July 28, 2022 01:30 ET | Source: EDF EDF
French state announces its intention to hold 100% of EDF’s share capital
Increased market price volatility exacerbated by the war in Ukraine
Strong decline in EBITDA due to lower output in France
Significant level of investment towards the energy transition
Inclusion of nuclear power in the European Taxonomy
Sales €66.3bn +66.4% org.(1) EBITDA €2.7bn -75.0% org.(1) Net income excluding non-recurring items(2) -€1.3bn n.a Net income – Group share - €5.3bn n.a. Net financial debt €42.8bn vs. €43.0bn at end-2021
Intention of the French State to file a simplified public tender offer for EDF’s shares(3)
Inclusion of nuclear power in the European Taxonomy(14)
At its meeting of 27 July 2022, presided by Jean-Bernard Lévy, EDF’s Board of Directors approved the consolidated financial statements for the six months ended 30 June 2022.
Jean-Bernard Lévy, Chairman and Chief Executive Officer of EDF stated:
“The results for the first half of the year reflect the difficulties encountered in nuclear generation in France and, to a lesser extent, in hydropower generation, as well as the effect of the tariff shield introduced in France in 2022. The operating results of the Group’s other businesses, however, are growing strongly for the most part, particularly as a result of higher and more volatile wholesale prices in Europe. Investments are continuing at a steady pace in order to further strengthen the group’s position as a champion of decarbonisation, on the basis of energy efficiency, nuclear generation and renewable generation. Commercial performance was very good, reflecting the relevance of the offers and the quality of EDF’s relationship with all categories of customers. Despite the strong pressure, all EDF group’s teams are demonstrating a remarkable resilience and a constant commitment to the energy transition.”
Change in EDF group results
Change in EDF group’s EBITDA
Despite a significant increase in sales, supported by electricity and gas prices, EBITDA was down significantly in the first half of 2022. This change in EBITDA is mainly explained by the drop in nuclear output linked to the phenomenon of stress corrosion, by the impact of the exceptional regulatory measures adopted by the French government to limit the increase in prices to consumers in 2022 and, to a lesser extent, by the decline in hydropower output. These events have forced the Group to purchase electricity in a context of high market prices. On the other hand, EBITDA benefited from the exceptional performance of EDF Trading, which grew in a context of high market volatility and from better nuclear output in the United Kingdom.
Nuclear output in France amounted to 154.1TWh, i.e. 27.6TWh less than over the same period in 2021, due to lower availability of the nuclear fleet, because of the impact of the discovery of indications of stress corrosion despite fewer unplanned outages and the optimisation of the schedule.
Hydropower output in France amounted to 18.9TWh(1), a decrease of 5.7TWh compared to the first half of 2021, due to historically low hydropower conditions.
In the United Kingdom, nuclear output amounted to 23.2TWh, up 2.3TWh compared to H1 2021, due to the smooth implementation of the unit outages, a less busy maintenance programme and despite the closure of Hunterston B in January 2022.
In Belgium, the improved availability of thermal power plants led to an increase in the ancillary system.
EDF Renewables’ output amounted to 10.8TWh (+2.0TWh), up 22.7% in organic terms, thanks to the new facilities commissioned in 2021 and 2022.
The financial result corresponds to a financial expense of €2,947 million, down €3,808 million compared to the first half of 2021. This change is mainly explained by:
Restated for non-recurring items, the current financial result amounted to +€530 million compared to -€993 million in the first half of 2021 (the change in fair value of the dedicated asset portfolio is not included in the calculation of the current financial result).
Net income excluding non-recurring items stood at -€1,312 million for the first half of 2022, down €5,052 million from the first half of 2021. This change reflects mainly the sharp drop in EBITDA, which was only partially offset by the increase in the current financial result and by the drop in the corporate income tax.
Net income – Group share amounted to -€5,293 million for the first half of 2022, down €9,465 millions. In addition to the significant decrease in net income excluding non-recurring items, the change includes in particular the negative change in the fair value of financial instruments for -€3,819 million.
