EDF 2 3/4 03/10/23 EDF 3 7/8 06/28/22 EDFFP 3 1/4 03/17/15 EDF 5 1/8 09/12/18 EDF 4 1/8 02/03/21 EDFFP 4 1/4 07/22/14 EDF 2 1/8 09/20/19

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1 Credit Research Credit Note EDF European nuclear géant Électricité de France (EDF) was founded in 1946 as a result of nationalisation of the power companies in France. The company has one of the largest power generation portfolios in Europe with c. 14GW generation capacity, focusing on nuclear power. EDF generated c. 72.7bn sales revenue and c. 16.1bn EBITDA in 212. The company s EBITDA and operating cash flow generation is strong, with French operations accounting for the lion s share. Nevertheless, its free cash flows have been mainly negative due to its significant capex. EDF is more profitable than its peers and the company s ability to pay its interest expenses is strong. However, due to high financial liabilities and net debt, its financial leverage is the highest among its peers. Recommendation Currently, we see little scope for EDF s bonds to outperform peers'. This view is based on our expectation that EDF will not be able to reduce its net debt significantly in the short term to improve free cash flows. Currently, the company s bonds trade slightly wider than its peers' (Vattenfall, GDF Suez) and almost in line with RWE and E.ON. In our view, this can be explained by fundamentals (high financial and adjusted debt, significant debt-like obligations, high capex), along with sovereign-related and political risks to which EDF is exposed due to its shareholder structure. Consequently, we would currently recommend Marketweighting most of the cash bonds (please see page 2), except for EDF 216s, EDF 5% 218, EDF 2.125% 219 and EDF 2.75% 223 maturities, which seem to be at tight levels to us. Hence we would recommend Underweighting them. We find EDF hybrids ( ) offer attractive compensation, preferring the hybrid with the shortest maturity to first call. SWOT analysis Strengths / opportunities Weaknesses / threats Domestic dominance in electricity market; High capex programme strong position in the UK and Italy 1 June 213 Ratings LT ST Outlook Moody s Aa3 P-1 Negative S&P A+ A-1 Stable Fitch A+ F1 Stable Credit vs. benchmark (bps) Jan-12 Jun-12 Nov-12 Apr-13 Source: Bloomberg 5y CDS: 82bps EDF 5y CDS itraxx Main iboxx utilities weight: c. 16.3% (including Edison) Financial calendar July H1 Interim Report Extraordinary support from main shareholder, the French State High debt-like obligations 7 November Sales Q3 Low-carbon generation portfolio and low CO 2 certificate costs Risks of cost overruns related to new nuclear projects Supportive regulation Political risks linked to tariffs Positive ruling on deficit compensation related to the Contribution to Electricity Public Services mechanism Increase in shareholder remuneration Contents Recommendation and RV 2 Business profile 4 Debt and liquidity 9 Cash flow analysis 12 Capital structure 13 Ratings review 14 Peer Group comparison 14 Appendix Company information: Analyst Tatsiana Harelyshava tatsiana.harelyshava@commerzbank.com research.commerzbank.com Bloomberg: CBIR For important disclosure information please see pages 18 and 19

2 Recommendation EDF has the largest weight within the iboxx Utilities sub-index, with a total weight of c. 16.3% (including Edison s bonds) (Chart 1). While Edison s bonds are trading at higher spreads than their EDF counterparts, they are rather illiquid. Based on our fundamental view, we do not see any outperformance potential for the company s cash bonds and recommend Marketweighting most of them, except for EDF 216s, EDF 5% 218, EDF 2.125% 219 and EDF 2.75% 223. These bonds are trading at tighter levels, hence we recommend Underweighting them. We note the cash bonds sensitivity to political risks especially in the domestic market, given the importance of the French market to EDF and the shareholder structure of the company. Hybrid bonds offer attractive compensation compared to senior unsecured. EDF gained full control over Edison in 212 and we therefore include the company s three bonds (iboxx constituents). S&P expects that, in the case of financial stress, EDF would provide financial and operational support to Edison. Overall, we see only limited potential for outperformance for EDF s cash bonds: we do not expect leverage to decline in the near future due to the essential capex level and unchanged dividend policy. Additionally, EDF s bonds have been sensitive to sovereign risk due to the French State s majority shareholding and given the significance of French business for EDF. We do not expect this sensitivity to diminish going forward. Moreover EDF s peers have initiated credit-friendly measures (e.g. capex discipline, disposals, efficiency programmes) which should contribute to their fundamental improvements. Consequently, taking these considerations into account, we would recommend Marketweighting most cash bonds with some exceptions (table 1): Edison s bonds look attractive on the curve (Chart 1; Edison s bonds marked bold italic), but they are rather illiquid. EDF s cash bonds are trading slightly wider than those of e.g. Vattenfall or GDF Suez, and almost in line with RWE s and E.ON s cash bonds (Charts 2, as example modified duration viewed), despite the higher ratings of the French utility. This reflects, in our view, fundamental factors of the issuer (high net debt position, significant debt-like obligations, negative free cash flow) as well as the cash bonds sensitivity to political risks in France. We believe that EDF 216s, EDF 5% 218 and EDF 2.125% 219 are trading at tighter ASW levels, hence, we would Underweight them. In the hybrid bond space, EDF s hybrids (4.25% 249 and 5.375% 249) are trading at tighter spreads to peers while having the longest duration until the first call (Chart 3-4). However, both bonds have the strongest composite ratings, at BBB+, among peers and hence, in our view, have less rating pressure. We would prefer the hybrid with shorter duration until first call (EDF 4.25% 249). CHART 1: EDF s cash bonds are represented in different maturities (iboxx) bps EDF 4 1/2 11/12/4 EDF 5 5/8 2/21/33 EDF 4 5/8 4/26/3 EDF 4 1/8 3/25/27 EDF 6 1/4 1/25/21 EDF 3 7/8 1/18/22 EDF 4 11/12/25 EDFFP 3 7/8 11/1/17 EDF 5 3/8 5/29/2 EDF 2 3/4 3/1/23 EDF 3 7/8 6/28/22 EDFFP 3 1/4 3/17/15 EDF 5 1/8 9/12/18 EDF 4 1/8 2/3/21 EDFFP 4 1/4 7/22/14 EDF 2 1/8 9/2/19 EDF 5 2/5/18 EDF 4 7/8 5/6/15 EDF 5 1/2 1/25/16 EDF 4 1/8 9/27/16 EDF 5 1/8 1/23/15 mod. dur Source: Bloomberg; Commerzbank Corporates & Markets 2 do not delete 1 June 213

