Universal Registration Document 2022

a) Main risks

Due to the diversity of its activities and geographical locations, the Group is exposed to the risk of exchange rate fluctuations, which may impact the translation differences affecting balance sheet items, Group financial expenses, equity capital, net income and the internal rate of return (IRR) of projects.

As the Group is involved in long-term contracts, an unfavourable currency fluctuation could have consequences on project profitability. In the absence of hedging, currency fluctuations between the euro and the currencies of the various international markets in which the Group operates can therefore significantly affect the Group’s results and make it difficult to compare performance levels from year to year. If the euro appreciates (or depreciates) against another currency, the euro value of the assets, liabilities, income and expenses initially recognised in that other currency will decline (or increase). Moreover, insofar as the Group is likely to incur expenses in a currency other than that in which the corresponding sales are made, fluctuations in exchange rates could result in an increase in expenses, expressed as a percentage of turnover, which could affect the Group’s profitability and income.

b) Control actions

To limit exposure to foreign exchange risk, the Group has introduced the following management principles:

• local currency financing: to the extent possible given the local financial markets’ capacities, each entity finances its activities in its own functional currency. When financing is contracted in other currencies, derivatives may be used to limit foreign exchange risk;
• matching of assets and liabilities: the net assets of subsidiaries located outside the Euro zone expose the Group to a foreign exchange risk. The foreign exchange risk for the consolidated balance sheet from foreign currency assets is managed by market hedging with debts issued or contracted in foreign currencies or by using derivative financial instruments. Hedging of net assets in foreign currencies complies with risk/return targets. The hedging ratio varies depending on the currency. If no hedging instruments are available, or if hedging costs are prohibitive, the foreign exchange positions remain open and the risk on such positions is monitored by sensitivity calculations;
• hedging of operating cash flows in foreign currencies: in general, the operating cash flows of EDF and its subsidiaries are in the relevant local currencies, with the exception of flows related to fuel purchases which are primarily in US dollars, and certain flows related to purchases of equipment, which concern lower amounts. Under the principles laid down in the strategic financial management framework, EDF and the main subsidiaries concerned by foreign exchange risks (EDF Energy, EDF Trading, Edison, EDF Renewables) are required to hedge firm or highly probable commitments related to these future operating cash flows.

2.2.3 Group transformation and strategic risks

3A – Transformation capacity in the face of disruptions

a) Context

• Changes in the decarbonisation trajectory of the energy sector, emergence of new markets and new players, changes in the business models of the stakeholders;
• changes and volatility in energy and commodity prices;
• changes in the international competitive context, depending on the competitive situation. The Group is faced with different contexts (more or less total opening up of markets, position in relation to competitors, regulation, etc.) and new customer expectations;
• changes in public policies and in the regulatory framework in France and in Europe with a significant impact on the Group’s activities (SFEC and CRIM);
• the French State’s decision to conduct a simplified takeover bid;
• geopolitical tensions;
• the impact of climate change on our activities.

In this context of multiple crises (security of supply, inflation, geopolitical tensions, etc.), competition is intensifying in all areas: energy production, new renewable energies, etc.), supply, services, storage and disposal, international calls for tenders, and the game rules are changing (infra-day windfall tax).

b) Main risks

In the context above, the main risk is that the Group’s strategy will not be successfully implemented. In particular:

• there is a risk that the transformations undertaken to cope with these changes will be insufficient, or that the Group’s model will be jeopardised. This risk may increase in the event of further delay in completion of the simplified takeover bid. The potential consequences of this risk are measured in the following terms:
  • profitability (if regulations are imposed that are unfavourable as with ARENH) in the activity model,
  • market share losses, failure to meet decarbonisation targets, failure to gain expected market share or lowered margins,
  • decline in upstream/downstream integration, which could lead to a reduced ability to cope with seasonal variations in activity, physical and market uncertainties, and lead to a loss of gross margin,
  • reduced cross-functional synergies deployed within the integrated Group, which could undermine the Group’s ability to meet the diverse expectations of its customers and stakeholders, and reduce the efficiency and therefore the competitiveness of low-carbon industrial solutions,
  • decrease in the Group’s ability to seize new opportunities (mobility, hydrogen, etc.) and loss of the Group’s leading position in the energy field;