EDF : 2017 half-year results in line with expectations Excellent execution of the performance plan Outlook confirmed

2017 half-year results in line with expectations
Excellent execution of the performance plan
Outlook confirmed

EDF's Board of Directors meeting on 27 July 2017, under the chairmanship of Jean-Bernard Lévy, approved the consolidated financial statements at 30 June 2017.

Jean-Bernard Lévy, EDF's Chairman and CEO, stated:
"In an unfavourable market context and in line with its forecasts, the Group is continuing to implement its performance plan and maintains its annual objectives. Based on its strengthened balance sheet, EDF is deploying its CAP 2030 strategy. The first half of 2017 was marked by an acceleration in the area of renewable energies, with, in particular, the takeover of Futuren and the increase in installed net capacity. The reorganisation of the French nuclear sector has also reached essential and positive milestones in recent months. I would like to thank our teams for their daily efforts to make EDF the leader in low-carbon growth."

Change in EDF group's half-year results

Change in EDF group's half-year EBITDA

In a context of unfavourable market conditions and a decline in nuclear generation in France, the financial results for the first half of 2017 were down. During this period, the Group continued to deploy its transformation plan in accordance with the CAP 2030 strategy. In particular, it successfully carried out a share capital increase of €4 billion in 2017. The asset disposal plan continued to be implemented and reached a total of approximately €8.0 billion^[12] in disposals signed or realised for a target of at least €10 billion between 2015 and 2020.
The actions undertaken within the framework of the performance plan have resulted in a significant reduction in operating expenses^[13] by 2.2% (-€225 million) compared to the first half of 2016, representing a total of approximately 70% of the target of -€700 million in savings between 2015 and 2018. The efforts to optimise the working capital requirement, estimated at €200 million, have allowed more than 90% of the target of €1.8 billion optimisation to be reached over the period 2015-2018.

EBITDA of the France - Generation and supply activities segment amounted to €2,453 million, corresponding to an organic decline of 28.9%, due mainly to a drop in nuclear and hydropower generation and unfavourable market conditions.

EBITDA of the France - Regulated activities^[14] segment recorded an EBITDA of €2,400 million, down 14.0% in organic terms due to unfavourable weather and storm effects and to favourable events in 2016 with no equivalent in 2017.

In the United Kingdom, EBITDA was down organicaly 34.4% to €627 million, mainly due to the significant impact of lower realised nuclear prices.

In Italy, EBITDA recorded an organic increase of 28.4% to €426 million due to favourable developments in electricity sales prices and an increase in hydrocarbon exploration and production activities driven by higher Brent and gas prices.

EBITDA of the Other International segment was down in organic terms by 21.5%, in Belgium due mainly to lower generation, and in Brazil due to the annual tariff review.

In the Other activities segment, EBITDA benefited from a 5% increase in renewable energy output and from an increase of 0.8GW in EDF Énergies Nouvelles' net installed capacity. Activity in Development and Sales of Structured Assets was down, however, after a high volume of operations in the first half-year of 2016. This led to a drop in EBITDA of 9.4% in the segment in the first half of 2017.

The financial result improved by €236 million compared to the first half of 2016, due in particular to an increase in capital gains on the disposal of dedicated assets, a reduction in the cost of debt and lower unwinding costs related to the discount rate.

The Group's net income excluding non-recurring items stood at €1,370 million for first-half 2017, a decrease of 53.8% compared to first-half 2016.

The Group's share of net income totalled €2,005 million in the first half of 2017, relatively stable compared to the first half of 2016 (-3.7%), the positive effect of the capital gain recorded for the sale of 49.9% of CTE^[15] and the improvement of the financial result offsetting overall the decline in EBITDA.

The Group continued to ensure the control and selectivity of net investments excluding Linky^[16], new developments^[17] and assets disposals, which totalled €4,913 million, including the investment in Futuren. This corresponds to a decrease of €252 million, thanks in particular to the rationalisation of the thermal power plant fleet and efforts made across all of the operational segments. Total net investments amounted to €1,480 million in the first half of 2017, compared to €5,569 million in the first half of 2016, taking into account the sale of 49.9% of CTE¹⁵.

Operating cash flow amounted to €4,156 million in the first half of 2017 compared to €7,959 million in the first half of 2016, a decrease of €3,803 million. This change was due primarily to the decrease of €1,948 million in EBITDA and to the increase in the income taxes paid.

