EDF_REGISTRATION_DOCUMENT_2017

2.

RISK FACTORS AND CONTROL FRAMEWORK Risks to which the Group is exposed

The Group could be held liable for the occurrence of occupational illnesses or accidents. Although the Group has for many years taken the steps necessary to comply with the health and safety laws and regulations in the various countries in which it operates, and considers that it has taken the measures required to ensure the health and safety of its employees and that of its subcontractors’, the risk of occupational illnesses or accidents cannot be excluded. The occurrence of such events may lead to lawsuits against the Group and may result in the payment of damages, which could be significant. The measures taken by the Group for radiation protection are described in section 1.4.1.1.3 “Environment, nuclear safety and radiation protection” for France and in 1.4.5.1.2.1 (“nuclear production”, paragraph “safety and radiation protection”) for the United Kingdom. Regarding asbestos, the Group has taken measures to treat materials, as well as information and protection measures, as described in section 3.3.2 “The health and safety of our employees and our service providers’ employees: an absolute priority”. For a description of on-going legal proceedings, see sections 2.4.1 “Legal proceedings concerning EDF”, paragraph “Asbestos” and 2.4.2 “Legal proceedings concerning EDF’s subsidiaries and holdings”, paragraph “Measures taken by employees concerning exposure to asbestos or other harmful chemical substances”. Labour disputes could have an adverse impact on the Group’s business. The Group implements measures to maintain the quality of employee/management dialogue. However, it cannot rule out labour disputes or unrest, such as strikes and walkouts, actions in support of claims or other labour disturbances, which could disrupt its activity. The Group has not taken out any insurance to cover losses due to business disruptions caused by labour movements. Consequently, its financial position and operating results may be adversely affected by labour unrest. The Group’s results are sensitive to fluctuations in the price and availability of materials and services that it purchases in connection with its business operations. In the event of significant and sustained increases in the prices of raw materials, the Group may experience higher procurement costs for certain critical products or services. Such increases may also lead certain suppliers to reduce supply due to reduced profit margins. In addition, Group’s results may be affected by fluctuations in commodity prices, such as gas and coal. Moreover, there is increased demand for certain equipment or services, which may have an impact on their availability, in particular equipment used for combined cycle gas turbine power stations, wind turbines, photovoltaic panels and services and equipment in the nuclear sector. A default by the Group’s counterparties (partners, subcontractors, service providers, suppliers or customers) may have an impact on its activities and results. Like all economic operators, the Group is exposed to possible default by certain counterparties (partners, subcontractors, service providers, suppliers or customers). A default by these counterparties may impact the Group financially (loss of receivables, additional costs, in particular if EDF is required to find satisfactory alternatives or take over the relevant activates or pay contractual penalties). Such defaults could also impact the quality of work performed, completion deadlines or the procurement of certain critical products or services, and exposes the Group to reputational risk, business continuity risk for certain projects or the loss of contracts. The monitoring and oversight procedures applied within the Group in connection with its exposure to the counterparty risk inherent in its contractual relationships are described in section 2.2.2.2.2 “Control of financial risks and investments”.

The Group is exposed to risks in the financial markets. As a result of its activities, the EDF group is exposed to risks in the financial markets: liquidity risk: 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. 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. The Group’s debt is periodically rated by independent rating agencies (see section 5.1.6.1.2 “Financial rating”). Any downgrading of EDF’s debt rating could increase the cost of refinancing existing loans and have a negative impact on the Group’s ability to obtain financing; counterparty risk, in the financial area, may be covered by the use of margin ■ calls. In the event of high volatility in the markets, the Group may have to mobilise cash (see section 5.1.6.1.1.2 “Management of liquidity risk”); exchange rate risk: due to the diversity of its activities and their geographical ■ distribution, the Group is exposed to the risks of fluctuations in foreign exchange rates, which may impact currency translation adjustments, balance sheet items and the Group’s financial expenses, equity and financial position. 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 (see section 5.1.6.1.3 “Management of foreign exchange risk”). An adverse fluctuation of 10% in exchange rates related to currencies in which the EDF group’s debts are denominated (USD, GBP, other currencies) would have an impact amounting to around 2% on the EDF group’s indebtedness after hedging instruments. Due to the exchange rate hedging policy implemented within the Group, the income statements of the companies controlled by the EDF group are marginally exposed to exchange rate risk; equity risk: the Group is exposed to equity risk on securities held primarily as ■ dedicated assets constituted to cover the cost of long-term commitments in relation with the nuclear business, in connection with outsourced pension funds and, to a lesser extent, in connection with its cash assets and investments held directly by the Group (see section 5.1.6.1.5 “Management of equity risks” and 5.1.6.1.6 “Management of financial risk on EDF’s dedicated asset portfolio”); interest rate risk: 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. Increases in interest rates could affect the Group’s ability to obtain financing under optimum conditions or even its ability to refinance itself if the markets are very tight. The Group’s exposure to changes in interest rates involves in particular two types of risks: (i) the risk of changes in the value of fixed-rate financial assets and liabilities along with the risk of changes in the Group’s discounted liabilities and (ii) the risk of changes in cash flows associated with variable-rate financial assets and liabilities. Downward variations in interest rates could notably affect the value of the Group’s long-term commitments in the nuclear field and its commitments in matters of retirement and other specific provisions in favour of the employees, which are discounted with discount rates which depend on interest rates with different time frames. Such changes in provisions could impact the Group’s financial position by (i) affecting the financial rating of its debt securities and (ii) generating an obligation to pay for dedicated hedging assets (See risk factor below in section 2.1.5 “Specific risks related to nuclear activities”, in the paragraph “Provisions made by the Group for spent fuel treatment operations, recovery and packaging of waste and for the long-term management of waste may increase significantly if assumptions… are revised”) (and see section 5.1.6.1.4 “Management of interest rate risk”).

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EDF I Reference Document 2017