Interim Financial Report

Transcription

1 Interim Financial Report For the period ended 30 June 2016

2 TABLE OF CONTENTS I INTERIM MANAGEMENT REPORT REVIEW OF THE GROUP'S BUSINESS IN THE FIRST HALF-YEAR HIGHLIGHTS OF THE FIRST HALF-YEAR MARKET CONDITIONS OTHER HIGHLIGHTS OF THE HALF-YEAR EVENTS AFTER THE 30 JUNE 2016 REPORTING DATE GROUP INCOME IN THE FIRST HALF-YEAR REVENUE FROM ORDINARY ACTIVITIES GROSS MARGIN CURRENT OPERATING INCOME OPERATING INCOME NET INCOME AND EARNINGS PER SHARE REVIEW OF THE COMPANY'S CASH POSITION, CAPITAL AND FINANCIAL DEBT SIMPLIFIED CONSOLIDATED BALANCE SHEET SHAREHOLDERS' EQUITY AND NET DEBT GROUP CASH FLOW OUTLOOK FOR RISK FACTORS AND RELATED-PARTY TRANSACTIONS RISK FACTORS RELATED-PARTY TRANSACTIONS II. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR III. AUDITORS' REPORT ON THE INTERIM FINANCIAL INFORMATION IV. STATEMENT OF THE PERSON RESPONSIBLE Direct Energie - Interim Financial Report Page 2

3 I INTERIM MANAGEMENT REPORT 1. REVIEW OF THE GROUP'S BUSINESS IN THE FIRST HALF-YEAR HIGHLIGHTS OF THE FIRST HALF-YEAR MARKET CONDITIONS Gas and electricity prices continued to decrease, this drop starting in 2014 and accelerating sharply in late 2015, before recovering at the end of the half-year. Forward electricity prices in France are thus fixed at nearly 33/MWh at the end of the half-year, after dropping to lows of around 25/MWh in February and March 2016, well below the price of Arenh (Regulated Access to Incumbent Nuclear Electricity), set at 42/MWh by the authorities. 41 Change in French Baseload Electricity Prices in / Mwh - July June juin-15 juillet-15 août-15 septembre-15 octobre-15 novembre-15 décembre-15 janvier-16 février-16 mars-16 avril-16 mai-16 juin-16 Cal 15 Cal 16 Cal 17 Cal 18 CAL 19 Source: EEX For their part, forward gas prices on the French market (GEP) are in turn set at levels slightly above 16/MWh at the end of the half-year, a level close to that observed at the end of 2015, after dropping under 14/MWh in the first quarter of Change in PEG North gas prices in / Mwh July June juin-15 juillet-15 août-15 septembre-15 octobre-15 novembre-15 décembre-15 janvier-16 février-16 mars-16 avril-16 mai-16 juin-16 Cal 15 Cal 16 Cal 17 Source: Powernext - Peg Nord Prices (GEP North Price)

4 This drop in prices observed in the first quarter, followed by a rebound in the second quarter, was particularly correlated with changes in oil prices, which have experienced a broadly similar trend, and linked to the existence of excess production capacities at the European level for electricity, and on a global level for gas. Concerning electricity, the French government announced that it was planning to implement a price floor in the form of a carbon tax, likely to affect thermal power generation capacities. While the scope of this price floor is still under discussion, the proposal contributed to the significant rebound in electricity prices observed during the second half of The Group has been able to leverage this high price volatility and improve its supply terms according to its market risk management policy OTHER HIGHLIGHTS OF THE HALF-YEAR Continued sales spurred on by growth in France and Belgium The Group maintained strong growth in its customer portfolio in the first half-year. At 30 June 2016 the customer portfolio in France stood at nearly 1,433,000 customer sites in electricity and 393,000 customers sites in gas, representing increases of nearly 15% and 14% compared to customer portfolio figures at 31 December 2015, and an average increase of nearly 15%. This growth drive, after 2015 being marked by very high levels of acquisition, is propelled by a competitive and innovative portfolio of product offerings in electricity and gas, the roll-out of several national advertising campaigns, and the sponsorship contract with the SA Vendée Cycling, Jean-René Bernaudeau's cycling team. This sponsorship became effective on 1 January 2016 and since this date the cycling team has competed as the "Direct Energie Team". Moreover, the cancellation of the regulated sales tariffs (TRVs) offered to business customers with a contracted power in excess of 36 kva in electricity (yellow and green tariffs) and natural gas consumption of at least 30 MWh/year at 31 December 2015, enabled the Group to significantly strengthen its customer portfolio in the business and local community segments through targeted and customised product offerings and a strong sales momentum. At 30 June 2016, the Group therefore supplied more than 344,000 professional, business and community sites compared to 254,000 at 31 December This sales momentum was also sustained in Belgium, where the Group recorded more than 48,000 customer sites at 30 June 2016 compared to more than 25,000 at 31 December Extension of the ERDF services contract During the second quarter of 2016, the Group and ErDF (now ENEDIS) signed a one-year extension of the services contract which had ended on 30 September This extension, retroactively commencing on 1 October 2015, led to recognising 21.7 million in income in the first half-year Decision of the Conseil d Etat (France's highest administrative court) on Regulated Tariffs for Electricity Sales In June 2016 the Conseil d Etat put an end to two tariffs decrees. The decree of 28 July 2014 was cancelled on the grounds that the principle of legal certainty was not met in respect of blue tariffs for the period between 1 August 2014 and 31 October As concerns the decree of 30 October 2014, it was cancelled on the grounds 4

5 that it did not take into account retroactive tariff adjustments that were necessary in the case of residential blue and green tariffs for the period from 1 November 2014 to 31 July The Conseil d'etat gave ministers a threemonth deadline to implement these amending decisions. The Group will be impacted by such cancellations and corresponding amending decisions, which will trigger a positive tariff adjustment, once these amending decisions have been published by the competent ministers. Rider to the transmission contract with GRDF By a decision of 2 June 2016, the Paris Court of Appeal upheld the decision handed down by the CoRDiS on 19 September This decision established the principle that the natural gas supplier was not responsible for the unpaid share of past or future distribution costs of the distribution network operator (GRDF). In pursuance of this decision of the CoRDiS (Comité de règlement des différends et des sanctions), a contractual agreement was formalised between the Parties during the second quarter of 2016 under which, in late May 2016, GRDF repaid Direct Energie the unpaid share of distribution costs incurred prior to 31 December 2015, amounting to nearly 10 million. The Court of Appeal also held that the supplier was to be paid for the services performed on behalf of GRDF through which the end customer obtained access to the distribution networks. In pursuance of this decision, GRDF must first offer Direct Energie, within a period of two months, an amendment to the Distribution Network Access Agreement offering compensation that is "proportionate and equitable to the costs avoided" by GRDF, and also to pay Direct Energie remuneration at a price fixed by the Parties for past periods (since the date of signing of the distribution agreement in 2005). No agreement was reached between the Parties at the end of the two-month period and as such, the Group has not yet recognised any related income in its accounts. Provision for loss-making contracts on gas interconnection capacities As part of its gas supply strategy, the Group concluded in 2009 several contracts with French (GRTgaz), Belgian (Fluxys) and Dutch (GTS) gas transmission system operators for the reservation, from 2011, of gas import capacities through Belgium, for periods extending through The purpose of these contracts was to ensure security in the gas supply as part of the Group's activities over the long-term, according to the principles governing the procurement of a licence to supply natural gas in France. Beginning in 2013, the market environment brought to light the current system's inability to ensure security of supply, resulting, in particular, in inadequate storage capacity subscriptions. The government therefore initiated consultations to clarify the obligations incumbent on suppliers in the field, as well as the available instruments and resources. The specific aim of these consultations was to reform the storage subscription obligations. During these consultations, the Group maintained its consistent position, whereby, when defining supplier obligations in terms of security of supply, due consideration should be given to all available modulation tools, including those related to gas import capacities in France. However, pending the finalisation of this reform and without jumping to conclusions on the final outcome, the authorities have asked the Group to subscribe for annual storage capacities independently of its own gas interconnection capacities. Based on these consultations, the public authorities drafted the reform, which was reviewed by the Conseil d Etat in the second quarter of The draft reform does not reflect the Group's proposals to explicitly consider the Gas Import capacities of each supplier among the available instruments or resources in terms of supply security. Furthermore, in April 2016 the Conseil d Etat, called to rule in the dispute initiated in 2014 by Eni and Uprigaz, upheld that the authorities were entitled to impose an obligation on gas suppliers to subscribe storage capacities in order to ensure supply security, without considering the interconnection capacities specific to each supplier 5