3 TABLE 1: EDF s bonds (extract, iboxx) ISIN Security Amount outstanding () ASW mid (bps) Modified duration Recommendation XS EDF 5 1/8 1/23/15 1, Marketweight FR EDF 5 1/2 1/25/16 1, Underweight XS EDF 5 2/5/18 1, Underweight FR EDF 2 1/8 9/2/ Underweight XS EDF 5 3/8 5/29/2 1, Marketweight XS EDF 6 1/4 1/25/21 2, Marketweight FR EDF 2 3/4 3/1/23 2, Underweight FR EDF 4 1/8 3/25/27 1, Marketweight FR EDF 4 5/8 4/26/3 1, Marketweight FR EDF 4 1/4 12/29/49 1, * Overweight Source: Commerzbank Corporates & Markets; *until first call CHART 2: The switch from GSZFP 3.125% 2 into EDF 5.375% 2 offers c. 1bps* (ASW mid) bps RWE 5 1/8 7/23/18 GSZFP 5 1/8 2/19/18 EDF 5 2/5/18 EDF 5 1/8 9/12/18 RWE 6 5/8 1/31/19 VATFAL 6 3/4 1/31/19 GSZFP 6 7/8 1/24/19 GSZFP 2 1/4 6/1/18 EOANGR 5 3/4 5/7/2 EDF 2 1/8 9/2/19 EDF 5 3/8 5/29/2 GSZFP 3 1/8 1/21/2 2 VATFAL 5 6/18/18 mod.dur CHART 3: EDF s hybrids offer less spread (ASW) per unit duration, but have higher composite ratings bps RWE 4 5/8 9/29/49 IBESM 5 3/4 2/27/49 ENBW 7 3/8 4/2/72 EDF 4 1/4 12/29/49 EDF 5 3/8 12/29/ VATFAL 5 1/4 6/29/49 mod. dur. until first call Source: Commerzbank Corporates & Markets; Bloomberg; *EDF 5.375% 2 cash price is above 122; for switch into EDF 5.125% 18: pick-up c. 1bps, cash price above 122 Source: Commerzbank Corporates & Markets; Bloomberg CHART 4: Shorter** hybrid ( ) offers only c. 2bp lower compensation than the longer hybrid 25 bps Jan Mar May-13 EDF hybrid 2 - EDF senior EDF hybrid 25 - EDF senior Source: Commerzbank Corporates & Markets; Bloomberg; **refers to the first call 1 June 213 do not delete 3

4 Business profile EDF is a vertically integrated utility, with the majority of its sales and EBITDA generated in the domestic market. French law prohibits a significant change in the company s shareholder structure, emphasising the strategic role of EDF in energy supply throughout France. The company s business profile is strong and is supported by a dominant position in its domestic market and solid positions in the UK and Italian markets. EDF s business profile enjoys favourable price regulation in France as well as a positive ruling on deficit compensation related to the CSPE tax levy ( Contribution to Electricity Public Services ). The company is exposed to cost overrun risks related to EDF s new build projects in its core markets. In the longer term, EDF aims to reduce its dependence on French operations. Shareholder structure dominated by the State Sales revenue and EBITDA improved in 212 Shareholder structure The majority of EDF is state owned; as per the end of 212, the French State was the main shareholder, with c. 84.4%. French law stipulates that the Government s share in EDF must be at least 7%. This underlines, in our view, the company s strategic importance to energy supply in France. Sales and EBITDA External sales revenue in 212 totalled 72.7bn (Chart 5), while French operations remained the main contributor to sales and EBITDA. Although French operations as a percentage of total group sales declined to 54%, the contribution to EBITDA remained unchanged at c. 62%. UK business as a percentage of total sales revenue improved slightly to c. 13.4%, while the EBITDA share remained unchanged at c. 12.8%. The contribution of Italian operations to total sales has risen continuously since 29, reaching almost 14% in 212 following the Edison takeover. The major contributor to EBITDA was the France segment at c. 62%. The UK unit s contribution has remained quite stable over the last three years at an average of 13%. Despite a relatively high share of total sales revenue, Italian operations only accounted for c. 6% of group EBITDA in 212 (Chart 6). CHART 5: Sales split is dominated by French business, at c. 54% in 212 CHART 6: Again, the France segment is the main contributor to the group s EBITDA Other international 11% Other activities 8% France 54% Other international 7% Italy 6% Other activities 13% France 61% Italy 14% UK 13% UK 13% Within French operations, the contribution of regulated activities (transmission, distribution and island activities) improved in 212 to c. 38% vs c. 34% in 211 due to higher tariffs and favourable weather conditions. At the group level, the contribution of regulated activities was lower, albeit improving slightly to 23% in 212 from c. 21% in do not delete 1 June 213

