The resulting estimated impact of the Covid-19 pandemic on operating profit at 31 December 2020 is some €(862) million (at 30 June it was some €(472) million).
Some estimates reflecting the information known to EDF at 31 December 2020, notably concerning the risk of non-recovery of customer receivables, are uncertain by nature. The final situation could differ from the year-end estimates, depending on how the crisis ends, and more broadly the economic conditions in 2021.
Finally, it should be noted that the financial result was significantly impacted by the decline on the financial markets in the first half-year of 2020 (see note 8 to the condensed half-year financial statements). The behaviour of the financial markets in the second half-year, combined with EDF’s strategic choices, particularly for management of its dedicated asset portfolio, limited the impact on EDF’s financial result and exceptional result at 31 December 2020 (see notes 13 and 14).
As reported in the condensed half-year financial statements, at 30 June 2020 EDF had a strong liquidity position including €12 billion of marketable securities and €13.6 billion of cash and cash equivalents, including securities transferred under repurchase agreements in the context of the Covid-19 pandemic, which amounted to €6.5 billion in the first half of 2020 (see note 13 to the condensed half-year financial statements), and unused credit lines with banks amounting to €10.1 billion.
At 31 December 2020 EDF had a strong liquidity position including €12.8 billion of marketable securities and €5.4 billion of cash and cash equivalents, including cash received net of repayments already made to several banks for bonds transferred under repurchase agreements in the context of the Covid-19 pandemic, amounting to €0.8 billion (see note 20 (4)), and unused credit lines with banks amounting to €10.5 billion (see note 36).
EDF calculates impairment of trade receivables by reference to provision matrices based on credit loss histories.
Despite the support measures introduced by national governments, and the support measures put in place by EDF for its customers, the Covid-19 pandemic should result in an increase in the amount of non-recoverable receivables which was not yet very visible at 31 December 2020. The risk analyses conducted have led to a €85 million increase to impairment of trade receivables resulting from the pandemic, recognised in provisions and impairment in the income statement.
This increase in impairment results primarily from the fact that the provision matrices habitually used are applied to a broader base of receivables in the portfolio reflecting longer payment times as a result of the pandemic, particularly in the Business customer segment in France. It is also explained by adjustments made to the provision matrices via post-model corrections to take account of the specific situation brought about by the Covid-19 pandemic which was not reflected in the existing models. To determine these corrections, differentiated approaches were introduced for each customer type (residential customers and business customers by industry sector).
In the Residential customer segment, the increase in the credit risk remains moderate at this stage (as most customers in the portfolio pay by direct debit and so far no increase in debit rejections has been observed; also, support measures for customers in difficulty have been introduced). Nevertheless, corrections were applied, by increasing the provision rate for all doubtful trade receivables arising since the start of the pandemic that are considered at greater risk of becoming non-recoverable than the receivables less than 12 months old from previous years used to construct the existing provision matrices, and by increasing the provision rate for current receivables, notably based on an INSEE (French statistical office) study of October 2020 of the economic consequences of lockdown on household finances, taking account of prospects of a rise in France’s unemployment rate following the Covid-19 pandemic. In the Business customer segment, at the top end of the portfolio (large customers), case-by-case monitoring referring to external credit ratings did not indicate any material increase in the credit risk. At the bottom end and middle of the portfolio (small and medium-sized businesses, very small businesses), provision matrices were corrected for the business sectors in this portfolio deemed to entail the highest risk, in order to reflect a probable increase in the default rate(based, among other things, on external macroeconomic forecasts, for example publications by credit insurance companies such as Coface or Euler Hermes). The data available at the year-end instead suggest that the level of default observed by businesses is in fact lower in 2020 than the previous year; this is attributed to a“delay effect”. The forecast default rates used at the year-end therefore incorporate the likelihood of an increase in bad debt in 2021.
Some group entities make use of non-recourse assignment programmes for trade receivables. The assignees in the programme have not tried to renegotiate any contractual clauses that would affect the non-recourse nature of their contracts.
The Covid-19 pandemic and the emergency measures introduced by France’s public authorities from 17 March 2020 led to a decline in electricity consumption by non-residential clients that affected all market players, including EDF.
Faced with this decline in electricity consumption, some suppliers wanted to reconsider their contractual commitments, citing force majeure to reduce the volumes they had purchased from EDF in November 2019 under the ARENH mechanism.
Confirming the French Energy Regulation Committee’s (CRE’s) decision of 26 March, on 17 April the French Council of State rejected an appeal filed by two energy supplier associations, considering that it was not proven that the losses incurred by the energy suppliers concerned were “such that they would jeopardise (...) the survival of the businesses over a horizon of a few months” and that “these losses would have such an impact during the timeframe required by the competent judge to make a ruling on the claims”.
On 20, 26 and 27 May 2020, after summary proceedings the Paris Commercial Court ruled that the introduction of emergency measures by the French government constituted a force majeure event for the ARENH contracts with Alpiq, Gazel and Total Direct Energie, entailing suspension of those contracts. On 28 July 2020, the Paris Court of Appeal upheld the urgent application judge’s decision. EDF filed an appeal against this ruling on 28 July 2020. Total Direct Energie is the only remaining party in the ongoing proceedings.
On 2 June 2020(1), EDF notified the energy suppliers Alpiq, Gazel and Total Direct Énergie of the termination of their ARENH contracts, as allowed when these contracts are suspended for more than two months. This decision was made as a precautionary measure to protect EDF’s rights.
A challenge to this termination was taken before the urgent applications judge, who issued a ruling concerning Total Direct Energie on 1 July 2020 that temporarily suspended the effects of EDF’s contract termination letter. On 19 November 2020 the Paris Court of Appeal overturned that ruling and restored the effects of the termination notified by EDF on 2 June 2020.
(1) See the press release of 2 June 2020: EDF has notified three energy suppliers of the termination of their Arenh contracts.
