapps said he did not expect the government to subsidise household energy bills again this winter.

Fatih Birol, head of the International Energy Agency, said this month that energy prices could jump this winter, particularly if the Chinese economy strengthened quickly.

Shapps said this was “a concern” but insisted the market had adjusted and forward gas prices made him “fairly confident” subsidies would not be required. “The market indicates we won’t need to go back to that world,” he said.

Meanwhile, he admitted that the Conservative party’s target of decarbonising the electricity system by 2035 was “not easy to achieve”. Energy experts have questioned whether the timetable is realistic, as well as Labour’s earlier target of 2030.

Shapps was bullish about the UK’s ability to compete with the US in the development of green technologies, in spite of President Joe Biden’s $369bn package of subsidies contained in his Inflation Reduction Act.

Shapps claimed Britain had a “10 to 15 year lead on this”, arguing that cross-party backing in the UK for laws and targets to tackle climate change had already drawn in huge public and private investment.

He said Biden was “having to use bungs and tax-and-spend” because of the absence of bipartisan support in the US on laws to fight climate change. “They are dealing with a slightly different problem but we’re going to have a response.”

Chancellor Jeremy Hunt has promised a response in his Autumn Statement and Shapps said planning reforms to facilitate more wind farms would be part of a “holistic approach”.

Shapps said he was also consulting on reforming the government’s “contracts for difference” regime for energy auctions — under which the state typically guarantees renewable power companies a price for their electricity — to support British supply chains.

Shapps met Biden and US climate envoy John Kerry at Windsor Castle this month for talks about climate change convened by King Charles and said he explained how, as energy secretary, he could be sent to jail if he failed to present a plan to achieve net zero emissions by 2050.

He revealed that Biden said he thought this would be a “great idea”, joking: “Finally something we could get bipartisan support for: sending John Kerry to prison.”

Nikkei +0,12% Hang Seng -1,87% CSI -0,26% Shanghai -0,29% Shenzen -0,19%

Eur$ 1,1255 CNH 7,1745 CNY 7,1702 JPY 138,44 GBP 1,3098 CHF 0,8586 RUB 90,5501 TRY 26,3545 WTI$ : 74,43 Gold 1,961 BTC 30,097 ETH 1,910

S&P -0,03% Nasdaq -0,11% EuroStoxx +0,11% FTSE -0,05% Dax +0,02% SMI +0,00%

Macro :

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- JPMorgan’s Kolanovic Sees ‘Modestly Wider’ Path to Soft Landing

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Keep an eye on :

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- CO FP : Casino Aims for Agreement With Kretinsky Group by End of July

- CFN PL : Cofina Says Potential Buyer of Media Unit Is Expressao Livre

- COTY US : Coty to Sell $150M of Retained Wella Stake

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- GAM SW : Niel’s Newgame to Offer CHF0.55/Shr for GAM Stake: M&A Snapshot

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- KEMIRA FH : Kemira 2Q Oper Ebitda Misses Estimates

- LMT US : Lockheed Risks $400 Million Payment Delay Over New F-35 Software

- META US : Meta Faces Nasdaq Cut Even Though It Missed Rebalance Level

- MTRS SS : Munters 2Q Ebit Beats Estimates

- NEL SS : Nel 2Q Ebitda Loss NOK138M, Est. Loss NOK149.3M

- NOVN SW : Novartis 2Q Core EPS Beats Estimates

- NOVN SW : Novartis Raises FY Outlook, Announces $15 Billion Buyback

- OCDO LN : Ocado 1H Revenue Beats Estimates

- ORDI NA : Sopra Steria Launches All-Cash Public Offer for Ordina Shares

- PRX NA : Prosus CFO Basil Sgourdos Transfers Shares to Family Trust

- RL US : Ralph Lauren Will Keep Raising Prices to Boost Brand Prestige

- SEBA SS : SEB to Start New SEK 1.25b Buyback Program of Class A Shares

- SGSN SW : SGS Names Ex-Holcim CFO Géraldine Picaud as New Finance Chief

- ST5 GY : Kingspan to Buy Majority Stake in German Building Firm Steico

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* Argenx ADRs PT Raised to $601 from $478 at Stifel

* Argenx ADRs PT Raised to $550 from $435 at SVB

* Ericsson Raised to Hold at SocGen; PT 56 kronor

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Zegna poaches LVMH executive to run Tom Ford fashion arm

Italian luxury group that listed in NY two years ago wants to expand brand in Europe and Asia

Italy’s Ermenegildo Zegna Group has poached an LVMH executive to run its recently acquired Tom Ford fashion business as it plans to expand the brand in Europe and Asia.

The Milan-based company has recruited Lelio Gavazza, who oversaw sales and retail at jeweller Bulgari, as the new chief executive of Tom Ford Fashion, which includes luxury men’s and womenswear, an accessories line and a children’s collection.

Estée Lauder bought Tom Ford last year from its eponymous founder and co-founder Domenico De Sole for $2.8bn including debt. The US conglomerate operates the beauty line and owns the Tom Ford trademark but sold the fashion business, valued at about $175mn excluding debt, to the Zegna group as part of the deal.

The agreement includes a 30-year licence of the Tom Ford trademark for the Italian group. Estée Lauder also licensed the eyewear business to another Italian company, Marcolin.

Gildo Zegna, the chief executive of the fashion group, told the Financial Times he wanted to make the brand among the top ten fashion names in the world.

“The aim is to grow the womenswear business and strengthen the Tom Ford distribution outside the US, so in Europe and Asia,” he said.