5 Segmental performance French operations are the strongest contributor in terms of sales and EBITDA The segment s installed capacity has low carbon dioxide exposure France French operations unsurprisingly represent the utility s strongest segment. Here, EDF is active in electricity generation (nuclear, hydro, coal and gas), power sales, trading (upstream and downstream optimisation), electricity transmission through its 1%-owned operator Réseau de Transport d Électricité (RTE) and distribution via its wholly-owned subsidiary, Électricité Réseau Distribution France (ERDF). French operations are historically the pillar of the company s performance in terms of sales revenue and EBITDA. The France segment s share of group sales and EBITDA has remained at relatively stable levels over the last five years (Chart 7). Sales revenue increased in 212 by 5% to c. 39.1bn, driven by favourable weather conditions, higher tariffs and an increase in gas sales. The segment s EBITDA contribution remained strong, at c. 62% of group EBITDA in 212. The EBITDA contribution of regulated business within the segment increased to c. 38%, due to higher network tariffs and the weather impact. EDF s generation capacity (net) in France has grown by c. 3.8GW since 29 to c. 1GW in 212 (Chart 8). Its nuclear capacity has historically dominated the generation portfolio, with a share of over 5%. CHART 7: The segment s EBITDA contribution to the group was 6% on average over the last five years CHART 8: Generation capacity in France reached c. 1GW in 212 1, 8% GW 1 9, 6% 4% 95 8, 2% 9 7, % EBITDA (lhs) Sales contribution EBITDA contribution ; sales and EBITDA contribution to the group s sales and EBITDA Overall, EDF s generation fleet in France has low carbon intensity due to nuclear and hydro generation assets accounting for c. 73%. The company has continually improved the operational and safety conditions of its nuclear generation fleet. It expects nuclear output in 213 (c TWh) to be slightly higher than the 212 level (c. 45 TWh). EDF has several commitments to sell its power to competitors NOME law fosters greater competition in the power market ARENH prices increase price visibility for EDF EDF has a dominant position on the French market, accounting for c. 84% of total electricity generation in France (212). The company s earlier monopoly position began to change in the 2s when the domestic market for non-residential clients was opened up to competition; subsequently in 27 the residential supply market was liberalised and the domestic power sales market was fully liberalised. EDF has a number of commitments to sell up to 1TWh p.a. by the end of 225 to other power suppliers, in accordance with the NOME law (Nouvelle Organisation du Marché de l Électricité), which was enacted in 21. This law aims to promote greater competition in the French power market, and gives EDF s competitors temporary access to the company s baseload nuclear electricity at a regulated ARENH price (l Accès Régulé à l Électricité Nucléaire Historique). Integrated tariffs for industry and corporate clients (see Appendix) will be adjusted to the ARENH price levels. This increases price visibility, which is supportive for the company. In the long term, the NOME law would imply a slow and gradual decline in EDF s share of the supply market. Furthermore, EDF has a commitment to supply the remaining 12TWh by 215 via Virtual Power Plant capacity auctions. 1 June 213 do not delete 5

