EDF_REGISTRATION_DOCUMENT_2017

6.

FINANCIAL STATEMENTS Notes to the consolidated financial statements

fair value is the asset’s potential sale price in a normal transaction between ■ economic actors; value in use is calculated based on projected future cash flows: ■ over a horizon that is coherent with the asset’s useful life and/or operating ■ life, for certain intangible assets with an indefinite useful life (such as ■ brands), beyond the horizon that can be observed or modelled, a terminal value is determined by discounting to infinity a normative cash flow, excluding development projects other than those that have been decided at ■ the valuation date, and discounted at a rate that reflects the risk profile of the asset or CGU; ■ the discount rates used are based on the weighted average cost of capital ■ (WACC) for each asset or group of assets concerned, determined by geographical area and by business segment under the CAPM. WACC is calculated after taxes; future cash flows are calculated on the basis of the best available information at ■ the valuation date: for the first few years, the flows correspond to the Medium-Term Plan ■ (MTP). Over the MTP horizon, energy and commodity prices are determined based on available forward prices, taking hedges into consideration; beyond the MTP horizon, cash flows are estimated based on long-term ■ assumptions prepared for each country and each energy, using a process that is updated annually. Medium and long-term electricity prices are constructed analytically by assembling blocks of assumptions, e.g. economic growth, commodity prices (oil, gas, coal) and CO 2 , demand for electricity, interconnections, and developments in the energy mix (rise of renewable energies, installed nuclear capacity, etc.) with fundamental models of supply-demand balance. The Group refers in particular to external analyses for each assumption object (for example, for commodities and CO 2 , which are primary factors in electricity prices, the Group compares its own scenarios with scenarios developed by organisations such as the AIE, IHS or Wood Mackenzie, bearing in mind that each of these analysts itself proposes a cone of scenarios corresponding to different macro-economic environments); income from capacity market mechanisms is also taken into consideration ■ in valuing generation assets, starting from the MTP horizon where relevant, provided the countries concerned have introduced or announced the future introduction of a capacity remuneration mechanism. These calculations may be influenced by several variables: changes in discount rates; ■ changes in market prices for energy and commodities and tariff regulations; ■ changes in demand and the Group’s market share, and the attrition rate on ■ customer portfolios; the useful life of facilities, or the duration of concession agreements where ■ relevant; the growth rates used beyond the medium-term plans and where relevant the ■ terminal values taken into consideration. Impairment recognised on goodwill is irreversible. 1.3.16 Financial assets include available-for-sale assets (non-consolidated investments, investment securities and certain dedicated assets), loans and receivables at amortised cost, including trade receivables, and the positive fair value of derivatives. Financial assets and liabilities

Available-for-sale securities allocated to dedicated assets are presented in note 47. Financial liabilities comprise loans and other financial liabilities, trade payables, bank credit and the negative fair value of financial derivatives. Financial assets and liabilities are recorded in the balance sheet as current if they mature within one year and non-current if they mature after one year, apart from derivatives held for trading, which are all classified as current. Operating debts and receivables, and cash and cash equivalents, are governed by IAS 39 and reported separately in the balance sheet. Valuation of financial assets 1.3.16.1 and liabilities Financial instruments are stated at fair value, which corresponds to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction on the principal or most advantageous market at the measurement date. The valuation methods for each level are generally as follows: level 1 (unadjusted quoted prices): prices accessible to the entity at the ■ measurement date on active markets, for identical assets or liabilities; level 2 (observable data): data concerning the asset or liability, other than the ■ market prices included in initial level 1 input, which are directly observable (such as a price) or indirectly observable (i.e. deducted from observable prices); level 3 (non-observable data): data that are not observable on a market, ■ including observable data that have been significantly adjusted. In the EDF group this chiefly concerns certain non-consolidated investments. Financial assets and liabilities carried at fair 1.3.16.1.1 value with changes in fair value included in income Financial assets carried at fair value with changes in fair value included in the income statement are classified as such at the inception of the operation if: they were acquired from the outset with the intention of resale in the short term; ■ they are derivatives not classified as hedges (derivatives held for trading); ■ the Group has elected to include them in this category under the option allowed ■ by IAS 39. These assets are recorded at the transaction date at fair value, which is generally equal to the amount of cash paid out. Transaction costs directly attributable to the acquisition are recorded in the income statement. At each subsequent reporting date they are adjusted to fair value, based on quoted prices available from external sources for listed financial instruments, or using recognised valuation techniques such as the discounted cash flow method or reference to external sources for other financial instruments. Changes in fair value other than those concerning commodity contracts are recorded in the income statement under the heading “Other financial income and expenses”. Dividends and interest received on assets carried at fair value are recorded in the income statement under “Other financial income”. Changes in the fair value of commodity trading contracts are recorded in the income statement under “Sales”. Changes in the fair value of non-trading commodity transactions are reported separately on a specific line of the income statement, “Net changes in fair value on Energy and Commodity derivatives, excluding trading activities” below the operating profit before depreciation and amortisation. These are transactions that come under the scope of IAS 39, which for accounting purposes are not eligible for hedge accounting or the IAS 39 “own use” exemption (see note 1.3.16.1.6). Regarding the fair value option, the Group classifies an asset or liability “at fair value with changes in fair value included in income” in the three following circumstances:

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EDF I Reference Document 2017