The following table sets forth the risk for equity of foreign exchange losses on net assets in foreign currencies of the Group’s principal subsidiaries at 31 December 2022, assuming unfavourable, uniform exchange rate variations of 10% against the Euro. Net assets are converted at the closing rate and impacts are reported in absolute value.
EXCHANGE RATE SENSITIVITY OF NET ASSETS
| At 31 December 2022 | At 31 December 2021 | |||||
|---|---|---|---|---|---|---|
| (in millions of currency units) | Net assets after management into currency | Net assets after management converted into Euros | Impact on equity of a 10% variation in exchange rates | Net assets after management into currency | Net assets after management converted into Euros | Impact on equity of a 10% variation in exchange rates |
| USD | 3,163 | 2,965 | 297 | 628 | 554 | 55 |
| CHF (Switzerland) | 2 | 2 | - | - | - | - |
| PLN (Poland) | 128 | 27 | 3 | 128 | 28 | 3 |
| GBP (United Kingdom) | 10,740 | 12,109 | 1,211 | 10,789 | 12,840 | 1,284 |
| BRL (Brazil) | 1,697 | 301 | 30 | 1,471 | 233 | 23 |
| CNY (China) | 3,179 | 432 | 43 | 4,005 | 557 | 56 |
The foreign exchange risk on debt and equity securities is mostly concentrated in EDF’s dedicated asset portfolio, which is detailed in the section entitled “Management of financial risk on EDF’s dedicated assets”.
The foreign exchange risk associated with short-term investments and operating liabilities in foreign currencies remains under control for the Group at 31 December 2022.
The exposure of the Group’s net indebtedness to interest rate fluctuations covers two types of risk: a risk of change in the net financial expenses on floating-rate financial assets and liabilities, and a risk of change in the value of financial assets invested at fixed rates. These risks are managed by monitoring the floating-rate portion of net indebtedness, defined by reference to the risk/return for net financial expenses, taking into consideration expected movements in interest rates.
Under this policy, some of the debt is variabilised and the Group may use interest rate derivatives for hedging purposes.
The Group’s debt after hedging instruments at 31 December 2022 comprised 58% at fixed rates and 42% at floating rates. The increase since 31 December 2021 in the floating-rate portion of the debt essentially results from the bilateral fixed-term loans arranged, amounting to €13.1 billion, USD 2.2 billion and 38 billion yen, which bear interest at floating rates.
A 1% uniform annual rise in interest rates would generate an approximate €401 million increase in financial expenses at 31 December 2022 based on gross floating-rate debt after hedging.
The average cost of Group debt (weighted interest rate on outstanding amounts) was 2.63% at end-December 2022.
STRUCTURE AND INTEREST RATE SENSITIVITY OF GROUP DEBT
| 31 December 2022 (in millions of euros) | Initial debt structure | Impact of hedging instruments | Debt structure after hedging | Impact on income of a 1% variation in interest rates |
|---|---|---|---|---|
| Fixed rate |
Fixed rate Initial debt structure69,748 |
Fixed rate Impact of hedging instruments(13,784) |
Fixed rate Debt structure after hedging55,964 |
Fixed rate Impact on income of a 1% variation in interest rates- |
| Floating rate |
Floating rate Initial debt structure26,305 |
Floating rate Impact of hedging instruments13,784 |
Floating rate Debt structure after hedging40,089 |
Floating rate Impact on income of a 1% variation in interest rates401 |
| TOTAL | TOTALInitial debt structure96,053 | TOTALImpact of hedging instruments0 | TOTALDebt structure after hedging96,053 | TOTALImpact on income of a 1% variation in interest rates401 |
Concerning financial assets, the table below presents the interest rate risk on the floating-rate notes (FRN) held by EDF, and their sensitivity to interest rate risks (impact in net income).
INTEREST RATE SENSITIVITY OF FLOATING-RATE INSTRUMENTS
| 31 December 2022 (in millions of euros) | Value | Impact on income of a 1% variation of interest rates | Value after a 1% variation in interest rates |
|---|---|---|---|
| FLOATING-RATE INSTRUMENTS | FLOATING-RATE INSTRUMENTSValue37 | FLOATING-RATE INSTRUMENTSImpact on income of a 1% variation of interest rates- | FLOATING-RATE INSTRUMENTSValue after a 1% variation in interest rates37 |
The Group’s interest rate risk notably relates to the value of the Group’s long-term nuclear obligations (see note 15 to the 2022 consolidated financial statements) and its pension and other specific employee benefit obligations (see note 15 to the 2022 consolidated financial statements), which are adjusted to present value using discount rates that depend on interest rates for various time horizons, and debt securities held for management of the dedicated assets set aside to cover these obligations (see section 5.1.6.1.6).