Cash flow after net investments was up significantly to €3,158 million thanks primarily to the sale of 49.9% of CTE¹⁵ and to a favourable change in the working capital requirement. Group cash flow^[18] amounted to +€1,482 million. It incorporates the payment in shares of the majority of the final dividend for 2016 and regulatory allocation^[19] to the dedicated assets.

The Group's net financial debt amounted to €31,268 million at 30 June 2017. It was €37,425 million at 31 December 2016. This improvement is mainly attributable to the capital increase of €4 billion and to asset disposals carried out in the first half of 2017. The ratio of net financial debt/EBITDA was 2.2x at 30 June 2017, in line with Group's target for 2017 of less than 2.5x.

Main Group results by segment

France - Generation and supply activities 

Sales in the first half of 2017 in the France - Generation and supply segment amounted to €18,564 million, corresponding to a decline of €119 million (-0.6%) compared to the first half of 2016.

EBITDA was down 28.9% organically to €2,453 million in an unfavourable market environment.

In the first half of 2017, the decrease in nuclear output and hydropower output compared to the first half of 2016 had an unfavourable impact on EBITDA estimated at -€514 million.

EBITDA was also affected by negative market conditions and ARENH subscriptions in November 2016 (40.7TWh for the first half of 2017) for an estimated total of -€504 million. Tariff changes, excluding the incorporation of the capacity payment in the tariff "stacking" calculation, led to an estimated decrease of -€221 million compared to the first half of 2016.

Intense competition and negative price effects on new offers also affected downstream market conditions, with a net unfavourable impact estimated at -€191 million.

The weather effect, in particular in January 2017, as well as the leap year in 2016, had a negative effect estimated at -€183 million in comparison to the same period in 2016.

The introduction of the capacity mechanism^[22] had a favourable +€286 million estimated impact on EBITDA for the first half of 2017.

Under the EDF group's performance plan, operating expenses^[23] were brought down by an estimated €272 million
(-6.0%) through operating performance action on purchases and control of staff costs. These measures are being applied across all entities, cutting the costs of support functions and commercial activities, and optimising costs for the hydropower, nuclear and thermal fleets.

Nuclear output reached 197.2TWh at the end of June 2017, a level in line with forecasts.

The 8.0TWh (-3.9%) year-on-year decrease is essentially explained at the fact that Gravelines 5 and Fessenheim 2 were offline for the whole period for checks in connection with the Creusot Forge manufacturing records, and also by completion of tests on the steam generators concerned by the carbon segregation issue during the first quarter of 2017.

The unplanned reactor outages at Flamanville 1 and Cattenom 1 were largely counterbalanced by higher dispatch of the reactors in operation.

Based on nuclear power output at 30 June, and the restart of operations by the Bugey 5 and the Gravelines 5 reactors, the Group confirms its nuclear output target of 390-400TWh for 2017.

Hydropower output^[24] stood at 21.3TWh^[25], down by 4.2TWh compared to the first half of 2016 due to less favourable hydrological conditions.

Thermal generation facilities, particularly gas-fired plants, were used more extensively. Their output, up 3.6TWh compared to the first half of 2016, reached 7.8TWh.

France - Regulated activities

Sales in the first half of 2017 in the France - Regulated activities segment amounted to €8,174 million, an organic increase of €49 million (+0.6%) compared to the first half of 2016.

EBITDA was down organically by €391 million (-14.0%) with in particular an unfavourable volume effect estimated at €-91 million linked to weather effects, overruns in subscribed capacity due to the significant cold spell in January 2017 and the leap year effect in 2016. Exceptionally forceful gales in mainland France were another significant factor in the first half-year of 2017, with an estimated negative impact of -€62 million on operating expenses and indemnities for power cuts. All these unfavourable elements were only partially offset by tariff rises (estimated at +€50 million). In addition, positive factors in 2016 that had no equivalent in 2017 also adversely affected EBITDA (-€240 million).

United Kingdom 

The United Kingdom contributed €4,427 million to Group sales in the first half of 2017, down €561 million. EBITDA amounted to €627 million, down 34.4% in organic terms compared to June 2016.

EBITDA was mainly affected by the decline in the energy margin mainly due to lower realised nuclear prices. The drop in consumption from residential customers following milder weather also had an impact on EBITDA.  However, the number of customer accounts is quasi stable.

