EDF / 2018 Reference document

FINANCIAL STATEMENTS Notes to the consolidated financial statements

the obligations relating to assets to be replaced are valued on the basis of the ■ estimated value of the relevant assets, measured at each year-end taking into consideration wear and tear on the asset at that date: based on the difference between the asset’s replacement value as assessed ■ at year-end and the historical cost for calculation of the provision for renewal. Annual allocations to the provision are based on this difference, less any existing provisions, with the net amount spread over the residual useful life of the assets. Consequently, the expenses recognised for a given item increase over time, based on the share of the asset’s historical cost financed by the grantor for ■ amortisation of the grantor’s financing. The Group considers that the obligations related to assets to be replaced are to be valued on the basis of the special clauses contained in the concession agreements. Under this approach, these obligations are stated at the value of the contractual obligations as calculated and reported annually in the reports to the grantors. This contractual value also reflects the possibility that the EDF group may one day lose its status as the concession operator.

If no such clauses existed, an alternative approach would be to state contractual obligations at the present value of future payments required for replacement of assets operated under concession at the end of their industrial useful life. For information, the Group reports below the impacts of this alternative approach, i.e. the discounting of the future obligation to contribute to financing of assets to be replaced. The principal assumptions used in preparing this simulation are as follows: the basis for calculation of the provision for renewal is the estimated replacement ■ value at the end of the asset’s useful life, applying a forecast annual inflation rate of 1.5%, less the asset’s historical value. This amount is based on the wear and tear on the asset and discounted at a rate of 3.9%; amortisation of the grantor’s financing is also discounted at the rate of 3.9%. ■ The following table shows the impacts of this simulation for Enedis in 2018:

IMPACTS ON THE INCOME STATEMENT (in millions of euros, before taxes)

2018

Operating profit Financial result

132

(571) (439)

6.

Income before taxes of consolidated companies

IMPACTS ON THE BALANCE SHEET – EQUITY (in millions of euros, before taxes)

2018

At opening date At closing date

1,690 1,251

Valuation of concession liabilities under this method is subject to uncertainty over costs and disbursements, and is also sensitive to inflation and discount rates.

mechanisms (obligations to supply energy or energy-related services, rules governing investments, an obligation to return concession facilities at the end of the contract, amounts payable at the end of the contract, tariff constraints, etc). These restrictions mainly apply to assets of this type in France (EDF, Enedis and Dalkia), and to a lesser extent Italy (see notes 1.3.13 and 1.3.23); the sale of Group investments in certain subsidiaries requires authorisations from ■ State bodies, particularly when they exercise a regulated activity or operate nuclear power plants (this is the case for EDF Nuclear Generation Ltd. in the United Kingdom, Taishan (TNPJVC) in China and CENG in the United States); prudential reserves established and measures taken as regards distribution ■ capacity, so that the insurance subsidiaries will meet their prudential ratio requirements; the cash of certain entities that use financing arrangements stipulating that ■ dividend distribution is subject to conditions concerning repayment of bank debt (or qualification for loans) and shareholders, or are subject to regulatory limitations in certain countries. Certain shareholder agreements concerning companies controlled by the Group include clauses to protect minority shareholders, requiring approval from minority shareholders for certain particularly important decisions. Finally, certain financing loans granted to Group entities contain early repayment clauses (see note 38.2.6), and certain items of cash and cash equivalents are subject to restrictions (see note 37). 1.3.27 Greenhouse gas emission rights 1.3.27.1 The system currently in force is described in note 49.1. The accounting treatment of emission rights depends on the holding intention. There are two economic models, both of which coexist in the EDF group. Rights held under the “Trading” model are included in inventories at fair value. The change in fair value observed over the year is recorded in the income statement. Environment

Investment subsidies 1.3.24 Investment subsidies received by Group companies are included in liabilities under the heading “Other liabilities” and transferred to income as and when the economic benefits of the corresponding assets are utilised. and related liabilities, and discontinued operations Assets that qualify as held for sale and related liabilities are disclosed separately from other assets and liabilities in the balance sheet. When assets or groups of assets are classified as discontinued operations, income and expenses relating to these discontinued operations are disclosed in a single net amount after taxes in the income statement and net changes in cash and cash equivalents of discontinued operations are also reported separately in the cash flow statement. Impairment is booked when the realisable value is lower than the net book value. on the Group’s ability to access and use assets or settle liabilities The main restrictions that may limit the Group’s ability to access or use its assets or settle its liabilities concern the following items: assets held to fund employee benefits (principally in France and the United ■ Kingdom – see note 1.3.22) and expenses related to nuclear liabilities (principally in France – see note 45 – and the United Kingdom – see note 29.2); tangible and intangible assets and the related liabilities associated with ■ concession agreements, whether or not they are subject to regulatory Assets classified as held for sale 1.3.25 Nature and extent of restrictions 1.3.26

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EDF I Reference Document 2018