Cash flow and net financial debt
The Group’s cash flow amounted to -€3,981 million in the first half of 2022, a significant deterioration compared to the first half of 2021, when it amounted to -€240 million. This is mainly due to the significant decline in EBITDA. The working-capital requirement amounted to €6,804 million in the first half of 2022. This change is mainly explained by the decrease in margin calls, by the favourable unwinding of unrealised transactions related to the optimisation/trading activity and by a CSPE compensation surplus arising from very high wholesale prices on the electricity market. Cash flow from operations(2) amounted to -€2,851 million compared to €566 million in the first half of 2021, representing a drop of €3,417 million. Net investments stood at €8,474 million, an increase of €795 million from the first half of 2021.
Net financial debt amounted to €42.8 billion due to a favourable change in the working capital requirement of €6.8 billion and to the €3.1 billion capital increase.
Main Group results by segment
France – Generation and supply activities
EBITDA is down sharply due to the drop in nuclear output in France linked to the phenomenon of stress corrosion in a context of high market prices and to the negative impacts of the exceptional regulatory measures adopted in France by the government in order to limit the increase in sales prices to consumers in 2022.
In supply activities, the rising prices trend contributed positively to the evolution of EDF’s offers to its customers for an estimated €3,944 million in EBITDA, before regulatory measures
The additional allocation to alternative suppliers of 19.5TWh (6) of ARENH volumes (estimated at -€1.4 billion for the 6.5TWh delivered in Q2 2022) and its repercussions on customer offers starting in Q2 2022 (estimated at -€2 billion) have created negative price effects. The overall impact, including the 4% tax-inclusive cap on regulated electricity tariffs for 2022, is estimated at -€6,162 million at the end of June 2022. This amount includes a provision of -€2.7 billion arising from the additional ARENH volumes of 13TWh to be delivered to alternative suppliers in the second half of 2022.
Nuclear output decreased by 27.6TWh between H1 2021 and H1 2022. The decrease was mainly due to the impact of the stress corrosion phenomenon (-36.6TWh). On the other hand, the fleet had fewer unplanned outages and better planning optimisation (+9TWh). The outages forced purchases to be made at very high price levels. The impact on EBITDA was estimated at -€7,282 million at the end of June 2022.
In a context of historically poor hydropower conditions, the drop in hydropower output had an adverse effect on EBITDA estimated at €1,370 million.
Other factors contributed favourably to the change in EBITDA, notably positive effects relating to purchases and sales on the market totalling an estimated €1,044 million in the context of a milder than normal winter.
The decrease in EBITDA is explained in particular by a negative price effect for an estimated -€77 million linked to purchases of losses made in a context of a sharply increasing market prices (estimated at -€312 million) despite the positive change in TURPE indexation(8).
The downturn in volumes distributed due to milder weather had an estimated impact of -€98 million.
EBITDA growth was mainly due to the rise in generated volumes compared to the first half of 2021 (+22.7%) and the positive price effects, in particular in North America and in the United Kingdom. The first half of 2021 was marked by an extreme cold snap in Texas, with a material adverse impact on EBITDA estimated at -€94 million, with no equivalent in 2022.
The growth of the portfolio of wind and solar projects, as well as the setting up of operations in new countries (Vietnam, Australia, Colombia, etc.) brought an increase in development costs
Group Renewables excluding hydropower in France
The growth in EBITDA reflects the increase in the Group’s wind and solar output by 20.7% to 12.9TWh, mainly due to wind farms commissioned in the US and Brazil, as well as increased wind generation in Belgium, despite a decrease in hydro generation in Italy.
Net investments were up thanks in particular to the acquisition in 2022 of the development rights for offshore wind power in the New York Bight.
EBITDA was penalised by the capping of gas prices for cogeneration plants under the purchase obligations and their early cessation due to the shift in the winter tariff.
