At 31 December 2022, the sensitivity of the listed bonds (€11,089 million) was 4.9, meaning that a uniform 100 basis-point rise in interest rates would result in a €538 million decline in market value. This sensitivity was 5.3 at 31 December 2021.
Summary: The Group is exposed to risks related to changes in interest rates in the various countries in which it operates. These rates depend partly on the decisions of the central banks.
Criticality: ●● Intermediate
Lower interest rate fluctuations could affect the Group’s economic indebtedness, due to changes in the value of the Group’s financial assets and liabilities, as well as its discounted liabilities. The discount rates for pension commitments and other specific employee benefit commitments (see note 16 to the consolidated financial statements for the fiscal year ended 31 December 2022) and the Group’s long-term nuclear commitments (see note 15 to the consolidated financial statements for the fiscal year ended 31 December 2022) are directly or indirectly linked to interest rates over different time horizons.
For the specific case of nuclear provisions in France, given the decline in rates over the past few years, the discount rate could be reduced over the next few years. The extent of this decrease, if any, will depend on the future trend in rates, mainly in 20-year sovereign rates.
The Order of 1 July 2020 on securing the financing of nuclear expenses, which amends the initial Order of 21 March 2007, outlines new provisions concerning the regulatory ceiling on the discount rate. This is now expressed as a real value corresponding to the unrounded representative value of the expected long-term actual interest rate used for the calculation published by the European Insurance and Occupational Pensions Authority (EIOPA) of the ultimate forward rate (UFR) applicable on the relevant date, increased by 150 basis points. This ceiling is applicable as from the year 2024. Until 2024, the ceiling is equal to the weighted average of 2.3% and this new ceiling. The weighting assigned to the 2.3% amount is set at 50% for 2020, 25% for 2021, 12.5% for 2022 and 6.25% for 2023.
Furthermore, an increase in nuclear provisions due to a decrease of the discount rate may require allocations to the dedicated assets, and may result in an adverse effect on the Group’s earnings, cash flow generation and net debt.
As the case may be, this increase in provisions, including those to be covered by dedicated assets, does not however automatically knock on to the amount to be allocated to dedicated assets at the dates in question, as this depends in particular on:
In this respect, the decree of 1 July 2020 relating to securing the financing of nuclear expenses has modified the regulatory framework of the allocation obligation:
Given the changes in the regulatory framework, no additional provision his expected for 2022, as the rate of coverage of nuclear provisions by dedicated assets is greater than 100%.
Moreover, an increase in inflation rate expectations, at a given interest rate, would result in a decrease in real interest rates which would have effects similar to a decrease in interest rates on the Group’s discounted liabilities, given that the future expenses included in these liabilities are considered to be indexed to inflation rates.
Upward variations in interest rates could affect the Group’s ability to obtain financing on optimal terms, or even its ability to refinance itself if the markets were very strained in view of the risk related to changes in flows linked to variable-rate financial assets and liabilities. Financial securities and derivatives held by the Group, as well as debts issued, may pay or receive coupons directly indexed to variable interest rates.
Thus, a 0.5% increase in interest rates would have an effect on the pre-tax income of approximately -€160 million, due to the increase in coupons on the debt issued by the Group, at variable or floating rates, offset by the increase in the Group’s cash proceeds.
These unfavourable impacts related to a rise in interest rates are in principle more than offset by the favourable impacts related to a rise in interest rates connected with long-term commitments (see previous point).
Summary: The Group must at all times have sufficient financial resources to finance its day-to-day business activities, the investments necessary for its expansion and the appropriations to the dedicated portfolio of assets covering long-term nuclear commitments, as well as to deal with any exceptional events that may arise. Any downgrading of EDF’s(1) financial rating could increase the cost of refinancing existing loans and have a negative impact on the Group’s ability to obtain financing. On 31 December 2022, the Group’s net financial debt amounts to €64.5 billion.
Criticality: ●● Intermediate
The year 2022 was marked by the volatility of the energy markets, which resulted in particular in significant margin calls and collateral in the trading activity. In this context, the Group’s ability to raise new debt, refinance its existing indebtedness or, more generally, raise funds in financial markets, and the conditions that can be negotiated to this effect, depend on numerous factors including the rating of the Group’s entities by rating agencies.
To meet liquidity needs, the Group issues securities on the bond and money markets, and resorts to bank borrowings with or without collateral.
(1) At the date of this Universal Registration Document, EDF’s long-term rating is as follows: BBB with a stable outlook (S&P Global Ratings); Baa1 with a negative outlook (Moody’s); BBB+ with a stable outlook (Fitch Ratings).