Gavazza, who starts his new role in September, will work closely with creative director Peter Hawkings, Ford’s successor, and the Tom Ford chief executive and president Guillaume Jesel.

Zegna said he would be a “bridge builder” between the different parts of the Tom Ford business. Jesel, who was appointed to the role by Estée Lauder, is based at the group’s headquarters in New York and Hawkings, for decades Ford’s right-hand man, works out of London. 

Earlier this month it was announced that Hawkings’ debut fashion show in September would take place in Milan, in a nod to Zegna’s heritage and Italian craftsmanship.

“It restarts in Milan where Tom [Ford] did one of his first fashion shows in the 1990s,” said Zegna. Before launching his own brand, Ford was the creative director of Milan-based Gucci, which was later acquired by French conglomerate Kering.

For the Zegna group, founded by the current chief executive’s grandfather in 1910, the Tom Ford acquisition and Gavazza’s appointment are the culmination of an expansion project that began two years ago with the company’s New York listing.

The Zegna group has a market capitalisation of $3.64bn and it was the first historic Italian luxury label to list in New York. Over the first quarter of the year it reported a 13.4 per cent surge in revenues to €428.3mn as China lifted its Covid-19 restrictions.

“When we listed I said we were doing so to grow in scale . . . and that’s what we are doing,” said Zegna. “Wall Street teaches entrepreneurs you must not over promise but you should over deliver.”

The company has morphed from a traditional suits-centric menswear brand into a contemporary global group, spanning womenswear, shoes and accessories and encompassing brands such as Thom Browne, known for its unconventional short-trouser suits, which it acquired in 2018.

The Zegna and Prada groups last month also announced the acquisition of a minority stake in Italian knitwear company Fedeli. It was the latest in a series of supply chain acquisitions that Zegna describes as important in ensuring production continuity and product traceability, an increasingly important demand by luxury consumers.

The Ermenegildo Zegna brand has also been shaken up with the launch of casual wear. “In under two years we went from formal to informal and rejuvenated the Zegna brand, we have changed the perception of the Zegna group and now we want to take Tom Ford Fashion to new heights,” said Zegna.

Canadian public sector fund Omers owns almost a third of the highly indebted UK utility

Thames Water’s biggest investor slashed the value of its stake last year, raising questions about how easy it will be for the indebted UK utility to persuade shareholders to inject much needed equity. 

The Ontario Municipal Employees Retirement System, one of Canada’s biggest public sector pension funds, owns a 31 per cent stake in Thames Water, held through multiple investment vehicles including a Singapore-registered entity that owns about a fifth of the company. 

Omers Farmoor Singapore PTE cut the value of its stake in Kemble Water, Thames Water’s parent company, by almost £300mn last year, a near 30 per cent write-down, according to corporate filings reviewed by the Financial Times. The entity valued its stake in Kemble at £979mn at the end of 2021, before reducing the value to about £700mn last year. Omers declined to comment.

Frédéric Blanc-Brude, director of Edhecinfra, a research centre and data provider, said the Omers write down suggested other investors could be forced to recognise losses on Thames Water, which provides water and sewage services to 15mn customers in and around London. 

“The UK water utilities are presented as boring and low risk, but we can see they have large swings in value,” he said. 

Thames Water shareholders, which also include the UK’s Universities Superannuation Scheme, are currently weighing whether to invest more money to help finance an operational turnaround and help cut its £16bn debt pile: the company announced last week that it had secured conditional agreement from its shareholders to invest £750mn in the business by April 2025.

But it also warned it would need a further £2.5bn from investors by 2030 to be “financially resilient” and to cut debt and reduce leaks.

The USS, which manages the retirement savings of university staff in the UK, is the company’s second-biggest shareholder, owning a 20 per cent stake in Kemble Water through Church Water Investment. Church Water has not published accounts this year but Blanc-Brude said he would expect it to report a similar percentage write down.

USS said it did not expect “events surrounding Thames Water to have a material impact on the funding position or contribution rates coming out of the 2023 valuation, nor on the security of members’ promised pensions”.

Fears about Thames Water’s finances erupted after its chief executive Sarah Bentley abruptly quit last month and it emerged the government was drawing up contingency plans in case emergency renationalisation was required.

The company is under pressure because of rising interest rates — which have increased the financing costs on its £16bn of debt — and the need to increase infrastructure spending following public outcry over sewage overflows and water leaks.

To help its finances, it is proposing a 24 per cent increase in customer bills — or an average rise of £101.00 a year — for the next regulatory period, which runs from 2025 to 2030. The regulator will decide whether it can raise bills this much at the end of next year.

Thames Water has a complex multi-layered corporate structure and just one entity — Thames Water Utility Ltd — is regulated by Ofwat. From 2025, the watchdog will have powers to prevent regulated water companies from paying dividends if their credit rating falls below a certain level, or they fail to meet financial strength tests or performance measures on the environment or services.

At least some of Thames Water’s dividends are used to pay interest on the £2bn of debt held by parent company Kemble Water, which was accrued under the group’s previous owner Macquarie. Any restrictions on those payments could “topple the whole edifice”, said Blanc-Brude. 

Ofwat said that Thames Water needed to develop “a robust and credible plan to turn around the business and transform its performance for customers and the environment”.

Thames Water said its shareholders had been consistently supportive, “approving investment in the business over and above regulatory allowances, foregoing any income since 2017 and investing £500mn of new equity funding in March 2023”.