6 Contribution to Electricity Public Services mechanism (CSPE) CSPE receivables are to be completely paid out by the State by 218 The company has accumulated receivables related to the Contribution to Electricity Public Services mechanism (CSPE, see Appendix). These receivables resulted from unrecovered costs related to obligatory public service assignments. At the beginning of 213, EDF announced it had reached an agreement with the State, under which the receivables are to be paid completely by 218; this will clearly be supportive for the company s financial flexibility. The French Energy Regulatory Commission confirmed increased marketing and generation costs, which would lead to an increase in the residential tariff by 6.8% - 9.6% in 213. However, a final decision on a tariff hike will be made by the government in July. Risks There is risk of a gradual weakening of EDF s dominating role in France Unforeseeable hikes in budgets for new builds can stretch EDF s capex We believe that EDF s dominant position in France will gradually decline in the long term due to the commitments to sell its electricity to competitors as mentioned above. Risks related to the CSPE deficit have declined since an agreement was reached with the State and full compensation of the deficit is to be paid by 218. In our view, the segment is exposed to risks related to unforeseeable cost overruns for new fleet. For example, the budget for project Flamanville 3 was revised upwards several times: the latest revision, in December 212, was by 2bn to 8bn. Now that Enel has exited the project, in December 212 having held a 12.5% share EDF alone will have to bear the risks related to potential capex overruns for Flamanville. Furthermore, safety costs for the nuclear fleet above an incorporated amount (c. 5bn) would negatively impact the company s financial flexibility, as EDF has committed to fulfilling the recommendations of the French Nuclear Safety Authority to improve the safety of its nuclear fleet. UK UK business was the second largest contributor to EBITDA in 212 UK segment has almost 14GW installed capacity EDF s UK business, represented by the subsidiary EDF Energy, operates in energy sourcing and supply, nuclear generation and nuclear new build. EDF Energy supplied c. 2% of the UK s power in 211, and is thus one of the largest players in the UK market. UK operations are the third largest contributor to EDF s sales revenue and the second largest to EBITDA. At the end of 212, sales revenue recovered to c. 9.7bn revenues supported by improved nuclear and coal generation output. EBITDA rose to c. 2.1bn, accounting for c. 13% of group EBITDA (Chart 9). EDF owns and operates c. 8.7GW nuclear capacity and c. 5.3GW thermal capacity (mainly coal), which in total accounted for c. 1% of the group s total installed capacity in 212. The electricity output fell over the last four years due to a decline in net market purchases (Chart 1). The UK business should benefit from the lifespan extension by seven years to 223 for two nuclear power stations (Hunterston B and Hinkley Point B). Additionally, the segment is extending its capacity by building a new CCGT at West Burton with a total capacity of 1.3GW. CHART 9: UK operations contributed on average c. 13% to EDF s total EBITDA in CHART 1: Output* in 212 remained in line with 211's level 3,5 2% TWh 12 2,5 1,5 5 EBITDA (lhs) Sales contribution EBITDA contribution 15% 1% 5% % ; sales and EBITDA contribution to the group s sales and ; *including net market purchases EBITDA 6 do not delete 1 June 213

7 EDF plans to build two to four new nuclear reactors in the UK EDF strengthened its role in Italy, finalising the takeover of Edison Nuclear New Build : still in early phase EDF s major project in the UK, Nuclear New Build, refers to the construction and operation of four nuclear reactors via the Nuclear New Build Holdings (NNBH), which was established together with Centrica (share of 2% in NNBH). In March 213, the UK government officially granted planning permission for the construction of Hinkley Point C (c. 3.3GW). Hence, EDF is currently trying to negotiate contracts for differences (CfD), which include the price for future generated power, guaranteed by the UK government. After such an agreement is reached, EDF will start to search for financial and operational partners. Overall, risk related to the project has increased since Centrica withdrew from the project in 213. Moreover, there is still uncertainty regarding the price level of the CfDs. Aside from Hinkley Point, up to two nuclear power blocks can be built at Sizewell (public consultations started). Italy EDF Group operates in Italy via its subsidiaries Edison, TdE and Fenice. In 212, EDF took control of Edison, and now holds c. 97.4% of the company s capital (and c. 99.5% of voting rights). The group had strategic reasons for this takeover, since it aimed to increase its gas-fired portfolio assets and strengthen its position in Italy. The total installed capacity of the segment amounted to c. 7.7GW (c. 5.5% of group capacity). At the end of 212, sales revenue and EBITDA improved significantly, driven by the Edison control takeover and by organic growth. The share of Italian operations in the group s sales increased during to c. 14% in 212 (Chart 11). Sales revenue and EBITDA grew by c. 54% and 72% respectively in 212 (vs 211) benefitting from partially renegotiated long-term gas purchase contracts. Edison is the main contributor to EBITDA since it generated c..92bn in EBITDA out of c. 1.2bn in the total segment. EBITDA generation remains under pressure due to the negative impact from the decline in gas operating margins. CHART 11: EBITDA still suffers from the gas purchase contracts 1,2 16% 1, 12% 8 8% 6 4% 4 EBITDA (lhs) Sales contribution EBITDA contribution % Source: Commerzbank Corporates & Markets Edison is in the process of renegotiation with its longterm gas suppliers Gas contracts negotiations: new rounds opened Edison successfully renegotiated some of its gas purchase contracts in 212 with a positive EBITDA impact of c. 68m (c. 4% of 212 EDF s EBITDA), including a c. 35m effect prior to 212. The company is currently in a new round of gas contract negotiations with Rasgas (Qatar) and Eni (Libya), which are expected to be resolved in 213. EDF announced it had reached an arbitration decision with Sonatrach in April 213, which should positively impact 213 EBIITDA by c. 3m. We believe that any successful resolution of these new rounds of negotiations related to gas purchase contracts will be supportive for the segment s EBITDA and cash flows. 1 June 213 do not delete 7