6 as an instrument allowing the latter to avoid the same. The Court of Justice of the European Union has been called solely to resolve the issue concerning the geographical location of the storages included in meeting this obligation. In these circumstances and irrespective of implementation period of the draft reform, the contracts can no longer be considered as participating directly in the obligations inherent to the Group's gas operations with respect to security of supply, without there being any expectation of a favourable development in the regulations in the short-term. Accordingly, at the reporting date these contracts on access to gas interconnections were treated as onerous contracts under IAS 37, since: - it is clearly no longer possible to regard these as capable of meeting the Group's obligations in terms of security of supply; and - the costs associated with these contracts over their remaining life, with no prospect of early termination, are much higher than their market value. A provision for onerous contracts in the amount of 33.0 million has been recognised in the financial statements. Strengthening of the Group's financial structure During the first quarter of 2016, deposits paid in cash with the Group's counterparties to hedge changes in the fair value of forward energy sales and purchases until such time as their physical delivery takes place, experienced strong growth, directly related to the decline in wholesale electricity prices observed over the period. The Group has secured new funding to offset this increase: - shareholder loans for a total amount of 55 million on the closing date of the accounts; - a short-term credit line with the Group s regulated energy market clearing house, for a total amount of 60 million; - a 60 million increase in its bank revolving credit facility rising the usable amount to 120 million. With a rebound in market prices in the second quarter, the Group had at 30 June 2016 nearly 177 million in short-term financing sources in addition to available cash. Direct Energie's shareholding structure The Company was informed of the sale by Ecofin Ltd. of its entire shareholding in the Company's capital, totalling 1,684,656 shares representing 4.11% of Direct Energie's share capital, as a part of an accelerated bookbuilding, executed on 15 June 2016 by Société Générale Corporate & Investment Banking and Gilbert Dupont. As part of this investment transaction, Impala SAS, AMS Industries and Luxempart SA respectively acquired 60,000, 90,000 and 100,000 Company shares; the balance (1,434,656 Company shares) was reclassified on the market. Direct Energie has been informed that this investment has not raised any question as to the balances that existed in the original understanding. 6

7 The Company's share capital and voting rights were as follows at 30 June 2016: Cap Table Direct Energie - 30 June 2016 Shareholders Number of shares held % share capital Number of voting rights** % voting rights IMPALA SAS AMS INDUSTRIES LOV GROUP INVEST EBM TRIRHENA AG CONTROLLING SHAREHOLDER GROUP LUXEMPART Management and others Free float* 14,427, % 26,739, % 6,105, % 6,405, % 4,474, % 4,474, % 4,167, % 4,167, % 29,175, % 41,787, % 4,191, % 4,191, % 2,408, % 4,103, % 5,444, % 5,948, % TOTAL 41,220, % 56,031, % * Calculated using the definition of the Euronext indexes (i.e. excluding: interests over 5% except mutual funds and retirement funds and interests held by executives, managers, employees, shareholders bound by an agreement, the treasury shares). ** Number of theoretical voting rights determined according to the status of the shareholders in the CACEIS books as approved at 30 June EVENTS AFTER THE 30 JUNE 2016 REPORTING DATE Decision of the Conseil d Etat on the Engie/CRE dispute On 13 July 2016 the Conseil d Etat issued a decision following Engie s request to overturn, on the grounds of excess power, the ruling handed down on 26 July 2012 by the French Energy Regulatory Commission (Commission de Régulation de l Energie) concerning communication of the services agreement concluded between Direct Energie and ERDF (now ENEDIS) on the management of customers under a single contract, and the decision of 10 December 2014 rejecting the informal appeal filed by Engie against this decision. While finding that the appeal filed by Engie was submitted too late for examination, the Conseil d'etat recognised that the decision of 26 July 2012 was unlawful on the grounds that it provided that the agreement between Direct Energie and ERDF was concluded for a transitory period and provided a remuneration that was limited to suppliers with less than 1,750,000 customers which subscribed a single contract for electricity or gas. The Conseil d'etat thus ultimately upheld the argument that these two limits of the contract between ERDF and Direct Energie were contrary to the principle requiring that the suppliers should not have to bear the costs generated by the services that they provide on behalf of the DSO s (distribution system operators). This decision expressly confirms the principle that the distribution system operator pays a supplier consideration for management costs for customers that have a single contract. Planned Acquisition of a combined cycle gas turbine power plant in Belgium The Group announced the signing, on 28 September 2016, of a sale and purchase agreement with the Italian group Enel to acquire 100% of the share capital in its subsidiary, Marcinelle Energie. The latter, dedicated to 7

8 electricity production, owns and operates a combined cycle gas turbine power plant located in Charleroi, Belgium with around forty employees. Handed over in 2012 and equipped with Siemens-Ansaldo technology, very similar to that held by the Group in Bayet (Allier), this plant has an installed capacity of about 400 MW. The transaction amount, paid entirely in cash, is 36.5 million, and remains subject to the usual price adjustments. It includes an earn out depending on the change in the electrical market structure in Belgium. The transaction remains subject to the lifting of suspensory conditions (in particular, the authorisation from the competent Belgian authorities), and should be completed at the earliest by the end of After acquiring the power plant in Bayet at the end of 2015, this new transaction will bring the Group's installed capacity to nearly 800 MW. Agreed on competitive terms, this transaction also confirms the implementation of the planned vertical integration strategy with a stronger presence by the Group upstream and downstream, thus ensuring better supply coverage of its customer portfolio. 2. GROUP INCOME IN THE FIRST HALF-YEAR 2016 m H H Change in % Revenue from ordinary activities 863,6 505,7 70,8% Gross margin 107,1 78,4 36,6% Current operating income 43,8 22,7 93,0% Operating income 26,9 26,1 3,0% Financial income/(loss) (5,4) (1,5) 258,0% Net income from continuing operations 52,4 24,4 114,6% Net income 52,4 23,2 126,0% The first half-year 2016 saw an increase of 70.8% in revenue from ordinary activities, including the Energy Management Margin, compared to the first half-year Revenue reached million mainly because of a spike in electricity volumes sold. Current operating income has also increased by 93% over the period to stand at 43.8 million in the first halfyear This growth mainly reflects (i) the increase of the customer portfolio in France, particularly among major accounts customers, contributing to sustained volume growth, (ii) optimized sourcing costs in a context of very volatile market prices, (iii) the one-year extension of the service contract with Enedis, (iv) the reimbursement by GrDF of unpaid gas distribution costs following the implementation of the decision handed down by the CoRDis, and (iv) efforts implemented by the Group to control its structural costs. All these items more than offset the effect of the Group's recognition of a provision for onerous contracts for long-term reserved transit capacity among the Netherlands, Belgium and France. These items' impacts on accounting figures are set forth in section Other highlights of the half-year. Net profit was 52.4 million, or an increase of 126%. This growth, higher than the growth in current operating income, was due primarily to the impact of deferred tax income of almost 34.5 million, linked in particular with the recognition of deferred tax loss carryforwards applied by the Group given the incomes forecast for the years 2016 to

