Areva - Reference Document 2016

RISK FACTORS

4.8 Other risk

4.7.7.

COUNTERPARTY RISK RELATED TO THE USE OF DERIVATIVES

AND TO THE INVESTMENT OF CASH

THE GROUP IS EXPOSED TO THE CREDIT RISK

OF COUNTERPARTIES LINKED TO ITS USE OF FINANCIAL

DERIVATIVES TO COVER ITS RISKS AND TO THE INVESTMENT

OF CASH.

The group uses different types of financial instruments to manage its exposure to

foreign exchange and interest rate risks and its exposure to risks on commodities.

The group primarily uses forward buy/sell currency and commodity contracts and

rate derivative products such as swaps, futures or options to cover these types of

risk. These transactions involve exposure to counterparty risk when the contracts

are concluded over the counter.

Also, the group invests the group’s cash, with cash management essentially

centralized in agreement with an internal policy which defines authorized investment

products, and is exposed to a counterparty risk, mainly banking related.

To minimize these risks, the group’s Treasury Management Department deals

with diversified, top-quality counterparties based on their ratings in the Standard &

Poor’s and Moody’s rating systems, with a rating of Investment Grade. Moreover,

an umbrella agreement, for example, is always set up with counterparties likely to

deal in derivatives.

The limits allowed for each counterparty are determined based on its rating and the

type andmaturity of the instruments traded. Assuming the rating of the counterparty

is not downgraded earlier, the limits are reviewed at least once a year and approved

by the group’s Chief Financial Officer. The limits are verified in a specific report

produced by the internal control team of the Treasury Management Department.

During periods of significant financial instability which may entail an increased risk

of bank default and which may be underestimated by ratings agencies, the group

tries to monitor advanced indicators such as the value of the credit default swaps

(CDS) of the eligible counterparties to determine if limits should be adjusted.

To limit the counterparty risk on the market value of its commitments, the group

has set up a mechanism for margin calls with its most significant counterparties

concerning interest rate transactions (including foreign exchange and interest terms

and conditions).

4.8.

OTHER RISK

4.8.1.

POLITICAL AND ECONOMIC CONDITIONS

SOME OF THE GROUP’S OPERATIONS ARE SENSITIVE TO POLICY

DECISIONS IN CERTAIN COUNTRIES, ESPECIALLY AS REGARDS

ENERGY.

The risk of a change in energy policy by some States cannot be excluded and

could have a significant negative impact on the group’s financial position. The

debates on the future of nuclear power which have begun or lie ahead in various

countries could evolve in a manner that is unfavorable to the group’s operations,

particularly under the influence of pressure groups or following events that give the

public a negative image of nuclear power (e.g. accidents or incidents, violations of

non-proliferation rules, diplomatic crises).

As a result of events in Japan in March 2011, the German government decided to

phase out nuclear power while other European Union countries, including France,

decided to perform stress tests on their facilities (see the ASN report of January 3,

2012 on the supplementary safety assessments of nuclear facilities).

More generally, events of this nature are likely to affect the positions of certain States

vis-à-vis nuclear energy and could for example lead to:

new thinking on the share of nuclear power and renewable energies in the

energy mix;

the early shutdown of certain nuclear power plants;

the slowdown or freezing of investment in new nuclear construction projects;

the reconsideration of programs to extend the operation of existing power plants;

changes in policies for the end of the cycle, particularly as concerns used fuel

recycling; and/or

lesser acceptance of nuclear energy by the public.

In addition, a change in economic policy in times of financial and budgetary

pressures may lead to lower support for the development of renewable energies

in some countries.

POLITICAL RISK SPECIFIC TO CERTAIN COUNTRIES IN WHICH

THE GROUP DOES BUSINESS COULD AFFECT ITS OPERATIONS

AND THEIR FINANCIAL EQUILIBRIUM (E.G. POLITICAL

INSTABILITY, ACTS OF TERRORISM).

AREVA is an international group with energy operations around the globe, including

countries with varying degrees of political instability. Some of the group’s mining

operations, for example, are located in countries where political change could

affect those operations. Political instability can lead to civil unrest, expropriation,

nationalization, changes in legal or tax systems, monetary restrictions, and

renegotiation or cancellation of currently valid contracts, leases, mining permits

and other agreements. Acts of terrorism can also generate socio-political turmoil

and impair the physical safety of the group’s personnel and/or facilities.

For example, the mining agreements between the government of Niger on the one

hand and Somaïr and Cominak on the other relating to the operation of uranium

deposits in Niger expired on December 31, 2013. Discussions for their renewal

began in 2012 and came to a successful conclusion in May 2014 as part of the

strategic partnership agreement signed between AREVA and the State of Niger. In

accordance with the agreement, the mining agreements of Somaïr and Cominak

were renewed under the Nigerien law of 2006.

2016 AREVA

REFERENCE DOCUMENT