Universal Registration Document 2020

Changes in the portfolio in 2020

Developments on the financial markets in 2020 are described in note 15.1.2.3 to the 2020 consolidated financial statements.

In 2020, the overall after-tax performance of dedicated assets (impacts on reserves and net income) was +€1,575 million, comprising +€237 million for the CTE shares allocated to dedicated assets, and +€1,334 million for other securities (+€1,822 million before tax).

The overall performance of the dedicated asset portfolio, comprising yield assets, growth assets and fixed-income assets, was +5.9%.

The unlisted assets managed by EDF Invest are distributed between yield assets, growth assets and fixed-income assets. This portfolio, including CTE, amounted to €6.9 billion at 31 December 2020 and generated a total annual performance of 2.3% in 2020.

EDF Invest continued to diversify this portfolio in 2020, making new investments in renewable energies (solar power plants and wind farms in the United States,Canada and Portugal), energy efficiency (smart meters in the United Kingdom), and real estate assets (offices in France and healthcare properties in Europe).

The investments in wind and solar power plants acquired by EDF SA from EDF Renewables in December 2020 were entirely allocated to dedicated assets in 2020, in addition to the €113 million allocation during the first half-year. The total allocation to dedicated assets in 2020 was €797 million (€540 million in 2019), comprising €299 million in the form of asset contributions and €498 million in cash.

The yield assets consist of unlisted real estate and infrastructure assets with a value of €6.4 billion at 31 December 2020 and generated dividends in line with expectations. However, the performance in 2020 was mitigated by a decline in the value of certain assets, particularly transport infrastructures which were affected by lockdown measures in various countries.

Thanks to an upturn on the listed markets, the growth assets pocket registered an overall performance of +10.3% (+10.6% for listed assets and +2.0% for growth funds). For listed assets, all geographical pockets outperformed their indexes, in some cases very substantially: 1.4% to 1.8% for Japan, North America and Europe, and nearly 0.5% for emerging countries and the Pacific. Finally, foreign exchange management was also profitable, particularly with significant over-coverage on theUS dollar, especially in the second half-year.

The performance of fixed-income assets was satisfactory in absolute terms (+4.1%) and relative terms. The listed bond portfolio registered a performance of +4.3%, slightly above its benchmark index. In the government bond portfolio, non-core countries were also overweighted to the detriment of core countries, particularly Germany. Interest rate funds registered a performance of +1.6%.

Dedicated assets’ exposure to risks

EDF is exposed to equity risks, interest rate risks and foreign exchange risks through its dedicated asset portfolio.

The market value of the listed equities in EDF’s dedicated asset portfolio was €13,362 million at 31 December 2020. The volatility of the listed equities at the same date was 26.6% based on 52 weekly performances, compared to 9.2% at 31 December 2019. Applying this volatility to the value of listed equity assets at the same date, the Group estimates the annual volatility of the equities portion of dedicated assets at €3,554 million.

At 31 December 2020, the sensitivity of the listed bonds (€12,396 million) was 5.5, i.e. a uniform 100 base point rise in interest rates would result in a €678 million decline in market value. This sensitivity was 6.1 at 31 December 2019.

5.1.6.1.7 Management of counterparty/credit 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.

The Group has a counterparty risk management policy which applies to EDF and all operationally controlled subsidiaries. This policy sets out the governance associated with monitoring for this type of risk, and organisation of the counterparty risk management and monitoring. The policy also involves monthly consolidation of theGroup’s exposures. The CRFI (Financial Risks Control) department closely monitorsGroup counterparties (daily review of alerts, special cautionary measures for certain counterparties).

The table below gives details, by rating, of the EDF group’s consolidated exposure to counterparty risk. At 30 September 2020, 92% of the Group’s exposure concerns “investment grade” counterparties, mainly as a result of the predominance of exposures generated by the cash and asset management activity, as most short-term investments concern low-risk assets:

The exposure to counterparty risk by nature of activity is distributed as follows:

Exposure in the energy trading activities is concentrated in EDF Trading, where each counterparty is assigned a limit that depends on its financial robustness. A range of methods are used to reduce counterparty risk at EDF Trading, primarily position netting agreements, cash-collateral agreements and establishment of guarantees from banks or affiliates.

For counterparties dealing with EDF’s trading room, the CRFI Department has drawn up a framework specifying counterparty authorisation procedures and the methodology for calculation of allocated limits. The level of exposure can be consulted in real time and is systematically monitored on a daily basis. The suitability of limits is reviewed without delay in the event of an alert or unfavourable development affecting a counterparty.

As the political and financial situation in the Euro zone is still uncertain, EDF has continued to apply a conservative management policy for its cash investments in non-core countries. Only banking, sovereign and corporate counterparties with good credit ratings are authorised, for limited amounts and maturities.