Dalkia makes major contribution to the “France Relance” plan. Arkema, Dalkia and PSI Environnement are carrying out a project designed to avoid the consumption of 18,000 metric tons of oil equivalent of gas and the emission of 10,000 metric tons of CO2 per year. The steam boiler project, built and operated by Dalkia, will be SRF-fired (11).
The decline in EBITDA reflects the decline in Dalkia’s cogeneration business despite growth in service sales in France, Belgium and Italy.
Investment growth was driven by Edison and Dalkia.
Framatome has experienced increased EBITDA within its scope. Contributory EBITDA, however, decreased in the first half of 2022 due to lower fuel assemblies sales, mainly in the United-States.
The “Installed Base” activity grew in the first half of 2022 in North America.
Order intake amounted to approximately €2.1 billion at the end of June 2022(15), higher than in the first half of 2021, thanks in particular to the fuel activities and the Installed Base activity in North America.
Framatome finalised the acquisition of the EFINOR group’s energy and defence activities. This operation allows Framatome to reinforce its expertise in welding and qualified welding standards, while strengthening its position in the manufacture of components and in high value-added services for customers(16).
The significant increase in EBITDA is explained by improved generation and optimisation of the nuclear fleet. The increase in nuclear output (+2.3TWh) enabled additional volumes to be sold on the market in a context of rising prices (realised nuclear prices up by +£14.9/MWh), whereas the level of output in 2021 had led to purchases at high prices.
Supply activities have been affected by the energy crisis in the United Kingdom, including a partial passing on the increase in energy prices to residential customers as part of the capped tariff increase announced on 1 April 2022. The professional and industrial customer segment benefited from portfolio growth and a favourable price effect.
EBITDA also benefited from lower operating expenses, mainly due to the shutdown of Dungeness B and Hunterston B plants and to the reform of the employee pension scheme.
EBITDA in Electricity activities was up in particular thanks to higher volumes generated by CCGT (combined cycle gas turbines) in connection with the increase in the clean spark spread and the remuneration of the capacity market. On the other hand, the contribution of renewable generation decreased, in particular due to very poor hydropower conditions.
Gas activities benefited from the increase in volumes sold, in particular on the wholesale markets. A capital gain on the disposal of Infrastrutture Distribuzione Gas (IDG) was recorded in 2021, with no equivalent in 2022.
Supply activities were affected by the increase in electricity and gas prices which have not been fully passed on to residential customers.
In Belgium (19), the increase in EBITDA is mainly due to increased generation from wind farms with more favourable wind conditions than in 2021 (+15.6% compared to H1 2021). Installed wind capacity amounted to 599MW(20), or +7.5% compared to June 2021.
Nuclear generation was down due in particular to the unplanned outage of the Chooz power plant (21) over much of the first half of 2022, leading to electricity purchases at high prices.
Given the tense market context, the positive evolution of EBITDA was also driven by the good performance of the thermal activities, which were more solicited.
Service activities are growing and supply activities held up well in a context marked by continuing intense competition and the extension of social tariffs
In Brazil, EBITDA was up organically mainly due to the 18% increase in the price of the Power Purchase Agreement (PPA) at the EDF Norte Fluminense plant in November 2021.
EDF Trading’s EBITDA was up sharply. This trading and optimisation performance was achieved across all geographies, on a backdrop of very volatile commodity markets.
The decline in EBITDA for the gas business was mainly due to higher-priced purchases of Liquefied Natural Gas at the beginning of 2022 compared to the first half of 2021. These purchases helped offset the de-stocking of the Dunkirk terminal at the end of 2021 in a context of high prices and tension on the commodities market leading to a high use of gas assets.
Main events (23) since the announcement of the first quarter 2022 results
Following the Prime Minister's announcements, and following exchanges with the French Financial Markets Authority, EDF SA has requested the suspension of the trading of its equity securities until further notice. (see press release of 13 July 2022).