9 2.1. REVENUE FROM ORDINARY ACTIVITIES The Group's revenue, including the Energy Management Margin, totalled million in the first half-year, up million compared to the first half-year This represents an increase of 70.8%. Each of the Group's business areas contributed to this growth, and particularly the Commercial trade segment. This growth was propelled by the spike in electricity and gas sales in France with business and local authorities customers, a direct result of the cancellation of the electricity and gas regulated sales tariffs for these customers on 31 December m H H Change in value Change in % Commercial Trade 858,4 505,4 352,9 69,8% Of which France 842,9 504,0 338,9 67,2% Of which Belgium 15,5 1,5 14,1 957,0% Production 5,2 0,2 5,0 n.a. Revenue from ordinary activities 863,6 505,7 357,9 70,8% Commercial trade Segment The commercial trade segment's contribution to revenue for the half-year totalled million, up from million compared to the first half-year 2015, or an increase of 69.8%. This growth is overwhelmingly attributable to the sale of electricity and gas in France, whose revenue over the period totalled million, up 67.2% compared to the first half-year The Group's sales drive has allowed it to further expand is customer portfolio via back to back acquisitions. At 30 June 2016, the customer portfolio stood at around million customer sites in electricity and 393,000 customer sites in gas, or increases of 32% for these two energies compared to 30 June Regarding the electricity customer portfolio, the Group has taken advantage of the end of "yellow" and "green" regulated tariffs since 31 December 2015, which has resulted in a significant entry of "Major Account" customers (multi-site industrial and commercial customers and public authorities) in the beginning of the half-year. The average customer portfolio over the first half-year 2016 is thus an increase of almost 29% compared to the first half-year This growth in the customer portfolio has contributed to the significant increase in volumes of electricity and gas sold: they settled respectively at 7.1 TWh, an increase of nearly 93% compared to the first half-year 2015, and 2.9 TWh, up 30% over the same period. While temperatures were relatively close to seasonal averages, but slightly higher than those observed during the first half-year 2015, volume growth delivered outstripped that of the customer portfolio for electricity. This is primarily due to the spike in "Major Account" clients, especially yellow and green clients, whose unit consumption is much higher than those of residential customers. In addition to the very significant increase in volumes sold, revenue from the electricity supply business has also benefited from the impact of the increase in regulated sales tariffs applied from 1 August 2015 on the only segment of residential blue customers (revaluation of 2.5%). Conversely, the decrease in average gas regulated sales tariffs of nearly 12.7% between the first-half year 2015 and the first-half year 2016 hindered the growth in gas supply revenue. In the first half-year 2016, revenue from the electricity and gas supply in Belgium was 15.5 million, up 14.1 million. This significant increase is explained by the fact that the launch of the electricity and gas marketing offers by Direct Energie Belgium on the entire Belgian territory did not occur until the second quarter of Being able to span the entire Belgian market from this date has therefore boosted the customer portfolio, which stood at more than 48,000 customer sites at the end of June 2016 compared to more than 7,000 at 30 June Volumes sold increased correspondingly with 50 GWh sold in electricity and 190 GWh in gas in the first half-year. 9

10 Production Segment Revenue for the Production segment increased robustly, reaching 5.2 million over the period on the back of the acquisition on 30 December 2015 of the company 3CB SAS. 3CB SAS operates a Combined Cycle Gas turbine plant (CCGT) with an installed capacity of 408 MW and its net contribution margin is recorded under Energy Management margin. As in 2015, other production asset projects under development have not had a material impact on the revenue of the first half-year GROSS MARGIN The Group's gross margin for the first half-year 2016 amounted to million, showing a strong increase of 28.7 million (+36.6%). As for revenue, growth was mainly driven by the Commercial trade segment in France. m H H Change in value Change in % Commercial Trade 103,2 78,2 25,1 32,1% Of which France 101,2 78,2 22,9 29,3% Of which Belgium 2,1 (0,1) 2,2 n.a. Production 3,8 0,2 3,6 n.a. Gross margin 107,1 78,4 28,7 36,6% Commercial trade Segment The commercial trade segment's contribution to the gross margin was million for the first half-year 2016, up 25.1 million compared to the first half-year This growth is overwhelmingly attributable to the electricity and gas supply business in France, whose contribution to the gross margin increased 29.3% to stand at million over the period. This contribution was a result of the combined effects of growth in the customer portfolio and sales volumes, particularly in major accounts, in a climatic context that is close to seasonal norms. Added to this are the combined effects for the electricity supply business: - the 2.5% increase in the blue residential customer's regulated sales tariffs at 1 August 2015; - the one-year extension, in the second half of 2016, of the service contract with ErDF, retroactive to 1 October 2015, which resulted in an additional contribution of 8.5 million to the gross margin compared to the first half-year 2015; - the decline in wholesale market prices in 2015 and the first quarter of 2016, which the Group leveraged to optimise its supply terms. Purchases of electricity therefore increased at a slower rate than sales volumes (+ 83% compared to + 93%): they amounted to million in the first half-year 2016 compared to million in the first half-year Concerning the gas supply business, it benefited from the growth in the customer portfolio and sales volumes in a context of lower market prices. However, its contribution to the gross margin was negatively impacted by the recognition of a provision for onerous contracts amounting to 33.0 million on the gas interconnection capacity reserved by the Group between Belgium, the Netherlands and France considering the current regulatory environment and a bleak outlook for favourable developments in the short-term (see Section 1.1. Highlights of the first half-year 2016). 10

11 The electricity and gas trading business in Belgium generated a gross margin of 2.1 million (compared to a loss of 0.1 million during the first half-year 2015). The very significant increase in the customer portfolio has enabled the Group to optimise its electricity and gas sourcing strategy, taking particular advantage of the effect of lower market prices, thus ensuring profitable business growth. Production Segment The gross margin of the Production segment amounted to 3.8 million in the first half-year 2016, an increase of 3.6 million compared to the first half-year This increase was a result of the acquisition of the company 3CB at year-end 2015 and the electricity production made during the first half-year in a context of favourable seasonal market for gas thermal assets CURRENT OPERATING IN COME The Group's current operating income amounted to 43.8 million for the first half-year 2016, up 93.0% from the first half-year This growth was driven by the commercial trade segment, including electricity and gas sales in France. m H H Change in value Change in % Commercial Trade 47,7 23,0 24,7 107,4% Of which France 50,4 25,1 25,3 100,7% Of which Belgium (2,7) (2,1) (0,6) 26,7% Production (3,9) (0,3) (3,6) 1275,8% Current operating income 43,8 22,7 21,1 93,0% Commercial trade Segment The commercial trade segment's contribution to current operating income was 47.7 million, up 24.7 million compared to the first half-year This mainly reflects the sustained sales drive observed in the different segments in which the Group operates, particularly in France, and the increase in major accounts since the regulated sales tariffs on the yellow and green electricity segments were cancelled on 31 December This growth was achieved while optimising procurement costs. Current operating income for the commercial trade segment in France thus amounts to 50.4 million, up 25.3 million compared to the first half-year Personnel expenses increased by 2.4 million. Excluding the impact associated with the stock option plans, payroll expenses totalled 15.2 million compared to 12.9 million for the first half-year This increase, excluding the impact of stock option plans, is directly linked to (i) expanding the sales teams in 2015 to effectively respond to the scheduled end (31 December 2015) of the regulated sales tariffs for some corporate customers and (ii) building out customer service to maintain a consistent quality of service in line with the Group's thriving customer portfolio. Other operating income and expenses decreased by 6.9 million. After signing in the second quarter of 2016 an amendment to its distribution contract with GRDF including the implementation of the principle, established by the decision of the CoRDiS of 19 September 2014, that the natural gas supplier should not assume outstanding delivery costs incurred by the distribution network operator (GRDF), both for the future than the past, GRDF reimbursed the Group almost 10 million for its unpaid distribution costs prior to 31 December Excluding this non-recurring effect, other operating income and expenses totalled 31.8 million at 30 June 2016 compared to 28.9 million at 30 June 2015, an increase of 2.9 million. This is explained in large part by: 11

12 - an increase in marketing expenses 4.8 million, a direct effect of the expansion of the Digital Group's presence and launching the sponsorship of the SA Vendée Cycling team, now called Team Direct Energie, on 1 January 2016; - an increase of 3.4 million in external service provider expenses related both to the increased number of acquisitions but also to the growth in customer portfolio assets over the period; - impact of bad debt net of changes in provisions of 4.7 million over the period compared to 10.0 million for the same period in This change is mainly explained by the Group's continued efforts in managing its customer portfolio and its billing and collection terms; - the increase in certain taxes of some 1.1 million related in particular to the marked improvement in the Group's profitability. The negative impact of depreciation on current operating income increased 2.1 million compared to the first half-year 2015, in line with the continued acceleration of the sales momentum, which automatically translates into higher customer and investment acquisition costs particularly in the Group's information systems. Current operating income for the commercial trade segment in Belgium amounted to a loss of 2.7 million in the first half-year 2016 compared to a loss of 2.1 million at the end of the first half-year This development is directly related to the pursuit of securing a market share across the entire Belgian territory, requiring, despite a significant pooling of support functions, direct investments, particularly in the marketing and sales areas, in order to reach the size required for this activity. Production Segment The current operating income for the production activity amounted to a loss of 3.9 million for the first half-year 2016 compared to a loss of 0.3 million in the first half-year In addition to the recurring expenses related to various development projects carried out by the Group, the current operating income is directly impacted by 3CB, which has operated the Bayet plant in the market since early 2016, whose contribution at 30 June was impacted by: - the seasonality of maintenance and upkeep expenses that took place mainly in the second quarter, a less favourable period for production for gas thermal assets; - the impact of recognising, on 1 January 2016, the entire annual expense associated with certain taxes, in particular the IFER (flat-rate tax on installed capacity) in accordance with the principles established by IFRIC (International Financial Reporting Interpretations Committee) standard

