MANAGEMENT REPORT 2012 Page 1 sur 141 CONTENTS 1. FINANCIAL AND LEGAL INFORMATION ..................................................................... 3 1.1. KEY FIGURES .................................................................................................................. 3 1.2. ECONOMIC ENVIRONMENT AND SIGNIFICANT EVENTS OF 2012 ........................................ 6 1.3. ANALYSIS OF THE BUSINESS AND THE CONSOLIDATED INCOME STATEMENTS FOR 2012 AND 2011 ............................................................................................................................. 22 1.4. NET INDEBTEDNESS, CASH FLOWS AND INVESTMENTS.................................................... 35 1.5. RESEARCH AND DEVELOPMENT ..................................................................................... 40 1.6. MANAGEMENT AND CONTROL OF MARKET RISKS .......................................................... 43 1.7. TRANSACTIONS WITH RELATED PARTIES ........................................................................ 58 1.8. PRINCIPAL RISKS AND UNCERTAINTIES ........................................................................... 59 1.9. SIGNIFICANT EVENTS RELATED TO LITIGATION IN PROCESS ............................................. 60 1.10. SUBSEQUENT EVENTS .................................................................................................... 66 1.11. FINANCIAL OUTLOOK ................................................................................................... 66 1.12. INFORMATION ON EDF’S CAPITAL AND GOVERNANCE BODIES ....................................... 67 1.13. CORPORATE GOVERNANCE ........................................................................................... 72 1.14. OTHER INFORMATION................................................................................................... 80 2. CORPORATE RESPONSIBILITY .................................................................................. 82 2.1. SUSTAINABLE DEVELOPMENT......................................................................................... 82 2.2. ENVIRONMENTAL INFORMATION ................................................................................... 85 2.3. SOCIETAL INFORMATION ..............................................................................................105 2.4. SOCIAL INFORMATION ..................................................................................................117 APPENDIX 1- SUMMARY OF ENVIRONMENTAL AND SOCIAL INDICATORS .................................. 131 APPENDIX 2 - METHODOLOGICAL INFORMATION ON THE SOCIAL AND ENVIRONMENTAL INDICATORS FOR 2012 ................................................................................................................... 138 Page 2 sur 141 1. FINANCIAL AND LEGAL INFORMATION 1.1. KEY FIGURES Pursuant to European regulation 1606/2002 of 19 July 2002 on the adoption of international accounting standards, the EDF group’s consolidated financial statements at 31 December 2012 are prepared under the international accounting standards published by the IASB and approved by the European Union for application at 31 December 2012. These international standards are IAS (International Accounting Standards), IFRS (International Financial Reporting Standards), and interpretations issued by the SIC and IFRIC. The Group’s accounting policies are presented in note 1 to the consolidated financial statements at 31 December 2012. The figures presented in this document are taken from the EDF group’s consolidated financial statements at 31 December 2012. The comparative figures for 2011 have been restated for the impact of the change in accounting method for actuarial gains and losses on post-employment benefits under the options offered by IAS 19 (see note 2 to the consolidated financial statements). In the tables in this management report, these figures are reported as “2011 restated”. One notable event of 2012 was the takeover of the Edison group on 24 May 2012 (for details of the operation see section 1.2.2.1.1). Edison is fully consolidated as of that date, since the EDF group holds 97.40% of the capital and 99.48% of the voting rights in Edison. The Group’s key figures for 2012 are shown in the following table. Variations in value and percentage are calculated with reference to the restated 2011 figures. Extract from the consolidated income statements Variation Organic growth 2012 2011 restated Variation (%) (%) In millions of Euros Sales 72,729 65,307 7,422 +11.4 +5.8 Operating profit before depreciation and 16,084 14,939 1,145 +7.7 +4.6 amortisation (EBITDA) Operating profit (EBIT) 8,245 8,452 (207) -2.4 Income before taxes of consolidated companies 4,883 4,672 211 +4.5 EDF net income 3,316 3,148 168 +5.3 Net income