EDF_REGISTRATION_DOCUMENT_2017

FINANCIAL STATEMENTS Notes to the consolidated financial statements

Two approaches are allowed for the first application of IFRS 9: (i) use of IFRS 9’s “general hedge accounting model”, or (ii) continued use of IAS 39 until the new macro-hedging standard is released by the IASB and adopted by the EU. The Group intends to apply the new rules introduced by IFRS 9 for hedge accounting from 1 January 2018. Application of this section of the new standard is not expected to have any significant impacts on the consolidated financial statements at the transition date. Implementation of these provisions is currently ongoing in the Group. Other aspects of IFRS 9: debt modification The accounting treatment under IFRS 9 of debt modifications that do not result in derecognition was clarified by the IASB in July 2017. In such situations the only approach considered compatible with the currently adopted wording of IFRS 9 is to recognise an adjustment to the net income, corresponding to the change in the amortised cost of the debt at the restructuring date. This decision puts an end to the current practice (an IAS 39 option) of spreading the expected saving (or additional expense) over the residual term of the modified debt, through a prospective adjustment to the effective interest rate applied. The impact of retrospective application at 1 January 2018 of this clarification of IFRS 9 to all modifications of debts that do not result in their derecognition (because they are non-substantial) remains non-material for the Group. IFRS 16 – Leases 1.2.2.3 IFRS 16, “Leases” was adopted by the European Union on 31 October 2017 and will be mandatory for financial years beginning on or after 1 January 2019. The Group has no plans for early application of this standard. IFRS 16 requires all leases other than short-term leases and leases of low-value assets to be recognised in the lessee’s balance sheet in the form of a right-of-use asset, with a corresponding financial liability. Current contracts classified as “operating leases” are reported as off-balance sheet items. The Group’s lease contracts essentially concern real estate assets (office and residential properties), industrial installations (land, wind farms) and to a lesser extent vehicles and IT equipment. The amount of the liability included in financial debt is thus noticeably dependent on the assumptions used regarding the discount rate and the duration of commitments, since options for renewal, extension or early termination of contracts must be incorporated into calculation of the liability if it is considered reasonably certain, when the contract is first signed, that they will be exercised. The Group has worked to identify the impacts of application of IFRS 16 by sending a questionnaire to all the subsidiaries concerned to collect information about the features of leases classified as “operating leases” in existence at 31 December 2016, and updating the information at 31 December 2017. On this basis, the Group has analysed the standard in order to quantify its impacts on key consolidated totals (i.e. operating profit before depreciation and amortisation, consolidated net income, and net indebtedness) and the changes it may entail in reported information. Data collection and analysis works are today currently being finalised. The assumptions concerning the duration of certain contracts are still being defined, and the Group is continuing its calculations regarding the impact of the first application of IFRS 16 on the balance sheet. As a result of this work, the Group intends to apply the “modified” retrospective method (IFRS 16.C5.b). The choice of appropriate IT systems to enable the Group to implement IFRS 16 is under consideration. Amendments to IFRS 4 1.2.2.4 The amendments to IFRS 4 entitled “Applying IFRS 9 ’Financial Instruments’ with IFRS 4 “Insurance Contracts”, applicable from 1 January 2018, were adopted on 3 November 2017. The potential impacts for the Group have not yet been evaluated.

The accumulated fair value changes on equity instruments at 1 January 2018, amounting to €0.1 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 non-significant. The whole portfolio of debt instruments, particularly the bond portfolio, ■ is managed under the “collect and sell” business model. Detailed analyses for each type of instrument have shown that the cash flows associated with this portfolio consist entirely of payments of principal and interest (the “SPPI” (Solely Payment of Principal and Interests) test from IFRS 9). As a result, fair value changes on this portfolio will be recorded in OCI, with no change from the current accounting treatment. As stated earlier, a large portion of the financial assets affected by these changes belongs to the portfolio of financial assets that is part of the dedicated assets held to cover future expenses for the back-end of EDF’s nuclear cycle in France. In general, application of IFRS 9 will lead to greater volatility in the Group’s income statement, while dedicated assets are held to cover provisions for the back-end of the nuclear cycle, which give rise to a recurring cost of unwinding the discount, which is included in the financial result. Impairment IFRS 9 introduces an impairment model based on expected credit losses, whereas IAS 39 referred to incurred losses. This new “expected credit loss” (ECL) model could lead to earlier recognition of impairment than under IAS 39. It applies to financial assets carried at amortised cost, debt instruments carried at fair value through other comprehensive income, off-balance sheet commitments and financial guarantees previously governed by IAS 37, and contract assets measured in accordance with IFRS 15. The Group has reviewed the rules for assessing the deterioration of credit risk and measuring expected losses for a one-year horizon and at maturity. For debt instruments, the Group applies a rating-based approach for counterparties with low credit risk. As the standard allows, the Group defines the level of the “low credit risk” as the lowest rating for “Investment Grade” counterparties. In application of the risk management policy, the Group’s bond portfolio consists almost entirely of instruments issued by Investment Grade entities. The threshold marking a significant increase in credit risk on debt instruments is reached when the counterparty ceases to be rated “Investment Grade”. Across all the financial assets concerned, the analyses conducted lead to an estimated ECL that is not significant at 31 December 2017. For trade receivables that mainly relate to the Group entities’ customer portfolios, the Group will apply IFRS 9’s simplified impairment approach, based on indicators such as a provision matrix to calculate expected credit losses on trade receivables. Across all the financial assets concerned, the analyses conducted lead to an estimated ECL that is not significant at 31 December 2017. For loans, the Group has chosen an approach based on the probability of default by the counterparty and assessment of changes in the credit risk. Retrospective application of the new impairment model would lead to recognition of a non-material amount in equity at the transition date (not subsequently transferrable to profit and loss). Hedge accounting The new IFRS 9 model aims to simplify hedge accounting, align hedge accounting more closely with risk management activities and allow application of hedge accounting to a broader range of hedging instruments and items qualifying as hedged items. The new standard does not explicitly cover macro-hedging activities, which are the subject of a separate IASB project.

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EDF I Reference Document 2017