The Board of Directors of EDF SA held a meeting on 19 July 2022 and took note of the intention of the French State to file, subject to the enactment of a 2022 Supplementary Budget Bill (currently being discussed in the lower house of Parliament) providing the financial resources necessary for the Offer, a simplified public tender offer for the shares of the Company and the bonds convertible into new shares and/or exchangeable for existing shares due 2024 issued by the Company (OCEANEs) that the French State does not hold (see press release of 19 July 2022).
(1) Other external expenses are reported net of capitalised production costs.
(1) Capital increases/reductions and acquisitions/disposals of minority interests in controlled companies. In 2022, this item includes an amount of €613 million relating to CGN’s payment for the capital increases by NNB Holding Ltd. (for the Hinkley Point C project) and Sizewell C Holding Co.. In 2021, this item included an amount of €597 million relating to CGN’s payment for the capital increases by NNB Holding Ltd. (for the Hinkley Point C project) and Sizewell C Holding Co. and an amount of €(276) million relating to the acquisition of 70% of E2i Energie Speciali.
(1) Since 2018, customers are counted according to delivery site; one customer can have two delivery points: one for electricity and one for gas. (2) Including ES (Électricité de Strasbourg).
This presentation is for information purposes only and does not constitute an offer or solicitation to sell or buy instruments, part of the company or the assets described here, in the US or any other country. This presentation contains forward-looking statements or information. While EDF believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions at the time they were made, these assumptions are fundamentally uncertain and imply a certain amount of risk and uncertainty which is beyond the control of EDF. As a result, EDF cannot guarantee that these assumptions will materialise. Future events and actual financial and other outcomes may differ materially from the assumptions used in these forward-looking statements, including, and not limited to, potential timing differences and the completion of transactions described therein. Risks and uncertainties (notably linked to the economic, financial, competition, regulatory and climate backdrop) may include changes in economic and business trends, regulations, as well as those described or identified in the publicly-available documents filed by EDF with the French financial markets authority (AMF), including those presented in Section 2.2 “Risks to which the Group is exposed” of the EDF Universal Registration Document (URD) filed with the AMF on 17 March 2022 (under number D.22-0110), which may be consulted on the AMF website at www.amf-france.org or on the EDF website at www.edf.fr (including the management report as of end-December 2021). The quarterly financial information is not subject to an auditor's report. 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.
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(1) Hydropower, excluding island activities before deduction of pumped volumes. Total cumulated hydropower excluding pumped volumes represented 15.5TWh at the first half of 2022 (21.9TWh in the first half of 2021). (2) Cash flow generated by operations is not an aggregate defined by IFRS as a measure of financial performance, and is not directly comparable with indicators of the same name reported by other companies. This indicator, also known as Funds from Operations (“FFO”), incorporates net cash flow from operating activities after adjustment where relevant for the impact of non-recurring effects, net investments (excluding 2020-2022 disposals and including HPC and Linky), as well as other items including dividends received from associates and joint ventures. (3) Net financial debt is not defined in the accounting standards and is not directly visible in the Group’s consolidated balance sheet. It comprises total loans and financial liabilities, less cash and cash equivalents and liquid assets. Liquid assets are financial assets consisting of funds or securities with initial maturity of over three months that are readily convertible into cash and are managed according to a liquidity-oriented policy. (4) The ratio at 30 June 2022 is calculated on the basis of the cumulative EBITDA of the second half of 2021 and the first half of 2022. (5) Breakdown of sales across the segments, before inter-segment eliminations. (6) Additional volumes have been reduced from 20TWh to 19.5TWh due to the cessation of activity or the waiver of some suppliers in the CRE's deliberation on 31 March 2022. (7) Regulated activities including Enedis, Électricité de Strasbourg and island