Tokyo Electric Power Company Holdings Inc.

However, costs associated with safety measures at its Kashiwazaki-Kariwa nuclear reactors, which the group is striving to bring back online, and costs related to the situation in Fukushima continue to weigh on the group's profitability, in our opinion. We do not expect operations to resume at the cost-competitive Kashiwazaki-Kariwa reactors until at least 2020. Therefore, its EBITDA margin is unlikely to improve substantially in the coming two years. We also expect the group's earnings and cash flow to come under further downward pressure in the medium to long term, given the intensifying competition in greater Tokyo following the full liberalization of retail electricity sales. We envisage government involvement in the group's management continuing in the long term, and see a

...We see little prospect of a substantial improvement in TEPCO Holdings' cash flow generation due to considerable debt related to the crisis at the Fukushima No. 1 nuclear power plant. The company will continue to pay a special contribution to the government for an extended period to repay damage compensation associated with the disaster, and it remains exposed to litigation risks and large contingent and off-balance-sheet liabilities. In addition, the impact of the full liberalization of retail electricity sales in 2016 and the company's contribution to the decommissioning fund will continue for a considerable period, meaning a substantial improvement in operating cash flow is unlikely. We expect its capital expenditures to remain high, at about Ñ600 billion, over the next two to three years. Accordingly, the group's free operating cash flow (FOCF) is likely to remain low and its debt burden is likely to remain heavy. We have incorporated the aforementioned large off-balance liabilities...

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