EDF_REGISTRATION_DOCUMENT_2017

6.

FINANCIAL STATEMENTS Notes to the consolidated financial statements

The other subjects identified as potentially subject to a change of accounting treatment due to application of IFRS 15 should not have any significant impact on the Group’s sales or net income. In addition, the Group is currently finalising its assessment of the impacts of IFRS 15 on the accounting methods for the sales applied by Framatome, an entity that is fully consolidated from 31 December 2017. The subjects identified mainly concern the level of contract combinations, the financing component, contractual penalties and calculation of losses at completion. The full retrospective approach will be applied. This will have no significant impact on Group’s equity. Finally, in connection with future application of IFRS 15, the Group is continuing to follow changes in international standards that could affect the current accounting treatment of regulated-tariff activities. IFRS 9 – Financial Instruments 1.2.2.2 IFRS 9 “Financial Instruments”, adopted by the European Union on 22 November 2016, will replace IAS 39 “Financial Instruments: Recognition and Measurement” from 1 January 2018. This standard introduces new principles for classification and measurement of financial instruments, impairment for credit risk on financial assets, and hedge accounting.

The Group began analyses in 2015 to assess the consequences of IFRS 9’s application. In 2016 and 2017 preparatory work for implementation of the new standard continued, identifying the instruments for which the accounting treatment will be changed, as well as the necessary adjustments to the information systems. Classification and measurement Apart from the financial assets carried at amortised cost in application of IAS 39 such as loans, trade receivables and certain financial receivables, almost all of the Group’s financial asset portfolio is currently classified as available-for-sale financial assets under IAS 39. Consequently, these assets are measured at fair value in the balance sheet, and changes in fair value are recorded in other comprehensive income (OCI); unrealised gains and losses recognised in OCI while the asset is held are transferred to profit and loss upon its derecognition. A detailed, in-depth review of the Group’s financial asset portfolio was conducted to determine its future accounting treatment under IFRS 9, based on the characteristics of its contractual cash flows and business model. The main impacts will concern financial assets held in the form of shares in investment funds, and to a lesser degree equity instruments (shares). More specifically, a large share of the financial assets affected by these changes concerns the financial portfolio (amounting to €20,848 million at 31 December 2017 – see note 36.2.2) that forms part of the dedicated assets held to cover expenses for the back-end of EDF’s nuclear cycle in France (see note 47). The table below summarises changes in the classification of financial assets held by the Group at 31 December 2017 between IAS 39 and IFRS 9, and the impacts on the Group’s financial statements. Further details of these changes are provided in the following paragraphs.

IFRS 9 classification

(in billions of euros)

Balance at 31/12/2017

Fair value in OCI at 31/12/2017

Fair value through OCI without recycl. to P&L

Amortised cost

Fair value through OCI

Fair value through P&L

IAS 39 classification

Available-for-sale financial assets

40.9 20.8 19.0

- - - -

20.8

0.5

19.6 15.9

2.2 2.1 0.1

EDF’s dedicated assets

5.0

- -

Liquid assets

15.8

3.1 0.6 0.3

Other securities

1.1

- -

0.5

- - -

Loans and receivables

14.6 23.4

14.3 21.8

- -

Trade receivables

1.6

-

For shares in investment funds , which account for a significant portion of the ■ dedicated asset financial portfolio, unrealised gains or losses, which were previously recognised in OCI and transferred to profit and loss upon their derecognition, will be recorded directly in the Group’s income statement because these instruments will be classified as “at fair value through profit and loss”. As well as holding shares in investment funds, to meet the needs of its dedicated asset portfolio the Group also makes significant investments in exchange-traded funds (ETFs). ETFs are traded on stock exchanges and generally passively managed with the aim of replicating upward or downward movements in an index. Market discussions in recent months about the classification of these “hybrid” instruments led to the conclusion that these instruments should not be classified as equity instruments under IAS 32 – which was the Group’s initial analysis – but as puttable debt instruments. As a result, shares in ETFs will be treated under IFRS 9 in the same way as shares in investment funds, and unrealised gains and losses will be recorded in the Group’s income statement. The accumulated fair value changes on these instruments at 1 January 2018, amounting to €1.8 billion before taxes, will be reclassified as reserves that will not be subsequently transferred to profit and loss.

The impact on the Group’s financial result at 31 December 2017 of applying IFRS 9 instead of IAS 39 to these instruments, all other things being equal, would have been around €349 million, comprising: non-recognition of unrealised gains and losses of 2016 that were realised ■ in 2017 (€(800) million); recognition in the income statement of unrealised gains and losses in 2017 ■ (including the effect of foreign exchange hedges), which represent the annual volatility (€1,149 million). An estimate of the main impacts of the standard’s application, based on figures at 31 December 2017, is presented below for information. The amounts shown are not necessarily representative of the amounts that will be recognized in 2018 or in later years, as unrealised gains or losses depend primarily on stock market movements over each period concerned. Unrealised gains on certain financial instruments and markets in one period may reverse during another. For equity instruments not held for trading (investments in shares and similar), ■ the Group will record fair value changes on most of the instruments in the portfolio at 31 December 2017 in profit and loss. However, the Group has exercised the irrevocable option to recognise fair value changes on some of the securities in the portfolio at 31 December 2017 in OCI. For the securities concerned, as IFRS 9 requires, only dividends received can be included in profit and loss; it will not be possible to transfer gains and losses to the income statement upon derecognition of the instrument.

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EDF I Reference Document 2017