activities. (8) Indexation of TURPE 6 Distribution tariff of +0.91% and of TURPE 6 Transport tariff of +1.09% at 1 August 2021. (9) Breakdown of sales across the segments, before inter-segment eliminations. (10) Breakdown of sales across the segments, before inter-segment eliminations. (11) SRF: Solid Recovered fuel (12) Group Energy Services is comprised of Dalkia, Dalkia Electronics, IZI confort, SOWEE, IZI Solutions, IZI Solutions Renov, Izivia, EDEV, EDF China Holding, EDF Pulse Holding and the service activities of EDF Energy, Edison, Luminus and EDF SA. They consist in particular of street lighting, heating networks, decentralised low-carbon generation based on local resources, energy consumption management and electric mobility. (13) Breakdown of sales across the segments, before inter-segment eliminations. (14) Breakdown of EBITDA across the segments, before inter-segment eliminations. (15) At Framatome scope. (16) See Framatome press release of 09 May 2022. (17) Breakdown of sales across the segments, before inter-segment eliminations. (18) Breakdown of sales across the segments, before inter-segment eliminations. (19) Luminus and EDF Belgium. (20) Net capacity at Luminus perimeter. Gross installed wind capacity amounted to 664MW (+1 % compared to end-2021). (21) Luminus benefits from 100MW of drawing rights at the Chooz power plant. (22) Breakdown of sales across the segments, before inter-segment eliminations. (23) A full list of press releases is available from the EDF website: www.edf.fr (24) A full list of press releases is available on the website: www.edf-renouvelables.com (25) A full list of press releases is available on the website: www.edfenergy.com (26) A full list of press releases is available on the website: www.dalkia.fr (27) A full list of press releases is available on the website: www.framatome.com
(1) Organic change at comparable scope, standard and exchange rates vs. 2021. (2) Net income excluding non-recurring items is not defined by IFRS and is not directly visible in the consolidated income statement. It corresponds to the net income excluding non-recurring items and the net change in fair value on energy and commodity derivatives, excluding trading activities and excluding net changes in fair value of debt and equity securities, net of tax. (3) See press releases of 19 July 2022 issued by the French State and EDF. (4) Before taking into account the share capital increase reserved for employees. (5) According to the provisions of Article L433-4 of the Monetary and Financial Code. (6) OCEANE: bonds convertible and/or exchangeable for new or existing shares. (7) See Information note 27 july 2022 : https://www.edf.fr/sites/groupe/files/2022-07/EDF_Mise%20a%20jour%20Note%20Info%20CSC_27juillet%202022.pdf (8) The increase in discount rates also led to a decrease in the present value of pensions liabilities in France of 8.9 billion euros between 31/12/2021 and 30/06/2022. (9) EDF SA perimeter. (10) Out of a total of € 12 billion at 30 June 2022. (11) According to Impact France Movement methodology, which allows for a 360° assessment and mapping of the impact of companies in order to improve their ESG approach. (12) The average score of the companies having published their impact score in Q1 2022 was 55/100. (13) EDF: the preferred company of students and young graduates in the energy sector (Epoka ranking); 4th in the rankings of the most attractive employers for experienced engineers (Universum ranking); Certified “Happy Trainees”: 1st energy company in its category and 2nd in the overall ranking. (14) Entry into force of the delegated act on 1 January 2023. (15) In line with the Green Bond Principles published by the International Capital Markets Association (ICMA), with the European Union’s Green Bond Standards proposed by the Technical Expert Group on Sustainable Finance (TEG). Independent third-party opinion performed by Cicero. (16) Compared to a start in June 2026 and a cost estimation of between £201522 and 23 billion, announced on 27 January 2021. See press release of 19 May 2022. (17) See EDF Renewables press release of 10 June 2022. (18) EDF estimate for the 4 priority countries in Europe, known as “G4” (France, Italy, United Kingdom, Belgium) for residential customers. (19) From end-June 2021 to end-June 2022. (20) SRF = Solid Recovered Fuel not recycled locally. (21) Important Project of Common European Interest. (22) Renault application. (23) On the basis of the scope and exchange rates at 1 January 2022. In a constant regulatory environment (ARENH ceiling at 100TWh), with a 2023 forward price assumption on 13 July 2022, and taking into account 2022 and 2023 French nuclear output estimates as given in the press release of 18 May 2022. (24) At constant S&P methodology.