13 2.4. OPERATING INCOME m H H Change in value Change in % Current operating income 43,8 22,7 21,1 93,0% Change in fair value of financial derivatives operational in nature (16,8) 7,3 (24,1) -329,2% Disposals of non-current assets (0,0) (3,4) 3,3-99,7% Impairment of non-current assets (0,1) (0,5) 0,4-79,7% Income and expenses related to changes in scope of consolidation n.a. Operating income 26,9 26,1 0,8 3,0% The change in fair value of Energy derivative financial instruments operational in nature represented, in the first half-year 2016, an expense of 16.8 million compared to a profit of 7.3 million during the first half-year This change, which had no impact on cash, is directly related to the marked decrease in the fair value of Gas derivative financial instruments, especially associated with the unwinding of gas-oil hedging swaps during the period, whose fair value was strongly positive at 31 December During the first half-year 2015, this change had increased to 7.3 million and is explained primarily by the change in energy prices, particularly by the slight increase in gas and oil prices observed over the period compared to those at 31 December In the first half-year 2015, disposals of non-current assets corresponded mainly to the write-off of 3.1 million of the assets for a combined cycle gas development project of the Group that had become obsolete, given the delays that arose in the project. Impairment of non-current assets of 0.5 million exclusively related to equity investments in unconsolidated companies, recognised as available-for-sale assets, for which indications of losses of value materialised. Given these factors, operating income at 30 June 2016 amounted to 26.9 million compared to operating income of 26.1 million in the first half-year NET INCOME AND EARNINGS PER SHARE m H H Change in value Change in % Operating income 26,9 26,1 0,8 3,0% Cost of net debt (5,2) (1,5) (3,7) 248,3% Other financial income and expenses (0,1) 0,0 (0,1) n.a. Financial income/(loss) (5,4) (1,5) (3,9) 258,0% Corporate income tax 30,5 (0,2) 30,7 n.a. Share of net income from companies accounted for by the equity method 0,3 (0,0) 0,3 n.a. Net income from continuing operations 52,4 24,4 28,0 114,6% Net income from discontinued operations - (1,2) 1,2 n.a. Net income 52,4 23,2 29,2 126,0% of which Net income, Group share 52,4 23,2 29,2 126% of which Net income, minority interests n.a. Financial result deteriorated, moving from an expense of 1.5 million in the first half-year 2015 to an expense of 5.4 million for the same period in This is explained mainly by the completion of a second private placement of bonds in November 2015 for a total amount of 60 million, with a coupon of 4.40% for the first tranche ( 15 million) and 4.8% for the second ( 45 million). In a context of significantly increasing margin call volumes over the period, the Group also secured a credit line with ABN, its market transaction clearing house, in 13

14 the amount of 60 million and raised 55 million in shareholder loans. These two transactions substantially increased the interest expense recognised. The impact of current taxes for the period amounted to an expense of 4.0 million, directly linked with the improvement in pre-tax income of the tax consolidation group, for which Direct Energie is the parent company, and given the use of tax loss carryforwards. The impact of deferred taxes in the first half-year 2016 is 34.5 million in income due, on the one hand, to the additional use of tax loss carryforwards associated with the Group's expected future earnings over the period extending from the second half-year 2016 until 2018 for an amount of 14.0 million, and on the other hand, the net change in deferred taxes on temporary differences recognised during the period for an amount of 20.5 million. At 30 June 2016, the share of net income from companies accounted for under the equity method was 0.3 million. Net income from discontinued operations of (1.2) million in the first half-year 2015 corresponded mainly to the adjustment to fair value of the interest held by the Group in the Direct Energie Distribution Company which itself owned interests in the companies EBM Distribution Network and Gascogne Energie Service. This company had been classified as discontinued operations according to the criteria of IFRS 5, given the progress of the sale process initiated by the Group, and scheduled to be finalized in the fourth quarter of Consolidated net income for the first half-year 2016 is a profit of 52.4 million compared to a profit of 23.2 million for the first half-year In euros H H Earnings per share 1,28 0,57 Diluted earnings per share 1,21 0,55 Under the effects of the strong growth in the Group's income and slow growth in the average number of shares outstanding and the average number of outstanding diluted shares, earnings per share and diluted earnings per share at 30 June 2016 amounted to 1.28 per share and 1.21 respectively, both up more than 120% compared to 30 June REVIEW OF THE COMPANY' S CASH POSITION, CAP ITAL AND FINANCIAL D EBT 3.1. SIMPLIFIED CONSOLIDATED BALANCE SHEET m 30-June Dec-2015 Change in % Non-current assets 174,7 145,5 20% Current assets 663,8 468,1 42% Total Assets 838,5 613,6 37% Shareholders' equity 41,4 (29,4) -241% Non-current liabilities 222,5 224,5-1% Current liabilities 574,7 418,4 37% Total Liabilities and shareholder's equity 838,5 613,6 37% 3.2. SHAREHOLDERS' EQUITY AND NET DEBT At 30 June 2016, the Group's equity amounted to 41.4 million, an increase of 70.7 million compared to 31 December This is mainly as a result of the profits of 52.4 million for the first half-year and the positive change in fair value of derivative hedging instruments, associated with the load profile of the Group's customers, 14

15 amounting to 22.5 million, recorded directly in other comprehensive income in accordance with IFRS, and mainly due to supplies of electricity volumes associated with these hedging instrument in the period. Net debt is the difference between financial debt excluding the impact of margin calls and cash assets. At 30 June 2016 net debt amounted to 53.8 million compared to million at year-end This sharp reduction in net debt is due both to the decrease in cash deposits made with the Group's counterparties as part of purchase and energy sales transactions, recorded as financial assets in the Group's accounts, a decline that was consecutive, in particular, to changes in the market prices of commodities during the first half-year 2016 and to the Group's optimisation of its supply terms, as well as the increase in net cash flow generated by the Group, taking into account the financing required to acquire new customers triggered by the strong growth in the business observed in the half-year GROUP CASH FLOW During the first half-year 2015 and 2016, changes in the Group's cash position was as follows: m H H Income before taxes and financial expenses 27,3 24,9 Non-cash items 63,5 11,1 Change in working capital requirement (4,2) (50,9) Net cash flow from operating activities 86,5 (15,0) Property plant and equipment (16,5) (12,2) Fixed financial assets 39,0 (4,2) Changes in consolidation scope - - Net cash flows used in investment activities 22,5 (16,4) Change in borrowings 56,6 24,6 Net financial expenses (2,3) (0,8) Treasury shares 0,0 0,0 Other flows (5,1) (6,1) Net cash flows used in financing activities 49,3 17,7 Net change in cash and cash equivalents 158,3 (13,7) Cash and cash equivalents at beginning of year 32,0 31,3 Cash and cash equivalents at end of year 190,2 17,6 Cash flow from operating activities Between the first half-year 2015 and the first half-year 2016, cash flow from operating activities grew by some million to stand at 86.5 million at 30 June This is due to the combination of an increase in income before taxes and financial expenses, relatively stable working capital requirements, the change in the latter amounting to an expense of 4.2 million in the first halfyear 2016 compared to a negative impact of 50.9 million in the first half-year 2015, and the positive impact of non-cash items amounting to 63.5 million in the first half-year 2016 compared to 11.1 million in the first halfyear Non-cash items in 2016 mainly included the charge to a provision for a loss-making contracts of 33.0 million relating to the transport capacity reserved by the Group between Belgium, the Netherlands and France and the 15

