Electricité de France S.A.

Xavier Girre - Chief Financial Officer

Cosma Panzacchi - Bernstein Harry Wyburd - Merrill Lynch Martin Young - RBC Vincent Ayral - Société Générale Philippe Ourpatian - Natixis

Good afternoon, everyone. It’s my pleasure to welcome you to this conference call.

I will walk you through our first quarter sales, starting with the main highlights of the period, and I will then open the floor for a Q&A session. First, let me start with Slide 3.

As you know, the first three months of 2016 were marked in Europe by power prices at historical lows, especially in France, stiff competition and generally mild weather. In this context, group sales for the first three months of 2016 were down 6% in organic terms.

The nuclear fleet displayed good availability in general, but the weather effect on demand led to a lower nuclear output in France, down 2.1 terawatt hour. Sales also reflect the evolution of the market environment with the end of yellow and green regulated tariffs in France and the lower average number of product accounts in the UK.

Since our last communication on the February 16, 2016 when we released our full year 2015 results, we have continued to seize the active development opportunities, firstly at EDF Énergies Nouvelles with the agreement for the acquisition of groSolar, a company specialized in the design, development, sale and installation of solar PV plants for utilities, corporations and industrial operators in the U.S. This transaction will enable EDF to serve the segment of commercial and industrial customers an ever expanding range of competitive, decentralized and low carbon solutions in the U.S.

EDF EN also signed several PPAs over the period, including one with Southern California Edison for a 111 megawatt solar PV project. Another key development for our EDF Énergies Nouvelles which we announced this morning was the signing of the strategic partnership with Enbridge for the French offshore wind project.

Through this agreement, Enbridge, which constitutes DONG, acquires a 50% stake in Eolien Maritime France, the company controlling the future three offshore wind farms. EDF Energies Nouvelles and Enbridge will be co-owners at 50%-50% of EMF.

This is another decisive step towards strengthening the development and efficiency of our renewable assets portfolio in France, and it fits perfectly with our CAP 2030 strategy. EDF had also achieved important milestones in its strategy to develop low carbon energy.

In India, end of January, we had MoUs and agreements signed in three important areas, nuclear, renewables and sustainable cities as well as in Egypt in April, where MoUs were signed for developing low carbon energy. Let me highlight one last development, the acquisition of Studsvik’s facilities in the UK and Sweden dedicated to nuclear waste management and decommissioning activities as well as a development agreement with the company in this growing market.

Closing of this acquisition is expected in Q3. If we go now to Slide 4, indeed one of our major announcements over the last few months was the presentation to the board on 22 April of the group’s long-term financial perspectives and our action plan to reinforce EDF’s capital structure.

Let me outline the key elements of this plan. First, net investments on the current scope of activities, which means excluding Linky and excluding new developments net of disposals would be optimized by close to €2 billion in 2018 compared to 2015.

As a result, net investments over this scope should reach €10.5 billion in 2018. Second, cost reduction measures are extended to 2019.

As you know, the group already reduced costs by around €300 million in 2015 compared to 2014. Beyond these reductions already achieved last year, we had announced a cost reduction objective of €700 million in 2018 compared to 2015.

The reduction objective is now extended to at least €1 billion in 2019 compared to 2015. Third, the disposals plan initiated in 2015 to contribute to financing new development investments strengthens to €10 billion over the 2015 to 2020 period.

This includes up to 50% of active equity capital, thermal power generation assets outside France and minority stake. Beyond this action plan, the EDF board was also presented a project to increase the company’s equity capital.

This includes a proposed option to pay the dividend related to fiscal years 2016 and 2017 in shares as well as a proposal to submit to the Board of Directors by the closure date of the 2016 accounts subject to market conditions, a capital increase project via a rights issue on the amount of around €4 billion. You may have seen that the French state announced its intention to opt for a scrip dividend for fiscal years 2016 and 2017 and to subscribe €3 billion into this capital increase.

Coming back down to the sales results for the first quarter and moving to Slide 5, group sales came to €21.4 billion, down 6% in organic terms. All segments recorded lower sales in a low market price environment.

Sales were also hit by generally mild weather at the beginning of the year in the western part of Europe and by intensifying competition in several markets. Slide 6.

Let me review sales in each segment in more detail. Starting with France on Slide 6, sales amounted to €12.1 billion, down 4.8% compared to the first quarter of 2015.

Over the first three months of 2016, temperatures were on average 0.8 degrees Celsius above those of the same period last year. This carried a 3.8 terawatt hour negative effect on the consumption of our end consumers and overall a €320 million negative impact on sales.

The tariff increase on August 1 last year carried a €140 million positive impact. However, sales were generally penalized by market conditions with an overall negative impact of €442 million.

This includes negative €278 million related to the end of yellow and green regulated tariffs. Sales were also hit by the increasing share of generation volumes sold on the wholesale market, hence at lower pricing and sales to end customers fell and no volume was sold under the ARENH mechanism.

Going now to Slide 7, you see the upstream, downstream balance on the right hand side. And on this balance, you clearly see a shift in sales volumes, with volumes previously sold to end customers and under the ARENH essentially transferred to the market.

On the generation side, on the left hand side of the slide, output from our nuclear, thermal and indoor fleet dropped overall by 3 terawatt hours, while volumes purchased under feed-in tariffs increased by 2.3 terawatt hours illustrating the growing importance of renewables generation in the mix. Slide 8.