8 Other International and Other Activities segments Capacity of Other International is concentrated in Benelux, Switzerland and the USA Other International This segment operates in Central and Eastern Europe, Russia, Northern America and Asia- Pacific. EDF s strongest presence (by generation capacity) was in Benelux (2.1GW), the US (5.2GW, including 1.3GW renewable capacity) and Switzerland (6.4GW). Total installed capacity in these markets accounted for c. 1% of EDF s total generation capacity in 212. The EBITDA share of Other International in group EBITDA has declined over recent years, to 7% in 212, negatively impacted by adverse regulation (Belgium), longer power plant maintenance outages and lower electricity margins (Chart 12). CHART 12: EBITDA share of Other International declined over , 2% 1,5 15% 1% 1, 5% 5 EBITDA (lhs) Sales contribution EBITDA contribution % EDF has c. 3% in the Chinese nuclear new build Taishan I and II The segment s largest contributor to EBITDA was renewable energy business In China, EDF provides advisory services and is involved in the building of Taishan I and II power plants (c. 3% owned by EDF; total capacity of c. 1.75GW; 7% owned by China Guandong Nuclear Power Group). EDF also has investments in the coal-fired power plants (c. 5GW). Other Activities segment The Other Activities segment includes optimisation and trading activities (EDF Trading), renewable operations (EDF Énergies Nouvelles or EDF EN) and energy-related services. Total renewable installed capacity amounted to 5.4GW (net c. 4.2GW) with wind capacities dominating the portfolio. The segment s contribution to group sales and EBITDA has remained relatively stable during the last five years (Chart 13). EDF EN was the strongest contributor to the segment s EBITDA growth in the last few years, driven by newly commissioned capacities (Chart 14). EDF EN has a significant pipeline of projects (c. 15.8GW), with currently c..8gw under construction. CHART 13: The segment s EBITDA share exceeds the contribution of operations to group sales CHART 14: EDF EN s capacity grew by.9gw, mainly in wind and solar technologies 2,3 2, 1,7 1,4 EBITDA (lhs) Sales contribution EBITDA contribution 16% 12% 8% 4% % 4,5 4,1 3,7 3,3 2,9 2,5 3.3GW 4.2GW Wind Solar Hydro Biogas Biomass&cogener. 8 do not delete 1 June 213

9 Capex The issuer s capex has risen continuously in the last five years, reaching c. 13.3bn in 212. A significant part of gross capex absolute and relative terms (c. 62% in 212) was spent on the French operations, whereas investment in liberalised operations rose more strongly than in regulated activities (Chart 15). The net investments are planned by the company at c. 12bn in 212. CHART 15: Gross capex increased by c. 19% in 212 vs the previous year 15, 12, 9, 6, 3, 213E France UK Italy Other International Other Activities ; 213 capex number refers to net investments The company has revised its 213 outlook downwards due to a change in operational conditions Management outlook The company now expects lower EBITDA growth, of c. %-3%, than previously indicated (average organic growth of EBITDA at 4%-6%) due to adjusted assumptions for the operational environment in 213. The targets for financial leverage and the dividend pay-out ratio remained unchanged, at 2.x-2.5x and 55%-65% respectively. EDF anticipates increasing volatility in the results from its Italian business (Edison) due to the gas contract negotiations for EDF plans to extend its generation fleet by over 14% in 22 EDF plans to develop its installed capacity by 2GW from c. 14GW in 212 to c. 16GW in the next seven years, whereby the capacity located outside France should increase from 28% to 35%. In total, the share of nuclear generation capacity should decline by 4% to 5% by 22 and hydro and renewables should rise by 6% to 26%. Debt and liquidity The company s increase in financial debt was mainly driven by the high capital expenditure programme, acquisitions and dividend payments. Although we do not expect considerable acquisition activity in the near future, we see limited potential for a significant reduction in net debt and hence leverage in the near term, since the issuer has 213 capex almost in line with the 212 level. Despite high debt and debt-like obligations, EDF enjoys very good debt market access, which is supported by the company s broad liquidity position. Debt and leverage Financial liabilities rose by c. 9.9bn to 59.9bn in 212 vs 211 (Chart 16). The main reasons were the Edison control takeover, dividend payments and capex. Bonds worth almost 3bn come due in 213 (according to Bloomberg). Looking at the maturity profile, after a peak in 214 (c. 6.6bn due) EDF s bond maturities decline by 217 to c. 1.2bn. In , bond maturities vary in the range of 2.5bn to 3.6bn (Chart 17). 1 June 213 do not delete 9

10 CHART 16: Financial liabilities increased in 212 due to the Edison takeover bn 7 CHART 17: After a peak in bond maturities in 214, they should decline in 217 bn Non-cur. fin. debt Cur. fin. debt Negative FV of derivat >223 Nuclear power related provisions account for the lion s share of the company s total provisions Employee benefits provisions increased significantly in 212 Source: Bloomberg Provisions: significant bulk in the balance sheet The company had significant nuclear power related obligations on its books at the end of 212 of c. 39.2bn (Chart 18), with c. 77% referring to the French operations. These obligations contain provisions for back-end nuclear cycle and for decommissioning and last cores. Additionally the company had provisions linked to decommissioning of non-nuclear facilities, mainly fossil-fired (c. 1.1bn in 212) with the majority of this provision (c. 46%) referring to the France segment. Provisions for employee benefits increased by c. 31% vs 211 to c. 2.5bn due to changes in actuarial assumptions (Chart 19). Approximately 8% of provisions for employee benefits were related to the France segment in 212. CHART 18: Obligations related to nuclear power increased continuously 5, CHART 19: Employee benefit-related obligations increased in 212 due to an actuarial assumptions change 25, 4, 3, 2, 1, Provisions for decommissioning of non-nuclear facilities Privisions for decommissioning and last cores Provisions for back-end nuclear cycle 2, 15, 1, 5, Provisions for employee benefits EDF had c. 4.2bn in operating leases in 212 Off-balance-sheet commitments The company has various types of off-balance-sheet commitments, e.g. related to fuel and energy purchase (i.e. long-term purchase contracts of longer than 2 years), operating contract performance, operating lease commitments, as well as investment and financial commitments. The total amount of off-balance-sheet commitments rose to 61.4bn in 212 (up c. 9%). Adjusted operating lease commitment (present value) should be taken into account by calculation of adjusted net debt figures. EDF s operating leases rose in 212 to 4.2bn from 2.5bn due to new contracts for real estate commitments (Chart 2). 1 do not delete 1 June 213