16 impact of the negative change in fair value of financial instruments totalling 16.8 million. This is attributable to the sharp decrease in fair value of Gas derivatives financial instruments related, in particular, to the unwinding of the period of gas-oil hedging swaps, whose fair value was strongly positive at 31 December Adjusted for non-cash items, income before taxes and financial expenses at 30 June 2016 increased by 54.8 million compared to the same income adjusted for non-cash items at 30 June 2015, reflecting an upswing in the Group's activity, particularly in electricity and gas sales in France for individual customers and in particular "Major Account" customers (industrial and multi-site customers and public authorities) with the end of the "yellow" and "green" regulated sales tariffs effective from 31 December The seasonal nature of the Group's business tends to increase the need for working capital in the first half-year. Individual customers are predominantly annualised. The Group collects payments on a straight-line basis until maturity of the balance invoice in line with their payment plan, while energy purchases (gas, oil and electricity) are mostly settled within the month following delivery. However, since 1 January 2016, this rate differential between the linear method for collecting customer receivables and the payment of energy purchases was partially offset by a regulatory change. The domestic tax on the end consumption of electricity (TICFE), paid by the Group on a quarterly basis on the 25th of the month following the end of each quarter, has replaced the Contribution to the Public Electricity Service (Contribution au Service Public de l Electricité (CSPE)) which, prior to that date, was paid on a monthly basis. These two opposing impacts, added to the Group's efforts to optimize the recovery of its customer receivables, explain the relative stability of working capital requirements for the first half-year Cash flows from investing activities Cash flow from investing activities amounted to 22.5 million in the first half-year 2016 compared to a negative impact of 16.4 million in the first half-year This positive impact on the Group's cash position is mainly due to changes in commodity market prices during the first half-year 2016 which, combined with energy deliveries and forward purchases made during the period, allowed the Group to recover 35.6 million in deposits and guarantees, paid at year-end 2015 to the ABN clearing house and other counterparties with whom the Group makes energy purchase and sales transactions to supply its customer portfolio. Conversely, investments have had an impact on the Group's cash position and increased to 16.5 million over the half-year compared to 12.2 million over the same period in This increase in investments is primarily related to increasing customer acquisition costs, reflecting the momentum and accelerated growth of the business. Cash flows from financing activities Cash flows from financing activities reflect the continued strengthening of the Group's financial flexibility with the aim, in particular, of improving its ability to absorb significant variations in gas and electricity market prices as observed in late 2015 and early 2016, while pursuing its ongoing strategy for commercial success. The positive impact of financing activities in the first half-year 2016 was primarily related to changes in borrowing due to: - the creation of shareholder loans in the amount of 55 million; - the negotiation of a short-term credit line with ABN, the Group s regulated energy market clearing house, for a total amount of 60 million; - repayment of the RCF used at the end of 2015 totalling 60 million. Other financing flows for the period corresponded to the payment of net financial interest of 2.3 million, an increase of 1.5 million compared to the first half-year 2015, following, in particular, the issue of new bonds during the second half of 2015, the arrangement of shareholders loans in early 2016, the payment of a

17 million dividend, up 2.1 million compared to the amount paid in 2015, and the receipt of 3.2 million resulting from exercise of the share subscription options. 4. OUTLOOK FOR 2016 The Company highlights the objectives that it has set for 2016, which are detailed in its 2015 registration document filed on 28 April 2016 with the Financial Market Authority (Autorité des Marchés Financiers (AMF)) under the number R and available on the Company's website (the "2015 Registration Document"): I. revenue growth of more than 35%, at temperatures consistent with seasonal averages; II. growth of more than 20% of its customer portfolio in terms of number of sites; and III. growth in current operating income of more than 30%, at temperatures consistent with seasonal averages. Given the commercial success observed during the period, combined with the agreement finalised with ERDF on the one-year extension of the service contract, the assumption by GrDF of unpaid distribution costs, the expected impact of the two retroactive tariff orders made pursuant to the decision of the Conseil d Etat in June 2016 and, despite recording in the interim accounts a provision for onerous contracts for long-term transit capacity among the Netherlands, the Belgium and France, the Company revises its annual targets for 2016 as follows: I. revenue over 1.5 billion, at temperatures consistent with seasonal averages; II. over 2 million customer sites in the portfolio; III. current operating income of around 85 million at temperatures consistent with seasonal averages. Given the expected commercial performances in 2016, the Group will update its customer portfolio growth objectives by 2018, at the next annual results publication. 17

18 5. RISK FACTORS AND REL ATED-PARTY TRANSACTIONS 5.1. RISK FACTORS The risk factors that the Group faces are described in the 2015 Registration Document. The nature of these risks has not changed significantly during the first half-year of the 2016 financial year. These risks are likely to occur during the second half-year 2016 or in subsequent years RELATED-PARTY TRANSACTIONS The main transactions carried out between related parties are disclosed in Note 27 to the consolidated interim financial statements. 18

19 II. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR 2016 INCOME STATEMENT... Erreur! Signet non défini. STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN EQUITY STATEMENTS OF CASH FLOWS INFORMATION ON THE DIRECT ENERGIE GROUP Note 1. ACCOUNTING PRINCIPLES AND METHODS Note 2. HIGHLIGHTS OF THE YEAR Note 3. MAIN CHANGES IN SCOPE OF CONSOLIDATION Note 4. REVENUE FROM ORDINARY ACTIVITIES Note 5. COST OF SALES Note 6. PERSONNEL EXPENSES Note 7. OTHER OPERATIONAL INCOME AND EXPENSES Note 8. FINANCIAL INCOME/(LOSS) Note 9. INCOME TAX... Erreur! Signet non défini. Note 10. EARNINGS PER SHARE Note 11. INTANGIBLE ASSETS Note 12. PROPERTY, PLANT AND EQUIPMENT Note 13. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES Note 14. INVENTORY Note 15. TRADE RECEIVABLES Note 16. OTHER CURRENT AND NON-CURRENT ASSETS Note 17. CASH AND CASH EQUIVALENTS Note 18. SHAREHOLDERS' EQUITY Note 19. SHARE-BASED PAYMENTS Note 20. PROVISIONS Note 21. LEASE-FINANCE AGREEMENTS Note 22. TRADE PAYABLES Note 23. OTHER CURRENT AND NON-CURRENT LIABILITIES Note 24. FINANCIAL ASSETS AND LIABILITIES Note 25. SEGMENT REPORTING Note 26. OFF-BALANCE SHEET COMMITMENTS Note 27. RELATED PARTIES Note 28. EXECUTIVE COMPENSATION Note 29. POST-REPORTING EVENTS Note 30. SCOPE OF CONSOLIDATION

20 INCOME STATEMENT In thousands of euros Note 30/06/ /06/2015 Revenue from ordinary activities Cost of sales 5 ( ) ( ) Gross margin Personnel expenses 6 (17 167) (13 631) Other operating income and expenses 7 (31 506) (31 308) Depreciation and amortisation (14 575) (10 721) Current operating income Changes in fair value of Energy financial derivative instruments operational in nature (16 781) Disposals of non-current assets (11) (3 356) Impairment of non-current assets (112) (550) Operating income Cost of net debt (5 237) (1 504) Other financial income and expenses (138) 2 Financial income/(loss) 8 (5 375) (1 501) Corporate income tax (190) Share of net income from companies accounted for by the equity method (14) Net income from continuing operations Net income from discontinued operations - (1 236) Net income of which Net income, Group share of which Net income, minority interests - - Earnings per share 10 1,28 0,57 Diluted earnings per share 10 1,21 0,55 Earnings per share from continuing operations 10 1,28 0,60 Diluted earnings per share from continuing operations 10 1,21 0,58 Earnings per share from discontinued operations 10 - (0,03) Diluted earnings per share from discontinued operations 10 - (0,03) Direct Energie - Interim Financial Report Page 20

21 STATEMENT OF COMPREHENSIVE INCOME 30/06/ /06/2015 In thousands of euros Total Group Non-controlling interests Total Group Non-controlling interests Net income Available-for-sale financial assets Deferred tax impact Cash flow hedges Deferred tax impact Share in profit of associates Total recyclable items Actuarial gains and losses Deferred tax impact Total non-recyclable items Total Comprehensive income Direct Energie - Interim Financial Report Page 21

22 STATEMENT OF FINANCIAL POSITION In thousands of euros Note 30/06/ /12/2015 Intangible assets Property, plant and equipment Investments in associates Non-current derivative financial instruments Other non-current financial assets Other non-current assets Deferred tax assets Non-current assets Inventory Trade receivables Current derivative financial instruments Other current financial assets Other current assets Cash and cash equivalents Current assets TOTAL ASSETS Share capital and share premiums Retained earnings and net income / (loss) Treasury shares (52) (88) Other comprehensive income (87 512) ( ) Shareholders' Equity - Group share (29 350) Non-controlling interests - - TOTAL SHAREHOLDERS' EQUITY (29 350) Non-current provisions Non-current derivative financial instruments Other non-current financial liabilities Other non-current liabilities Deferred tax liabilities Non-current liabilities Current provisions Trade payables Current derivative financial instruments Other current financial liabilities Other current liabilities Current liabilities TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Direct Energie - Interim Financial Report Page 22