Nuclear output amounted to 32.2TWh, +1.3TWh compared to June 2016, thanks to good operational performance driven by favourable scheduling of the refuelling operations during the first half of 2017 and good availability of the nuclear fleet.

Italy 

In Italy, sales for the first half of 2017 amounted to €4,968 million, an organic decrease of 10.8% over the first of half 2016, without having a significant effect on the margin. EBITDA recorded an organic increase of 28.4% to €426 million.

EBITDA for the Electricity activities was up, essentially reflecting favourable trends in average electricity sale prices. Also, the good performance in thermal power generation made up for the lower hydropower generation.

EBITDA for the Hydrocarbon activities recorded organic growth, principally driven by favourable movements in Brent oil and gas prices, and better optimisation of maintenance costs for the exploration-production activity. The downstream margin is improving.

Other International 

Sales in the Other International segment amounted to €2,537 million, down by 2.8% in organic terms compared to the first half of 2016. EBITDA recorded an organic decrease of 21.5% to €275 million.

In Belgium, EBITDA recorded an organic decrease of 40.4% to €69 million. This decline was attributable to the downturn in electricity sale prices and lower nuclear generation due to the maintenance programme. Unfavourable weather factors (winds, water) also contributed to the decline in renewable energy generation. Service activities were up and installed wind power capacity continued to increase to reach 309MW at the end of June 2017 (+3% compared with 31 December 2016).

In Poland^[27], EBITDA totalled €133 million, corresponding to an organic growth of 2.4%, thanks to the increase in heat volumes and energy savings certificates, combined with the fall in the price of coal consumed. EDF Polska's assets are currently held for sale^[28].

After an exceptional year in 2016, Brazil's EBITDA has been negatively affected by the downward revision of the annual PPA (power purchase agreement) price.

Other activities

Sales in the Other activities segment amounted to €3,811 million, up 6.8% in organic terms over 2016. EBITDA recorded an organic decrease of 9.4% to €815 million.

EDF Énergies Nouvelles' contribution to consolidated EBITDA totalled €451 million, corresponding to an organic decrease of €113 million (-20.4%) from the first half of 2016. The net installed capacity was up by 0.8GW to reach 6.7GW at 30 June 2017. Generation continued its organic growth, rising by 5.0% over the first half of 2017. The portfolio of projects under construction by EDF Énergies Nouvelles increased significantly to 2.4GW gross at the end of June 2017 (of which 0.9GW in solar power). The significant volume of operations relating to the Development and Sales of Structured Assets activity in the first half of 2016 in Europe (Portugal, Greece), which had no equivalent in 2017, had a negative impact on EBITDA.

Dalkia's EBITDA was €155 million, corresponding to a year-on-year organic increase of €12 million (+8.9%), notably thanks to conclusion or renewal of a large number of commercial contracts, such as the energy management of municipal buildings in Valence, France, over a period of seven years, or the recovery of heat from the PSA site in Charleville-Mézières over 25 years. EBITDA of the first half of 2017 benefited from the favourable trends in the indexes for revising service prices and the positive effect of rising energy prices.

EBITDA at EDF Trading amounted to €187 million in the first half of 2017, an organic increase of 3.2% compared to first-half 2016. This increase resulted from a good performance in January, partly counterbalanced by unfavourable market conditions in particular on seasonal gas contracts in North America.

Main events^[29]
since the 2017 first quarter press release

Major Events

• EDF partially waived one of the conditions precedent contained in the NEW NP acquisition agreement (see press release of 12 July 2017)
• Binding agreements were signed with strategic investors for the acquisition of an equity stake in NEW NP (see press release of 10 July 2017)
• Clarifications were made to the Hinkley Point C project: update of project costs (see press release of 3 July 2017)
• Approval of the Flamanville 3 vessel: draft opinion of the French Nuclear Safety Agency (ASN) specifying that the composition of the steel of the vessel head and bottom is not likely to call into question its commissioning under certain conditions and in particular the replacement of the vessel head by the end of 2024 (see press release of 29 June 2017)
• EDF announced the signing of an agreement with PGE for the sale of EDF Polska's assets (see press release of 19 May 2017 and note 2.5.2 to the condensed consolidated half-year financial statements at 30 June 2017)
• EDF's Board of Directors approved the creation of EDVANCE, a significant milestone in the reconstruction of the French nuclear industry (see press release of 17 May 2017)