11 Net financial debt and adjusted net debt increased during Net debt development Net financial debt (as reported) rose by c. 7% to 41.6bn in , driven by increasing capex and acquisitions as well as dividends (Chart 21). If we calculate adjusted net debt, taking into consideration the pension obligation deficit, nuclear and fossil power related retirement obligations as well as adjusted operating leases, the absolute level of net debt increases significantly. CHART 2: Operating commitments increased due to new real estate contracts in 212 CHART 21: Both net financial debt (as reported) and adjusted net debt increased in ,5 3, 2,525 4,165 bn bn , < 1 year 1-5 years > 5 years 1 2 Net financial debt (as rep) Adjusted net debt (rhs) ; Commerzbank Corporates & Markets Leverage Financial leverage and adjusted leverage ratios increased in as the company s net debt position rose significantly (Chart 22). The company s guidance for financial leverage is 2.5x, but it stood at c. 2.6x at the end of 212. Taking into account significant capital expenditure plans, we see limited scope for leverage to decline in the short term. CHART 22: Leverage increased to 6.6x, based on adjusted net debt 2.8x 7.x 2.4x 2.x 1.6x 1.2x 6.5x 6.x 5.5x.8x Financial leverage (as reported) Adjusted leverage (rhs) 5.x Source: Commerzbank Corporates & Markets; company data 1 June 213 do not delete 11

12 EDF has different sources of liquidity Liquidity At the end of 212, EDF s liquidity position improved slightly to c. 5.7bn ( 5.5bn in 211). This consisted of cash (cash in hand) of c. 3.1bn and cash equivalents of c. 2.6bn (money market instruments) (Chart 23). Additionally, EDF had c. 1.3bn of liquid assets, which included c. 3.7bn equity and c. 6.6bn debt securities. The issuer also had undrawn credit lines, worth c. 8.6bn, including c. 8bn of credit lines with maturity of 1-5 years. Hence, compared to 211, the credit line volume declined by c. 1.6bn in 212 (Chart 24). EDF has a Euro Medium Term Note (EMTN) programme (ceiling of c. 3bn) and access to short-term liquidity sources (several Commercial Paper programmes with a volume of above 15.5bn). The company has very good market access and can enter the market in various maturities. In 213, the company issued c. 6.2bn of hybrid capital with first calls in 22, 223, 225 and 226. CHART 23: Liquidity position (including liquid assets) improved in 212 CHART 24: The level of undrawn committed credit lines with longer maturity (1-5 years) increased in 212 vs 211 2, 12, 16, 12, 8, 4, Cash Cash equivalents Liquid assets 1, 8, 6, 4, 2, 7 6,562 7,961 3, <1y 1 to 5 y >5y EDF s current ratio remained above 1, reaching the highest level in 211 at 1.33x and declining in 212 to 1.17x (Chart 25). This indicates that the company s ability to meet creditor demands has weakened slightly. Furthermore, the quick ratio's development showed a similar pattern during the period , declining to.66x in 212 from.7x in 211, driven by increased current liabilities (up c. 14% vs 211). CHART 25: Both current and quick ratios weakened slightly in Current ratio Quick ratio (rhs).3 Source: Commerzbank Corporates & Markets; company data; 12 do not delete 1 June 213