23 STATEMENT OF CHANGES IN EQUITY In thousands of euros Shareholders' Equity at 31/12/2014, historical Changes in fair value (101) (21 590) (527) Impacts of IFRIC Shareholders' Equity at 01/01/2015, restated (101) (21 590) (527) Net income Other comprehensive income Comprehensive income Note Share capital Share premiums Retained earnings and net income / (loss) Treasury shares Other comprehensive income Capital increase Options Treasury shares purchases/sales Dividends paid - - (6 118) (6 118) - (6 118) Other Shareholders' Equity Group share Noncontrolling interests Total Shareholders' equity Shareholders' Equity at 30/06/ (74) (1 195) (519) Shareholders' Equity at 31/12/ (88) ( ) 0 (29 350) - (29 350) Net income Other comprehensive income Comprehensive income Capital increase Options exercised Options Treasury shares purchases/sales Dividends paid - - (8 242) (8 242) - (8 242) Shareholders' Equity at 30/06/ (52) (87 512) * Changes in fair value of derivative financial hedging instruments, which, at 30 June 2016, corresponded exclusively to energy purchases, are recorded net of tax in other comprehensive income for the effective portion of the hedge and in income for the period for the ineffective portion. The change in fair value of 22,469 thousand on the first half-year 2016, on a temporary basis, is primarily related to deliveries recorded over the first half-year 2016 for hedging instruments open at 31 December The balance as at 30 June 2016 will be subsequently recycled to income, symmetrically to the hedged item when physical delivery of the corresponding energy purchases takes places. Direct Energie - Interim Financial Report Page 23

24 STATEMENT OF CASH FLOWS In thousands of euros 30/06/ /06/2015 Consolidated net income Tax expenses/income (30 533) 190 Financial income/(loss) Income before taxes and financial expenses Depreciation and amortisation Impairment Provisions Expenses related to share-based payments Change in fair value of financial instruments (8 848) Other financial items with no cash impact Share of income from associates (332) 14 Items with no cash impact Change in working capital requirement (4 248) (50 934) Net cash flow from operating activities (14 999) Acquisition of fixed assets (16 502) (12 175) Disposals of fixed assets - 3 Change in deposits and guarantees (3 457) Change in financial assets - (164) Net change in loans originated by the company (604) Net cash flows used in investment activities (16 398) Sums received from shareholders during capital increases Treasury shares Proceeds from borrowings Repayment of borrowings (60 870) (533) Interest paid (2 975) (1 139) Interest received Dividends paid (8 242) (6 118) Net cash flows used in financing activities Net change in cash and cash equivalents (13 676) Net change in cash and cash equivalents from discontinued operations - (28) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Direct Energie - Interim Financial Report Page 24

25 INFORMATION ON THE DIRECT ENERGIE GROUP Direct Energie (the Company) is a société anonyme (public limited company) incorporated under French law, registered in France. The Group's registered office is located at 2 bis rue Louis Armand Paris 75015, France, and its shares are listed on the regulated Euronext Paris market. Direct Energie covers all aspects of the energy value chain, operating in both the production and supply of electricity and natural gas, thus ensuring a balanced and sustainable development for the Group. Direct Energie is the leading alternative multi-energy supplier in France. The consolidated financial statements published by Direct Energie and its subsidiaries (the Group) are presented in euros and rounded to the nearest thousand, unless stated otherwise. On 28 September 2016 the Board of Directors approved and authorised the publication of the Group's consolidated financial statements at 30 June Note 1. ACCOUNTING PRINCIPLES AND METHODS 1.1 Declaration of conformity The interim consolidated financial statements published by Direct Energie SA and its subsidiaries ("the Group"), which cover the six-month period ended 30 June 2016, are prepared in accordance with IAS 34 "Interim Financial Reporting", which allows for the inclusion of a selection of explanatory notes. The interim consolidated financial statements do not therefore include all notes and disclosures required by IFRS for annual financial statements and should be read in conjunction with the consolidated financial statements for the 2015 financial year. With the exception of the changes described below, the accounting methods and principles are identical to those applied in the consolidated financial statements at 31 December 2015 and described in Note 1 "Accounting Methods and Principles" in the consolidated financial statements at 31 December Comparative data for 2015 figures have been prepared on the same basis. 1.2 Change in accounting standards The accounting principles and methods applied to the consolidated financial statements at 30 June 2016 are identical to those used in the consolidated financial statements at 31 December 2015, with the exception of mandatory IFRS standards, amendments and interpretations for the financial year beginning on 1 January 2016 and which the Group did not adopt early Amendments which are mandatory as from 1 January 2016 The following amendments, adopted by the European Union, have become mandatory as of 1 January 2016: - Amendments to IAS 19 "Employee Benefits"; Direct Energie - Interim Financial Report Page 25

26 - Amendments to IFRS 11 "Acquisition of an interest in a joint operation"; - The amendments to IAS 16 and IAS 38 "Acceptable methods of depreciation and amortisation"; - Amendments to IAS 1 "Disclosure Initiative"; - IFRS Annual Improvements Cycle; - IFRS Annual Improvements Cycle. Application of these amendments did not materially impact the Group's consolidated financial statements at 30 June Texts not adopted by the European Union and not early adopted by the Group - IFRS 9 "Financial Instruments"; - IFRS 15 "Revenue from Contracts with Customers"; - IFRS 16 "Leases"; - Amendments to IFRS 10 and IAS 28 "Sale or transfer of assets between an investor and its associate/joint venture"; - Amendments to IFRS 10, IFRS 12 and IAS 28 "Investment entities: applying the consolidation exception"; - Amendments to IAS 12 "Recognition of Deferred Tax Assets for Unrealised Losses"; - Amendments to IAS 7 "Disclosure Initiative"; - Clarifications to IFRS 15 "Revenue with Contracts from Customers"; - Amendments to IFRS 2 "Clarifications of classification and measurement of share-based Payment Transactions". The potential impact of these standards and amendments on the Group accounts remains under review. 1.3 Use of estimates and judgements The preparation of financial statements requires the use of judgements, estimates and assumptions in determining the value of assets and liabilities, income and expenses for the year and for the evaluation of contingent assets and liabilities existing at the reporting date. Depending on changes in these assumptions or economic conditions that may differ from those existing at the reporting date, the amounts reported in the Group's future financial statements may differ from current estimates. The assumptions which the Group uses to make estimates and judgements are mainly the following: - Measurement of the fair value of assets acquired and liabilities assumed in business combinations; - measurement and impairment losses related to goodwill and other fixed assets; - the measurement of provisions; Direct Energie - Interim Financial Report Page 26

27 - energy un-metered ( Energy in the meter ) revenues; - financial instrument valuations; - measurement of recognized tax loss carry-forwards. Any change in assumption in these areas could have a material impact on the Group's financial statements. Further information on these estimates is presented in Note 1 to the annual consolidated financial statements for the 2015 financial year. 1.4 Specific items relating to preparation of the interim financial statements Seasonal nature of the business By nature, the Group's activities are very sensitive to changes in climate. Indicators and results presented in the interim consolidated financial statements at 30 June 2016 are not necessarily indicative of those that will be presented in the financial statements at 31 December Income tax The income tax expense for the interim period is typically calculated by applying the last known estimated effective tax rate on the net income of the consolidated companies for each entity or tax group. Direct Energie - Interim Financial Report Page 27

28 Note 2. HIGHLIGHTS OF THE YEAR 2.1 Extension of the ERDF services contract During the second quarter of 2016, the Group and ErDF (now ENEDIS) signed a one-year extension of the services contract which had ended on 30 September This extension, retroactively commencing on 1 October 2015, led to recognising 21.7 million in income in the first half-year Rider to the transmission contract with GRDF By a decision of 2 June 2016, the Paris Court of Appeal upheld the decision handed down by the CoRDiS on 19 September This decision established the principle that the natural gas supplier was not responsible for the unpaid share of past or future distribution costs of the distribution network operator (GRDF). In pursuance of this decision of the CoRDiS (Comité de règlement des différends et des sanctions), a contractual agreement was formalised between the Parties during the second quarter of 2016 under which, in late May 2016, GRDF repaid Direct Energie the unpaid share of distribution costs incurred prior to 31 December 2015 amounting to nearly 10 million. The Court of Appeal also held that the supplier was to be paid for the services performed on behalf of GRDF through which the end customer obtained access to the distribution networks. In pursuance of this decision, GRDF must first offer Direct Energie, within a period of two months, an amendment to the Distribution Network Access Agreement offering compensation that is "proportionate and equitable to the costs avoided" by GRDF, and also to pay Direct Energie remuneration at a price fixed by the Parties for past periods (since the date of signing of the distribution agreement in 2005). No agreement was reached between the Parties at the end of the two-month period and as such, the Group has not yet recognised any related income in its accounts. 2.3 Decision of the Conseil d Etat (France's highest administrative court) on Regulated Tariffs for Electricity Sales In June 2016 the Conseil d Etat put an end to two tariffs decrees. The decree of 28 July 2014 was cancelled on the grounds that the principle of legal certainty was not met in respect of blue tariffs for the period between 1 August 2014 and 31 October As concerns the decree of 30 October 2014, it was cancelled on the grounds that it did not take into account retroactive tariff adjustments that were necessary in the case of residential blue and green tariffs for the period 1 November 2014 and 31 July The Conseil d'etat gave ministers a threemonth deadline to implement these amending decisions. The Group will be impacted by such cancellations and corresponding amending decisions, which will trigger a positive tariff adjustment, once these amending decisions have been published by the competent ministers. Direct Energie - Interim Financial Report Page 28

