EDF / 2018 Reference document

2.

RISK FACTORS AND CONTROL FRAMEWORK Risks to which the Group is exposed

These developments, the uncertainty that they create, as well as the belief that any of them might occur, are likely to weaken European economic activity, threaten the stability of its regulatory environment and cause significant fluctuations in exchange rates (see the risk factor “exchange rate risk” below). This could have a significant adverse effect on global economic conditions, and in particular on the Group's activities, financial position and operating results, particularly in the United Kingdom.

As part of the renewal of the storm insurance coverage, Enedis has signed with Swiss Re a parametric insurance policy covering its aerial distribution network against the consequences of high-intensity storms (see section 2.5.5.3 “Storm cover”). Island Energy Systems aerial distribution networks are not covered for property damage. Damage to these networks could have an adverse impact on the Group’s financial position in the absence of insurance cover or if cover is inadequate. In addition, renewing or taking out these specific covers may be difficult or costlier due to the impact, frequency and magnitude of natural disasters experienced in recent years by the alternative risk transfer markets. In the event of a wide-spread health epidemic, depending on the intensity of the crisis, the continuity of electricity supply and the safety of the facilities may no longer be fully guaranteed. Despite the implementation of a crisis management system taking account of the Group's territorial presence and the economic importance of the Group's energy activities, the Group cannot guarantee that the occurrence of a natural disaster, or any other event of a scale that is inherently difficult to predict, will not have a significant negative effect on its business, assets, financial position and reputation. Description 2H: The United Kingdom's exit from the European Union is likely to have an adverse effect on overall economic conditions, the financial markets and EDF's activities. In June 2016, a majority of UK citizens voted in favour of withdrawing from the European Union in a national referendum. The consequences of this referendum, and the procedures for the withdrawal of the United Kingdom, are the subject of negotiations within the withdrawal procedure specified by Article 50 of the Treaty on the European Union. Many of the United Kingdom's policies are likely to evolve (monetary, tax, economy, energy, etc.). The impact of these evolutions on the economic and financial environment (notably in terms of growth, exchange rates and inflation) and on the Group may exist from the transition phase or once the course of events is stabilised. These consequences will depend on the content of the negotiations, not only between the United Kingdom and the European Union, but also with other parties involved, such as the Commonwealth, the United States and China. The referendum created significant uncertainty about future relations between the United Kingdom and the European Union, including in terms of which laws and regulations of European origin the United Kingdom will decide to replace or replicate. Furthermore, the United Kingdom’s withdrawal from the European Union may lead to changes in energy policy both within the European Union and the United Kingdom along with changes to laws relating to nuclear activity. The draft law empowering the British Prime Minister to implement the right of withdrawal in accordance with Article 50 of the Treaty on European Union, which was approved by the House of Commons on 1 February 2017, provides for the joint exit from the European Atomic Energy Community established by the “Euratom” treaty, of which the United Kingdom became a member on 1 January 1973 at the same time as it became a member of the European Economic Community. Specific agreements have been negotiated accordingly in order to allow for continued cooperation in the nuclear field and operational continuity, with the United Kingdom remaining a member of the International Atomic Energy Agency. However, delays in setting up or deploying the new provisions could disrupt the implementation of ongoing or future projects and more generally, the operation of the existing nuclear fleet. The impact of all these developments on the activity of the Group in the United Kingdom remains limited in the short term. See section 1.4.5.1.1."Strategy". It may however result in the worsening of the economic conditions leading to a restriction of the energy market. Changes in the monetary and economic environment, the deflationary or inflationary context, potential future exchange rate fluctuations, possible new legislation, regulations, tax or customs charges, both for trade in services and products and for the movement of people, new shifts instigated by economic players, may lead to new risks for the Group in the UK market. This new environment may lead to changes in the conditions of project profitability (see in particular section 1.4.5.1.2.4 "New Nuclear Build Business") and to re-assessment or even removal of investors associated with the Group's future projects in the United Kingdom or Europe. Changes in exchange rates and customs duties may have an impact on the Hinkley Point C (HPC) project, in particular (see section 2.1.5 description of the 5D factor below)

2.1.3

RISKS RELATED

TO THE TRANSFORMATION OF THE GROUP

Description 3A: The Group's development strategy, changes in the scope of activities and synergies within the integrated Group may not be implemented in accordance with the objectives defined by the Group, at the service of customers, Group stakeholders and climate protection. The Group, in line with corporate responsibility goal no. 1 to protect the climate (see section 3.2.1.1 "EDF group's ambition (CSRG no. 1)"), and goal no. 4, (see section 3.2.4.1 "Innovate so that all customers can consume better (CSRG no. 4)") intends to pursue its development as a high-performance and responsible electricity producer, champion of low-carbon growth in France, in its core countries in Europe (United Kingdom, Italy, Belgium) and internationally in accordance with the CAP2030 strategy. This strategy combines the search for growth drivers with the promotion of existing assets. The strategy and drivers of the Group's transformation are described in section 1.3 "Group Strategy". Weak synergy in the deployment of the Group's integrated model, particularly upstream/downstream or in the enhancement of the complementarity of the divisions and the diversity of the solutions deployed by the Group, (see section 1.4 "Description of the Group's activities"), could lead to an increase in risks related to physical and market contingencies, and to a loss of gross margin, to the detriment of customers, subsidiaries and the Group's performance. The lack of added value of geographical diversification, or of the diversification and complementarity of the low-carbon industrial solutions proposed by the Group, or the reduction of cross-functional synergies deployed within the integrated Group, could lead to a decrease in the Group's ability to cope with the seasonal nature of the electricity generation and sales activity, the diversity of local expectations and the proximity of its customers and stakeholders, and the efficiency and, therefore, the competitiveness of the low-carbon industrial solutions used to meet them. In order to provide itself with the resources for its strategy, the Group implements development, conversion, reorganisation and performance plans (see risk factor 4B below entitled "The Group is exposed to the risk of non-control of operational performance and its continuous improvement"). These programmes may be complemented by a strategic analysis of assets which may itself lead to a requirement for additional financial agility, giving rise to disposals or acquisitions. Focused primarily on its customers and stakeholders, the Group intends to develop and consolidate its offer of integrated service solutions, in particular energy efficiency services, its offer of low-carbon and decentralised power generation solutions, and its offer of diffuse storage solutions, in a sustainable development approach and in close proximity to customers and local communities. The Solar Plan, the Electric Storage Plan and the Electric Mobility Plan are three major levers for developing and expanding the range of low-carbon energy solutions offered by the Group in addition to the industrial solutions already widely available within the Group, particularly wind, hydro and nuclear power. Even in the event of protective contractual arrangements, the Group cannot guarantee that these various projects relating to its offer or to the various low-carbon industrial solutions deployed to meet them can be implemented according to the forecast schedules and under satisfactory economic, financial, regulatory, partnership or legal conditions or that they will ensure a long-term response to the needs expressed by our customers and stakeholders and the expected profitability at the outset, which could have a negative impact on the Group's financial position, its commitment to the fight against climate change, and its reputation.

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EDF I Reference Document 2018