EDF / 2019 Universal registration document

6. Financial statements

Notes to the consolidated financial statements

Management of market and counterparty risks Note 43

As an operator in the energy sector worldwide, the EDF group is exposed to financial market risks, energy market risks and counterparty risks. All these risks could generate volatility in the financial statements. Financial market risks ■ The main financial market risks to which the Group is exposed are the liquidity risk, the foreign exchange risk, the interest rate risk and the equity risk. The objective of the Group’s liquidity risk management is to seek resources at optimum cost and ensure their constant accessibility. The foreign exchange risk relates to the diversification of the Group’s businesses and geographical locations, and results from exposure to the risk of exchange rate fluctuations. These fluctuations can affect the Group’s translation differences, balance sheet items, financial expenses, equity and net income. The interest rate risk results from exposure to the risk of fluctuations in interest rates that can affect the value of assets invested by the Group, the value of the liabilities covered by provision, or its financial expenses. The Group is exposed to equity risks, particularly through its dedicated asset portfolio held for secure financing of long-term nuclear commitments, through external pension funds, and to a lesser extent through its cash assets and directly-held investments. A more detailed description of these risks can be found in section 5.1.6.1 of the Universal Registration Document (formerly Reference Document), “Financial Information – Management and control of financial risks”. Energy market risks ■ With the opening of the final customer market, development of the wholesale markets and international business expansion, the EDF group operates on deregulated energy markets, mainly in Europe, through its generation and supply activities. This exposes the Group to price variations on the wholesale markets for energy (electricity, gas, coal, oil products) and the CO 2 emissions quota market, with a potentially significant impact on the financial statements. A more detailed description of these risks can be found in section 5.1.6.2 of the Universal Registration Document (formerly Reference Document), “Financial Information – Management and control of energy market risks”. Counterparty risks ■ Counterparty risk is defined as the total loss that the EDF group would sustain on its business and market transactions if a counterparty defaulted and failed to perform its contractual obligations. A more detailed description of these risks can be found in section 5.1.6.1.7 of the Universal Registration Document (formerly Reference Document), “Financial Information – Management and control of market risks”. Regarding the customer risk, which is another component of the counterparty risk, a statement of receivables not yet due and overdue is shown in note 28.

The sensitivity analyses required by IFRS 7 are presented in section 5.1.6.1 of the Universal Registration Document (formerly Reference Document), “Financial Information – Management and control of financial risks”: foreign exchange risks: section 5.1.6.1.3, ■ interest rate risks: section 5.1.6.1.4, ■ equity risk on financial assets: sections 5.1.6.1.5 and 5.1.6.1.6. ■ The principal information on financial assets and liabilities is described by theme in the following notes and sections: liquidity risks: ■ maturity of loans and other financial liabilities: note 41.2.2 to the ■ consolidated financial statements, credit lines: note 41.2.5 to the consolidated financial statements, ■ early repayment clauses for borrowings: note 41.2.6 to the consolidated ■ financial statements, off-balance sheet commitments: note 49 to the consolidated financial ■ statements; foreign exchange risks: ■ breakdown of loans and financial liabilities by currency and type of interest ■ rate: notes 41.2.3 and 41.2.4 to the consolidated financial statements; equity risks (sections 5.1.6.1.5 and 5.1.6.1.6 of the Universal Registration ■ Document (formerly Reference Document), “Financial Information – Management of equity risks/Management of risk on the dedicated asset portfolio”): coverage of nuclear obligations: notes 49 and 32.1.5 to the consolidated ■ financial statements, coverage of social obligations: notes 34.2.5 and 34.3.4 to the consolidated ■ financial statements, long-term cash management, ■ direct investments; ■ interest rate risks: ■ discount rate for nuclear provisions: calculation method and sensitivity: ■ note 32.1.5.2 to the consolidated financial statements, discount rate used for employee benefits: notes 34.2.7 and 34.3.6 to the ■ consolidated financial statements, breakdown of loans by currency and interest rate: notes 41.2.3 and 41.2.4 to ■ the consolidated financial statements; balance sheet treatment of financial and market risks: ■ derivatives and hedge accounting: note 44 to the consolidated financial ■ statements, and the statement of changes in equity, derivatives not classified as hedges: note 45 to the consolidated financial ■ statements.

Derivatives and hedge accounting Note 44

Hedge accounting is applied in compliance with IFRS 9, and concerns interest rate

hedge net foreign investments and debts in foreign currencies, and currency and

derivatives used to hedge long-term indebtedness, currency derivatives used to commodity derivatives used to hedge future cash flows. The fair value of hedging derivatives reported in the balance sheet breaks down as follows:

31/12/2019

Notes

31/12/2018

(in millions of euros)

39.1 41.1

Positive fair value of hedging derivatives Negative fair value of hedging derivatives FAIR VALUE OF HEDGING DERIVATIVES Interest rate hedging derivatives Exchange rate hedging derivatives Commodity-related cash flow hedges Commodity-related fair value hedges

5,759

4,383

(1,830)

(2,948)

3,929 2,939

1,435 1,550

44.4.1 44.4.2 44.4.3

877

582

48 65

(645)

44.5

(52)

371

EDF | Universal registration document 2019