29 2.4 Provision for loss-making contracts on gas interconnection capacities As part of its gas supply strategy, the Group concluded in 2009 several contracts with French (GRTgaz), Belgian (Fluxys) and Dutch (GTS) gas transmission system operators for the reservation, from 2011, of gas import capacities through Belgium, for periods extending through The purpose of these contracts was to ensure security in the gas supply as part of the Group's activities over the long-term, according to the principles governing the procurement of a licence to supply natural gas in France. Beginning in 2013, the market environment brought to light the current system's inability to ensure security of supply, resulting, in particular, in inadequate storage capacity subscriptions. The government therefore initiated consultations to clarify the obligations incumbent on suppliers in the field, as well as the available instruments and resources. The specific aim of these consultations was to reform the storage subscription obligations. During these consultations, the Group maintained its consistent position, whereby, when defining supplier obligations in terms of security of supply, due consideration should be given to all available modulation tools, including those related to gas import capacities in France. However, pending the finalisation of this reform and without jumping to conclusions on the final outcome, the authorities have asked the Group to subscribe for annual storage capacities independently of its own gas interconnection capacities. Based on these consultations, the public authorities drafted the reform, which was reviewed by the Conseil d Etat in the second quarter of The draft reform does not reflect the Group's proposals to explicitly consider the Gas Import capacities of each supplier among the available instruments or resources in terms of supply security. Furthermore, in April 2016 the Conseil d Etat, called to rule in the dispute initiated in 2014 by Eni and Uprigaz, upheld that the authorities were entitled to impose an obligation on gas suppliers to subscribe storage capacities in order to ensure supply security, without considering the interconnection capacities specific to each supplier as an instrument allowing the latter to avoid the same. The Court of Justice of the European Union has been called solely to resolve the issue concerning the geographical location of the storages included in meeting this obligation. In these circumstances and irrespective of implementation period of the draft reform, the contracts can no longer be considered as participating directly in the obligations inherent to the Group's gas operations with respect to security of supply, without there being any expectation of a favourable development in the regulations in the short-term. Accordingly, at the reporting date these contracts on access to gas interconnections were treated as onerous contracts under IAS 37, since: - it is clearly no longer possible to regard these as capable of meeting the Group's obligations in terms of security of supply; and - the costs associated with these contracts over their remaining life, with no prospect of early termination, are much higher than their market value. A provision for onerous contracts in the amount of 33.0 million has been recognised in the financial statements. 2.5 Strengthening of the Group's financial structure During the first quarter of 2016, deposits paid in cash by the Group's counterparties to hedge changes in the fair value of forward energy sales and purchases until such time as their physical delivery takes place, experienced strong growth, directly related to the decline in wholesale electricity prices observed over the period. The Group has secured new funding to offset this increase: Direct Energie - Interim Financial Report Page 29

30 - shareholder loans for a total amount of 55 million on the closing date of the accounts; - an additional short-term credit line with the Group s regulated energy market clearing house, for a total amount of 60 million; - a 60 million increase in its bank revolving credit facility rising the usable amount to 120 million. With a rebound in market prices in the second quarter, the Group had at 30 June 2016 nearly 177 million in short-term financing sources in addition to available cash. Note 3. MAIN CHANGES IN SCOPE OF CONSOLIDATION No significant change in scope of consolidation took place during the first half-year Direct Energie - Interim Financial Report Page 30

31 Note 4. REVENUE FROM ORDINARY ACTIVITIES In thousands of euros 30/06/ /06/2015 Electricity sales Gas sales Service sales Other income Revenues excluding Energy Management Energy Management Margin - Electricity (1 878) (939) Energy Management Margin - Gas Energy Management Margin - Production Energy Management Margin (867) Revenue from ordinary activities Note 5. COST OF SALES In thousands of euros 30/06/ /06/2015 Energy purchases ( ) ( ) Transmission and DNO services ( ) ( ) Other costs (5 876) (5 297) Change in inventories (14 348) (5 938) Cost of sales ( ) ( ) Note 6. PERSONNEL EXPENSES In thousands of euros 30/06/ /06/2015 Salaries and employer contributions (16 049) (13 014) Expenses related to termination benefits (256) (58) Share-based payments (862) (559) Personnel expenses (17 167) (13 631) Share-based payments and expenses related to termination benefits are detailed in Note 19 "Share-based payments" and Note 20.2 "Provisions for employee benefits" respectively. Direct Energie - Interim Financial Report Page 31

32 Note 7. OTHER OPERATIONAL INCOME AND EXPENSES Other operating income and expenses are as follows: In thousands of euros 30/06/ /06/2015 Capitalised production Operating subsidies Other income Other operating income External expenses (36 763) (22 829) Taxes (5 133) (2 419) Bad debt (8 383) Net increase in current asset provisions (1 595) Net increase in provisions for risks and charges 447 (1 513) Other expenses (196) (117) Other operating expenses (37 341) (36 856) Other operating income and expenses (31 506) (31 308) They consist mainly of: - external costs specifically related to managing the customer relationship, legal services and advice, and external communication; - a positive impact recorded under "Bad debt" and associated with the repayment, during the first halfyear 2016, by the gas distribution network operator (GRDF) of the unpaid share of distribution costs prior to 31 December 2015 (see Note 2.2 "Rider to the transmission contract with GRDF"). Direct Energie - Interim Financial Report Page 32

33 Note 8. FINANCIAL INCOME/(LOSS) In thousands of euros 30/06/ /06/2015 Cost of net debt (5 237) (1 504) Other financial income and expenses (138) 2 Financial income/(loss) (5 375) (1 501) 8.1 Cost of net debt This item primarily includes interest on bonds, interest on shareholder loans, interest expenses on guarantees, interest expense on the future markets, interest on bank loans and draws on credit facilities, bank interest and other bank charges, interest income on cash investments and shareholder loans with Group entities not consolidated by the full consolidation method and the change in fair value of marketable securities and cash equivalents. In thousands of euros 30/06/ /06/2015 Interest expense (5 894) (1 858) Interest income Net income from marketable securities and cash equivalents (15) 180 Cost of net debt (5 237) (1 504) Interest expense includes interest on bonds and bank loans, interest on shareholder loans set up in the first halfyear 2016, interest on drawings of credit facilities, interest on deposits granted at the Group's request by banks to certain counterparties and interest paid on the future markets. 8.2 Other financial income and expenses In thousands of euros 30/06/ /06/2015 Other financial income 0 0 Total other financial income 0 0 Provision accretion (0) 3 Other financial expenses (138) (1) Total other financial expenses (138) 2 Other financial income and expenses (138) 2 Direct Energie - Interim Financial Report Page 33

34 Note 9. INCOME TAX 9.1 Breakdown of income tax expenses The tax income recognised in income for the period amounted to 30,533 thousand (compared to an expense of 190 thousand at 30 June 2015). The breakdown of this tax income is as follows: In thousands of euros 30/06/ /06/2015 Tax payable (3 961) (1 442) Deferred tax Corporate income tax (190) 9.2 Effective tax income In thousands of euros 30/06/ /06/2015 Net income Share in profit/(loss) of associates (332) 14 Corporate income tax (30 533) 190 Discontinued operations Pre-tax profit of consolidated companies Actual tax (expense)/income (190) The change in effective tax is mainly explained by the recognition by the Group of deferred tax income in the first half-year 2016, amounting to 34,494 thousand (compared to 1,252 thousand for the first half-year 2015). The 34.5 million impact of deferred taxes on the period reflects: - firstly, the additional recognition of tax loss carryforwards associated with the Group's future earnings forecasts for a total impact of 14.0 million (compared to the recognition of tax loss carryforwards of 4.5 million at 30 June 2015). The expected timeline to recover the recognized loss carryforwards covers the second half of 2016, and the years 2017 and It takes into account the regulatory environment in which the Group operates, development opportunities for its customer portfolio and the forecasted evolution of its supply costs, which are the three main items affecting the Group's profitability prospects; - secondly, the net change in deferred taxes on temporary differences recognised during the period for a total amount of 20.5 million. Direct Energie - Interim Financial Report Page 34