13 Cash flow analysis Operating cash flow (OCF) stabilised at the end of 212 and cash flow metrics (FFO and OCF related) recovered in 212 in light of improved cash generation. Nonetheless, due to significant capex, free cash flow (FCF) dipped even more strongly into negative territory. We believe negative FCF will persist due to high capex going forward. OCF was hit in 211 by a significant increase in working capital. In 212, the continued rise was more than offset by the FFO uptrend, which resulted in increasing OCF. Free cash flows (calculated as OCF less gross capex) were mainly negative in due to high capital expenditure levels. FCF became even more negative in 212. Dividend payments remained relatively stable in the same period (excluding the dividend payment in 29) (Chart 26), with a pay-out ratio of c. 55%-65% of net income. Cash flow ratios improved in 212 Looking at the development of cash flow ratios, we note that the two ratios (FFO/adj net debt and OCF/adj net debt) slumped in 211 due to a decline in FFO and given the increase in working capital. In 212, we saw a slight recovery in these ratios (Chart 27). CHART 26: FFO and OCF recovered from 211 lows in 212, while FCF became more negative in 212 CHART 27: Cash flow ratios improved in 212 bn bn % 13% 1% 5 Operating CF FFO FCF (rhs) -4 7% OCF/adj net debt FFO/adj net debt ; Commerzbank Corporates & Markets Capital structure ; Commerzbank Corporates & Markets Over the last five years, the debt share in the total capital structure increased slightly. We do not expect the capital structure to change substantially in the foreseeable future. EDF s debt to capital ratio remained relatively stable in the last 5 years The debt to capital ratio increased slightly to c. 88% in 212 (from c. 86% in 211) (Chart 28). having risen from 6.2x in 21, to 6.7x in 212. Hence, the development of these ratios reflects EDF s increased reliance on debt in the last five years. We do not expect these ratios to improve significantly in the short term, since we see only limited potential for deleveraging. CHART 28: Debt to capital ratio varied between 85% and 88% in the last five years 9% 7.5x 88% 7.x 86% 6.5x 84% 6.x 82% 5.5x 8% 5.x Debt to capital ratio Debt to equity ratio (rhs) Source: Commerzbank Corporates & Markets; company data 1 June 213 do not delete 13

14 Ratings review While Moody s and S&P both rate EDF as a government-related company, Fitch assesses it on a standalone basis. Overall, a sovereign downgrade would not implicitly trigger a direct downgrade of EDF, rather rating changes are linked to credit metrics (specific for each rating agency). EDF ratings benefit from the company s dominant position in the domestic market as well as from a very strong presence in the UK and Italian power markets, favourable regulation in France and the stable contribution of regulated operations to EBITDA. Rating agencies also consider EDF s significant debt-like obligations, high capital expenditures and political risks. All three rating agencies will recognise 5% of equity credit of the recent hybrid issuance. Moody s S&P Fitch Moody s assesses the company s default dependence from France as moderate, given the company s key role in the domestic market and its overseas operations. The agency evaluates the government s support as high, given the strategic importance of the utility and the legal requirement that the government s stake does not fall below 7%. The rating s negative outlook reflects Moody s uncertainty as to whether EDF will be able to keep its credit metrics within guidance (RCF/net debt in the mid- to upper-teens percentage range and FFO/net debt in the high-teens to low-twenties percentage range). S&P sees a high probability of extraordinary support from the French government should EDF have financial difficulties, due to the company s link with the French state and its importance to the French power system. S&P stated that a 1-2 notches downgrade of France or to BBB+ of EDF s SACP (or a simultaneous downgrade of France and EDF s SACP by 1 notch) would not trigger a rating downgrade. S&P s current rating does not take into account the possible construction of new nuclear blocks in the UK, which would put pressure on EDF s ratings. Fitch s rating does not take into account the State s major shareholding. The agency noted that any significant debt-financed acquisitions or higher shareholder remuneration would further increase leverage, and would result in negative rating pressure. The agency pointed out that an increase in FFO net leverage above 3x would be credit profile negative. Peer group comparison Our peer group comprises GDF Suez (A1/A), E.ON (A3/A-/a), RWE (A3/BBB+/A-), Vattenfall (A2/A-/A-), Enel (Baa2/BBB+/BBB+) and Iberdrola (Baa1/BBB/BBB+), Europe s largest vertical utilities after installed capacity with spread geographical presence; some are partially owned by local governments. In terms of operational margins, EDF s EBITDA margin was above that of its peers (median), indicating relative profitability strength (Chart 29). The company s ability to pay its interest expenses was also strong, since the company s EBITDA coverage ratio (EBITDA/interest paid) was higher than the median of comparables, with only Vattenfall s being higher (Chart 3). CHART 29: EDF s EBITDA margin was among the highest compared to the peers CHART 3: EDF had better interest coverage than its peers Median EBITDA Median EBITDA / interest paid Iberdrola Iberdrola Enel Enel Vattenfall Vattenfall RWE RWE E.ON E.ON GDF Suez GDF Suez EDF EDF % 5% 1% 15% 2% 25% 3% 35%.x 3.x 6.x 9.x 12.x 15.x Source: companies data; Commerzbank Corporates & Markets Source: companies data; Commerzbank Corporates & Markets 14 do not delete 1 June 213