excluding non-recurring items (1) 4,216 3,607 609 +16.9 (1) Net income excluding non-recurring items is not defined by IFRS, and is not directly visible in the consolidated income statements. It corresponds to the Group’s share of net income excluding non-recurring items and the net change in fair value on Energy and Commodity derivatives, excluding trading activities, net of tax (see section 1.3.9). Page 3 sur 141 Extract from the consolidated balance sheets 31 December 2012 31 December 2011 In millions of Euros restated Non-current assets 140,279 128,318 Inventories and trade receivables 36,710 34,489 Other assets 55,328 52,287 Cash and cash equivalents, other liquid assets, loans to RTE and joint ventures (1) 17,560 16,184 Assets held for sale (excluding cash) 241 684 Total assets 250,118 231,962 Equity (EDF share) 25,858 28,483 Non-controlling interests 4,854 4,189 Special concession liabilities 42,551 41,769 Provisions 65,582 58,018 Loans and other financial liabilities (2) 59,135 49,469 Other liabilities 52,089 49,897 Liabilities related to assets classified as held for sale (excluding loans and other 49 137 financial liabilities) Total equity and liabilities 250,118 231,962 (1) Including cash and cash equivalents of discontinued operations. (2) Including hedging derivatives and the financial liabilities of discontinued operations. Operating cash flow 2012 2011 restated Variation Variation (%) In millions of Euros Operating cash flow (1) 12,314 10,281 2,033 +19.8 (1) Operating cash flow is not an aggregate defined by IFRS as a measure of financial performance, and is not necessarily comparable with indicators of the same name reported by other companies. This indicator, also known as Funds From Operations (FFO), is equivalent to net cash flow from operating activities excluding changes in working capital, adjusted for the impact of non-recurring items, less net financial expenses disbursed and income taxes paid. Page 4 sur 141 Details of net indebtedness 31 December 31 December Variation Variation (%) 2012 2011 In millions of Euros Loans and financial liabilities 59,932 50,034 9,898 +19.8 Derivatives used to hedge liabilities (797) (834) 37 -4.4 Cash and cash equivalents (5,874) (5,743) (131) +2.3 Liquid assets (10,289) (9,024) (1,265) +14.0 Loans to RTE and joint ventures (1,397) (1,400) 3 -0.2 Net indebtedness of discontinued operations - 252 (252) Net indebtedness(1) 41,575 33,285 8,290 +24.9 (1) Net indebtedness is not defined in the accounting standards and is not directly visible in the consolidated balance sheets. It comprises total loans and financial liabilities, less cash and cash equivalents and liquid assets. Liquid assets are financial assets consisting of funds or securities with initial maturity of over three months that are readily convertible into cash regardless of their maturity and are managed according to a liquidity-oriented policy. The definition of net indebtedness was revised in 2012 and now includes the Group’s loans to RTE and joint ventures. Page 5 sur 141 1.2. ECONOMIC ENVIRONMENT AND SIGNIFICANT EVENTS OF 2012 1.2.1. ECONOMIC ENVIRONMENT 1.2.1.1. TRENDS IN MARKET PRICES FOR ELECTRICITY AND THE PRINCIPAL ENERGY SOURCES European energy prices were affected in 2012 by the fall in prices for coal and CO2 emission rights, and a substantial rise in energy generation from renewable sources in Germany. 1.2.1.1.1. Spot electricity prices in France, the United Kingdom, Italy and Germany1 France United Kingdom Italy Germany Average baseload price for 2012 (€/MWh) 46.9 55.2 75.5 42.6 Variation in average baseload prices, 2012/2011 -4.1% +0.3% +4.6% -16.6% Average peakload price for 2012 (€/MWh) 59.4 63.3 85.2 53.4 Variation in average baseload prices 2012/2011 -2.1% +2.9% +3.5% -12.6% The comments below concern baseload prices. In France, spot electricity prices stood at an average €46.9/MWh, €2.0 MW/h lower than in 2011. The decline is partly attributable to the significant fall in the price of CO2 emission rights and coal. The increase in imports from Germany, where there was a substantial output of cheap energy from renewable sources, also drive prices downwards. Pr +ices also showed much higher volatility this year. The spell of cold weather in February caused significant peaks in prices, while the mild temperatures and high output of harnessable energy2 in the last third of December led to low prices at the end of the year as the supply-demand balance was extremely relaxed, and negative prices were even observed at certain hours. Given this context and the state of its fleet, the EDF group was a purchaser in all negative price hours. In Germany, prices fell markedly to an average €42.6/MWh, down by €8.5 MWh from 2011. Even more than in France, this change is explained by the lower