35 Note 10. EARNINGS PER SHARE In thousands of euros 30/06/ /06/2015 Net income, Group share - Continuing operations Net income, Group share - Discontinued operations - (1 236) Net income, Group share Impact of dilutive instruments - - Diluted net income, Group share In thousands of shares Average number of shares outstanding Impact of dilutive instruments Diluted average number of shares outstanding In euros NUMERATOR DENOMINATOR EARNINGS PER SHARE Earnings per share 1,28 0,57 Diluted earnings per share 1,21 0,55 Earnings per share from continuing operations 1,28 0,60 Diluted earnings per share from continuing operations 1,21 0,58 Earnings per share from discontinued operations - (0,03) Diluted earnings per share from discontinued operations - (0,03) At 30 June 2016, as in 2015, the weighted average number of shares outstanding is the average number of Direct Energie shares outstanding over the period. As in 2015, at 30 June 2016 the calculation of diluted net earnings per share did not take into account stock option plans whose exercise price is higher than the average price of Direct Energie shares for the first half-year. At 30 June 2016, seven stock option plans had a lower exercise price than the average price of Direct Energie shares over the six-month period, which amounted to in the first half-year These subscription plans have thus been considered in calculating the diluted earnings per share. At 30 June 2015, four stock option plans had a lower exercise price than the average price of Direct Energie shares over the six-month period, which amounted to in the first half-year These subscription plans had thus been considered in calculating the diluted earnings per share. Direct Energie - Interim Financial Report Page 35

36 Note 11. INTANGIBLE ASSETS 11.1 Change in intangible assets In thousands of euros Brands and licences Customer acquisition Other intangible assets Assets in progress Total GROSS VALUES At 31 December Acquisitions Disposals Changes in scope Other changes (543) (37) 366 (3 296) (3 509) At 31 December Acquisitions Disposals Changes in scope Other changes (10) - 93 (93) (10) At 30 June DEPRECIATION AND AMORTISATION At 31 December 2014 (6 589) ( ) (24 293) (673) ( ) Depreciation and amortisatio (1 366) (17 149) (3 660) - (22 175) Disposals Changes in scope Other changes At 31 December 2015 (7 415) ( ) (27 953) 0 ( ) Depreciation and amortisatio (1 389) (9 258) (2 000) - (12 648) Disposals Changes in scope Other changes At 30 June 2016 (8 794) ( ) (29 953) 0 ( ) NET VALUES At 31 December At 31 December At 30 June Direct Energie - Interim Financial Report Page 36

37 11.2 Customer acquisition costs During the first half-year 2016, the Group capitalised 11,488 thousand of customer acquisition costs as part of its sales drive (compared to 8,364 thousand in the first half-year 2015) Other intangible assets Other intangible assets consist mainly of IT developed by the company for its business and management activities Intangible assets in progress Intangible assets in progress at 30 June 2016 correspond mainly to the recognition of expenses incurred for the acquisition of customers which have not been transferred into Direct Energie's supply perimeter and the costs related to the installation and configuration of software for the part still under development. At 31 December 2015, the decrease of 3,296 thousand of assets in progress mainly related to the write-off of fixed assets for the Group's combined cycle gas turbine development projects, which had become obsolete given the delays in the completion of these projects on the Hambach and Verberie sites. An impairment provision for all the assets in progress for the Verberie project was booked prior to their write-off in Direct Energie - Interim Financial Report Page 37

38 Note 12. PROPERTY, PLANT AND EQUIPMENT 12.1 Change in property, plant and equipment In thousands of euros Land and buildings Production facilities Other fixed assets Assets in progress Total GROSS VALUES At 31 December Acquisitions Disposals - - (13) - (13) Changes in scope Other changes (7 168) (7 087) At 31 December Acquisitions (17) 622 Disposals - - (3) - (3) Changes in scope Other changes (11) (11) At 30 June DEPRECIATION AND AMORTISATION At 31 December 2014 (6) - (1 644) (2 826) (4 476) Depreciation and amortisation - - (326) - (326) Disposals Changes in scope Other changes At 31 December 2015 (6) - (1 284) (38) (1 329) Depreciation and amortisation (83) (1 539) (305) - (1 927) Disposals Changes in scope Other changes At 30 June 2016 (89) (1 539) (1 586) (38) (3 253) NET VALUES At 31 December At 31 December At 30 June At 31 December 2015, changes in the scope of consolidation had a net impact of 45,549 thousand on tangible assets. They result from the integration, at their fair value, of the assets of the company 3CB following the acquisition carried out on 30 December These consist primarily of production assets, required for electricity generation from the combined-cycle power plant, and land located in Bayet Allier. Direct Energie - Interim Financial Report Page 38

39 12.2 Land and buildings Land and buildings acquired for 4,727 thousand in 2015 correspond to the fair value of land and buildings owned by 3CB Production facilities Production facilities include the fair value of the generation assets of the combined cycle power plant located in Bayet Property, plant and equipment in progress Property, plant and equipment in progress mainly include current developments within the company 3CB. At 31 December 2015, the 7,168 thousand decrease reported under "Other movements" in the item "Assets in progress" included 6,105 thousand for the write-off of property, plant and equipment used in the development of the Group's combined cycle gas turbine projects which had become obsolete as a result of delays in the completion of these projects, located in Hambach (for 3,318 thousand) and Verberie ( 2,788 thousand). Moreover, an impairment provision for all the assets in progress for the Verberie project was booked prior to their write-off in 2015 and therefore they did not impact income. Direct Energie - Interim Financial Report Page 39

40 Note 13. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES The companies Direct Energie EBM Entreprises, Compagnie Electrique de Bretagne and Sophye LacMort are consolidated by the equity method and classified as joint ventures. The Ossau company was liquidated on 19 January At 30 June 2016, the main features of the joint ventures were as follows: Direct Energie EBM Entreprises Compagnie Electrique de Bretagne SOPHYE LACMORT Reporting date 30/06/ /06/ /06/2016 Relationship Joint venture Joint venture Joint venture Country of main establishment France France France Main activity Sale of gas and electricity Construction and operation of thermal power plant Acquisition and operation of hydroelectric concessions Equity holding and voting rights 50% 60% 50% Accounting method Equity method Equity method Equity method At 30 June 2016, contributions from the joint ventures were: 30/06/2016 In thousands of euros Direct Energie EBM Entreprises Compagnie Electrique de Bretagne SOPHYE LACMORT Current assets Non-current assets Current liabilities Of which current financial liabilities Of which non-current financial liabilities Non-current liabilities Net assets Share of net assets Other adjustments - (837) - Carrying value of equity interests (0) 4 Dividends received by the Group Revenue Net income 810 (121) (1) Comprehensive income 810 (121) (1) Share of net income 405 (72) (0) Share of comprehensive income 405 (72) (0) Direct Energie - Interim Financial Report Page 40

41 At 31 December 2015, contributions from the joint ventures were: 31/12/2015 In thousands of euros Direct Energie EBM Entreprises Compagnie Electrique de Bretagne OSSAU SOPHYE LACMORT Current assets Non-current assets Current liabilities Of which current financial liabilities Of which non-current financial liabilities Non-current liabilities Net assets Share of net assets Other adjustments - (910) - - Carrying value of equity interests Dividends received by the Group Revenue Net income 137 (211) (6) (2) Comprehensive income 137 (211) (6) (2) Share of net income 68 (126) (3) (1) Share of comprehensive income 68 (126) (3) (1) The key indicators of the joint ventures presented in 2016 cover a six-month period. At 30 June 2016, the impact of the joint ventures in contributing profits amounted to 332 thousand. The percentage of the Group's holding in joint ventures Direct Energie EBM Companies, Compagnie Electrique de Bretagne and Sophye Lacmort has not changed since 31 December At 30 June 2016, their carrying value amounted to a total of 1,306 thousand. These carrying values include shares in income of 332 thousand. Note 14. INVENTORY The carrying value of inventory items by category is as follows: 30/06/ /12/2015 In thousands of euros Gross value Provisions Net value Gross value Provisions Net value Gas inventory (1 108) (2 502) Spare parts inventory Inventory (1 108) (2 502) At 30 June 2016, the Group's inventories are composed primarily of gas. A provision for depreciation of inventory was recorded for 1,108 thousand, due to its net realisable value. Direct Energie - Interim Financial Report Page 41