15 Regarding debt metrics, the group had a significant net debt position on its books. Therefore, financial leverage ratio (net financial debt (own calculation)/ebitda) was among the highest in the peer group (Chart 31). EDF showed the highest debt to capital ratio (almost 88%), while its French peer, GDF Suez, showed the lowest ratio (Chart 32). CHART 31: EDF has one of the highest financial leverage ratios CHART 32: EDF s reliance on debt capital is stronger than that of its peers Median Iberdrola Enel Vattenfall RWE E.ON GDF Suez EDF Financial leverage Median Iberdrola Enel Vattenfall RWE E.ON GDF Suez EDF Debt to capital ratio.x 1.5x 3.x 4.5x Source: companies data; Commerzbank Corporates & Markets % 2% 4% 6% 8% 1% Source: companies data; Commerzbank Corporates & Markets We believe that EDF s fundamentals and political risk sensitivity are priced into the current spreads (ASW). The utility s cash bonds are trading slightly wider than Vattenfall and GDF Suez and practically in line with its German peers E.ON and RWE, which are rated c. 3 notches lower by Moody s (Chart 33; we show bonds with maturities up to 2.5 as an example; see also Charts 2). Moreover, EDF s peers have initiated credit-friendly measures (divestments, capex reductions, efficiency programmes), which will, in our view, support their credit metrics. CHART 33: EDF s cash bonds are trading almost in line with E.ON and RWE 1 bps 8 ENELIM 5 1/4 1/14/15 ENELIM 4 5/8 6/24/15 IBESM 7 1/2 11/25/15 6 EDFFP 3 1/4 3/17/15 IBESM 3 1/2 6/22/ RWE 4 5/8 7/23/14 EDFFP 4 1/4 7/22/14 RWE 5 2/1/15 EDF 4 7/8 5/6/15 EOANGR 5 1/4 6/6/14 EDF 5 1/8 1/23/15 GSZFP 5 2/23/15 EOANGR 5 1/4 9/8/15 mod. dur. VATFAL 4 1/4 5/19/ Source: Commerzbank Corporates & Markets; Bloomberg 1 June 213 do not delete 15

16 Appendix TABLE 2: Selected financial data of EDF Key financial data Balance sheet Assets Intangible assets 16,644 16,35 18,37 PPE 17,2 111, ,242 Investments in associates 7,854 7,544 7,555 Non-current financial assets 24,921 24,26 3,471 Deferred taxes 2,125 3,159 3,487 Non-current assets 158, , ,792 Inventories 12,685 13,581 14,213 Trade receivables 19,524 2,98 22,497 Current financial assets 16,788 16,98 16,433 Other receivables 9,319 1,39 8,486 Current tax assets Cash and cash equivalents 4,829 5,743 5,874 Current assets 63,67 67,98 68,85 Non-current assets held for sale 18, Total assets 24, ,962 25,118 Total equity 36,93 32,672 3,712 Total liabilities 23, ,29 219,46 Long-term provisions 49,465 53,956 61,688 Short-term provisions 5,1 4,62 3,894 Nuclear provisions 36,891 38,673 4,54 Long-term financial debt 4,646 42,688 46,98 Short-term financial debt 12,766 12,789 17,521 Trade payables 12,85 13,681 14,643 Income statement Sales revenue 65,32 65,37 72,729 EBITDA 14,156 14,939* 16,84 EBITDA margin 22.1% 22.9% 22.1% Group net income 3,15 3,387 3,557 Cash flow statement Funds from operations (FFO) 9,899* 1,282 12,314 Operating cash flow (OCF) 9,924* 8,497 9,924 Retained cash flow (FFO div.) 7,546* 7,899 9,959 Free cash flow -375* -2,637-3,462 Capex (PPE and intangibles) 1,274* 11,134 13,386 Dividend payment 2,353 2,383 2,355 Key credit metrics FFO / adj net debt 11.3%** 11.1% 11.4% EBITDA / interest expense 6.4 x 9.2 x 9.8 x Net financial debt (as rep) / EBITDA 2.4 x 2.2 x 2.6 x Adj net debt / EBITDA 6.2 x 6.3 x 6.7 x Debt to capital ratio 84.7% 85.9% 87.7% Source: Commerzbank Corporates & Markets; company data; *restated by the company; **if based on non-restated numbers it would be 13.1% 16 do not delete 1 June 213

17 ARENH price The ARENH price covers nuclear generation costs plus a fair remuneration that overall exceeds current integrated tariffs. Tariffs in France There are several so-called historical regulated tariffs in France, referring to different client groups: the blue tariff for residential and small businesses customers (c /MWh in 212), and the yellow (c /MWh in 212) and green (c /MWh in 212) tariffs for industrial customers and large businesses respectively. At the end of 212, c. 56% of generated electricity was sold to residential customers and c. 38% to industrial and business clients. Within the NOME law mentioned above, the blue tariff will remain in place until 215, and from 215 onwards it will be modified to reflect the ARENH principle. The yellow and green tariffs, in contrast, are to be discontinued from 215. CSPE CSPE is a tax that is included in the end power price, determined by the French State and collected by network operators and electricity suppliers in order to recover costs linked to their obligatory public service assignments. However, the CSPE levels were insufficient to cover EDF's costs, which led to the accumulation of receivables of c. 4.9bn (including the finance costs) at the end of 212. In the beginning of 213, the French State announced it is to repay EDF s accumulated receivables by June 213 do not delete 17

18 Reference to first page of disclaimer This document has been created and published by the Corporates & Markets division of Commerzbank AG, Frankfurt/Main or Commerzbank s group companies mentioned in the document. Commerzbank Corporates & Markets is the investment banking division of Commerzbank, integrating research, debt, equities, interest rates and foreign exchange. The relevant research analyst(s), as named on the front cover of this report, certify that (a) the views expressed in this research report accurately reflect their personal views about the securities and companies mentioned in this document; and (b) no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views expressed by them contained in this document. The research analyst(s) named on this report are not registered / qualified as research analysts with FINRA. 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