EDF / 2018 Reference document

6.

FINANCIAL STATEMENTS Income Statement

Italy – Edison As an intangible asset with an indefinite useful life, the Edison brand, first recognised at the value of €945 million when Edison was taken over in 2012, was subjected to an impairment test that did not identify any risk of impairment. This test used the royalty relief method. An external study of the brand value was also conducted and concluded that the brand’s value in use is higher than its net book value. At 31 December 2018, the recoverable value of certain “electricity” assets was improving due to a favourable short-term market environment (hydropower assets), and investments in high-return projects (wind power assets). The recoverable value of thermal assets, in contrast, declined due to slightly lower long-term forecasts concerning capacity prices and auxiliary services, but this did not affect the margin resulting from the test. However, additional risks amounting to €(308) million were identified in 2018 concerning certain exploration-production fields, principally affected by a deterioration in long-term prospects for Brent oil prices, and in some cases by revision of production profiles. Sensitivity analyses conducted as part of the impairment tests produced the following information: for “merchant” electricity generation assets, a 10% decrease in electricity ■ prices or a 50 base point increase in the WACC would cause a maximum risk of around €(30) million, or less than 2% of the book value of these assets; for exploration and production assets, a 5% decrease in commodity prices ■ would generate an additional risk of some €(60) million. EDF Renewables In 2018, impairment of €(103) million was recorded in respect of the various CGUs of EDF Renewables. It mainly concerns a wind farm and a biomass technology firm in the United States. Dalkia Dalkia’s goodwill amounted to €550 million at 31 December 2018, and mainly resulted from acquisition of the Dalkia group in France under the agreement of 25 March 2014 with Veolia Environnement. The recoverable value of the Dalkia group is based on future cash flows projected over a medium-term horizon, and a terminal value that represents cash flow projections to infinity. According to revised assumptions for 2018, the recoverable value remains higher than the book value. The key parameters of the test are the calculation method for the terminal value, and the discount rate: both were subjected to sensitivity analyses and the results did not affect the positive difference between the recoverable value and the book value. The Dalkia brand, recognised as an asset when the Group took control of Dalkia in 2014 at the value of €130 million, is estimated by the royalties relief method. An updated test at 31 December 2018 showed that this book value is justified.

France – Generation and supply The integrated management and interdependence of the different generation facilities that make up the French fleet (nuclear, thermal and hydropower plants), independently of their maximum technical capacities, have led the Group to consider the entire fleet as a single CGU. This CGU does not include any goodwill. Even when there is no indication of any loss of value, an impairment test is performed due to the highly significant value of this CGU in the Group’s financial statements and its substantial exposure to market prices since discontinuation of the “yellow” and “green” regulated tariffs on 1 January 2016. The recoverable value of the generation fleet is estimated by discounting future cash flows under the Group’s usual methodology, described in note 1.3.15, over the assets’ useful life, using an after-tax WACC of 5.2% at 31 December 2018. For nuclear assets currently in operation (except for Fessenheim), the Group’s basic valuation assumes that the useful life is extended to 50 years, in line with its industrial strategy. The nuclear capacity remains subject to a ceiling of 63.2GW in the test, consistent with France’s Energy Transition Law. The assumption of stable returns on capacity of €10/KW is adopted over a long-term horizon, in line with the analysis of system fundamentals used in the benchmark scenario. The average auction price achieved in 2018 was €18/KW. The impairment test indicated a significant positive difference between the recoverable value and the book value of the generation fleet in France, supported by the rise in electricity prices on the market horizon and implementation of savings plans. The margin resulting from the test is down slightly from 31 December 2017, principally due to lower long-term price scenarios, and because in the short term the ARENH system cannot capture all the value associated with higher forward prices. The key assumptions used in the test include the useful life of nuclear assets, the long-term price scenario, the discount rate, developments in costs and investments, and the assumed capacity premium. Each of these assumptions has been subjected to a sensitivity analysis, which does not call into question the existence of a positive difference between the recoverable value and book value. The test conducted at 31 December 2018 also took into consideration the sensitivity associated with the proposals for early closures of certain nuclear plants, as set out in the proposed multi-year energy programme. This did not affect the conclusions of the test. Other International – Belgium The impairment test applied to EDF Luminus did not indicate any risk of impairment. However, the margin resulting from the test is adversely affected by the Tihange 2 and 3 and Doel 3 and 4 nuclear assets, in which EDF Luminus owns a 10.2% share. Finally, impairment of €(39) million was booked in respect of associates at 31 December 2018. Details are given in note 23.

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EDF I Reference Document 2018