New investments, partnerships and investment projects

Development of renewable energies, EDF Énergies Nouvelles^[30]

• On 20 July 2017, EDF Énergies Nouvelles announced the success of its simplified tender offer for FUTUREN (see note 3.1 to the condensed consolidated half-year financial statements at 30 June 2017)
• On 13 July 2017, EDF Énergies Nouvelles acquired a group of wind power projects in the United Kingdom with capacity of over 600MW
• On 5 July 2017, EDF Énergies Nouvelles acquired OWS, an offshore wind farm operations and maintenance specialist
• On 22 June 2017, EDF Énergies Nouvelles announced the strengthening of its positions in the Auvergne-Rhône-Alpes region
• On 21 June 2017, EDF Énergies Nouvelles signed a Power Purchase Agreement for a 100MW wind project in the United States
• On 19 June 2017, EDF Énergies Nouvelles announced that it would undertake a new solar project (115MWp) in Brazil
• The EDF group, together with EDF ENR, consolidated and diversified its position in the self-consumption market in France (see press release of 7 June 2017)
• Finalisation of the financing of Phase 3 of the 800MW Mohammed bin Rashid Al Maktoum Solar Park (see press release of 14 June 2017)

Development of energy services

• On 6 June 2017, EDF Energy Services acquired Imtech, a leading engineering services company and provider of technical services to construction, industrial, commercial and public sector clients in the UK and Ireland (see note 22.1.2 of the Annex to the condensed consolidated half-year financial statements at 30 June 2017)
• EDF is aiming to double its sales by 2025 in energy services for businesses and local authorities (see press release of 20 June 2017)
• On 11 May 2017, Sowee launched its first connected charging station for electric vehicles

Sustainable development

• EDF received the ISO 14001 certification from AFNOR Certification for the fifth time (see press release of 23 June 2017)
• EDF signed an innovative bilateral Revolving Credit Facility with an interest rate that depends on its sustainability rating (see press release of 22 May 2017)

Other significant events

• New Leadership roles announced at EDF Energy (see press release of 27 July 2017)
• Results of the option for the payment of the balance of the dividend to be paid for 2016 (see press release on 28 June 2017 and notes 17.1 and 17.2 of the annex to the condensed consolidated financial statements at 30 June 2017)
• Jean-Bernard Lévy, EDF's Chairman and CEO, made several appointments within the Executive Committee, which took effect on 17 July 2017 (see press release of 12 June 2017)

Innovation

• EDF and CEA consolidated their R&D collaboration in the areas of nuclear, digital technology and energy transition (see press release of 19 June 2017)

APPENDICES :
Consolidated income statement

Consolidated balance sheet

Consolidated cash flow statement

Disclaimer

This presentation does not constitute an offer to sell securities in the United States or any other jurisdiction.
No reliance should be placed on the accuracy, completeness or correctness of the information or opinions contained in this presentation, and none of EDF representatives shall bear any liability for any loss arising from any use of this presentation or its contents.
The present document may contain forward-looking statements and targets concerning the Group's strategy, financial position or results. EDF considers that these forward-looking statements and targets are based on reasonable assumptions as of the present document publication, which can be however inaccurate and are subject to numerous risks and uncertainties. There is no certainty that the forecast events will take place or that the expected results will actually be achieved. Important factors that could cause actual results, performance or achievements of the Group to differ materially from those contemplated in this document include in particular the successful implementation of EDF strategic, financial and operational initiatives based on its current business model as an integrated operator, changes in the competitive and regulatory framework of the energy markets, as well as risk and uncertainties relating to the Group's activities, its international scope, the climatic environment, the volatility of raw materials prices and currency exchange rates,  technological changes, changes in the general economic situation.
Des informations détaillées sur ces risques potentiels et incertitudes sont disponibles dans le Document de Référence d'EDF déposé auprès de l'Autorité des marchés financiers le 6 mars 2017 (consultable en ligne sur le site internet de l'AMF à l'adresse www.amf-france.org ou celui d'EDF à l'adresse www.edf.fr).
EDF does not undertake nor does it have any obligation to update forward-looking information contained in this presentation to reflect any unexpected events or circumstances arising after the date of this presentation.