Let me focus specifically on French nuclear generation. Over the first three months of 2016, the cumulative output is down 2.1 terawatt hours or minus 1.8% versus 2015.

With the milder weather conditions experienced over the period, dispatching of the fleet was reduced. Taking into account the impact of this mild weather as well as the steam generator handling accident at Paluel 2 and its consequences on the outage duration of the reactor, the group decided to adjust its 2016 target range for nuclear output to 408 to 412 terawatt hours from 410 to 415 terawatt hours initially.

Moving to the next slide, Slide 9. As you can see on the right hand side, we experienced more favorable hydro conditions in this first quarter than last year.

This allowed us to keep the output equivalent to the same period last year at 12.3 terawatt hours as you can see on the left hand part of the slide. We are reducing the use of water stocks, which were comparatively lower at the beginning of 2016.

Let’s now move to the UK, Slide 10, where EDF Energy sales are down 9.8% in organic terms to €2.9 billion. The British nuclear fleet continued to display good operational performance with a stable output at 15.7 terawatt-hours.

But sales were penalized by the mild weather and by continued stiff competition, especially in the B2C market, where the average number of product accounts was down 4% to 5.2 million. In Italy, on Slide 11, sales amounted to €3.1 billion, down 4.3%.

Sales in electricity activities were mainly impacted by falling wholesale power prices and by the 0.3 terawatt-hours drop in hydro output. Sales in hydrocarbon activities were up, benefiting from increased sales to industrial customers and increased activity in wholesale markets.

This was partially offset though by the impact of lower Brent prices. Moving now to the other international segment on Slide 12, sales in this segment were down organically by 7.2% at €1.5 billion, Belgium, sales decreased by 9.6%.

Gas sales were hit by reduced prices. The positive impact of growing electricity sales volumes was partially offset by lower prices.

Sales were up 6% in Poland, with heat sales supported both by higher prices and growing sales volumes as network connections increased. Sales also benefited from increased availability in power generation capacity, in particular, after significant maintenance outages in 2015 in the CHP units.

Brazil sales were up under the positive impact of the annual PPA tariff revision and increased dispatching by new TSO. Finally, sales in this segment no longer include the Figlec concession in China, which ended in 2015, the impact is €70 million.

Moving finally to other activities, Slide 13, sales came to €1.8 billion, decreasing by 9.4% in organic terms. Dalkia’s sales are down 7.7% organically under the combined effect of mild temperatures and lower heat and power prices.

Sales at EDF EN are up 0.5% as its generation set benefited from good wind conditions. EDF Trading experienced 35.5% organic drop in its trading margin over the quarter.

This is due to the wholesale price evolution and the negative impact on trading volume of mild weather and low volatility. The mild weather also hit gas and electricity sales at Electricite de Strasbourg, the storage activity provided support to the gas business.

Slide 14 and moving to the last two slides of this presentation today, with our prospects for 2016, which is our guidance and 2018, which is our roadmap. I am confirming our targets for 2016 and let me outline them again.

We target an EBITDA between €16.3 billion and €16.8 billion at constant exchange rate. We continue to aim for a net financial debt at between 2x and 2.5x EBITDA.

And our dividend policy remains based on a payout ratio between 55% and 65% of net recurring income adjusted for hybrid coupons. Last point from my presentation today, our 2018 ambition, our road map is to reach a positive cash flow post dividends in 2018 on a scope excluding Linky and new developments, net of disposals.

This will not remain unchanged. Slide 15, this slide shows key drivers of our 2018 roadmap.

They include first, our ability to control our net investment, including major projects such as Grand Carénage and Flamanville 3. As I said at the beginning of my presentation, we intend to reduce CapEx excluding Linky and other new developments by nearly €2 billion in comparison with 2015 to €10.5 billion in 2018.

Second, our ability to improve working capital requirement is also key, with a roadmap aiming at improving it by €1.8 billion by 2018 in comparison with 2014. Lastly, of course the OpEx reduction is also a key driver of this road map.

This concludes my presentation. Let me thank you for your attention and open the floor now to your questions.

Thank you, operator. We are now ready for the Q&A session.

Just before we start we remind our participants that as the extent of market rule, we simply ask you to limit yourself to two questions. Thank you.

Xavier, the first question comes from Ahmed Farman from Jefferies, and it’s an Internet question. Question one, with the new action plan, do you expect to keep your current credit A rating, that’s the first question.

The second question is on CO2, on the unilateral carbon price proposal, when do you expect further clarity from the government and could you help us understand what a €30 per ton carbon price floor would mean for power prices and consumer bills? Thanks.

Thank you for these two questions. First, as regards our rating, as you know we are under a negative watch by both S&P and Moody’s like many of the European utilities.

And they will decide in the next days about our ratings, so I think it’s too early to tell. It’s also very important to have in mind that we really care about our rating and we have of course, constant discussions with them.

Second question, as regards the carbon price, we have taken notice of the announcement made by President Francois Hollande about his announcement of a unilateral setup of the carbon floor in France. We consider it’s a very positive step forward.

This could have a significant impact from an environmental point of view, of course. If it’s significant enough, it could reverse gas and coal in the merit order, and this could also have quite an impact even if it’s limited on the price of electricity.

It’s important to note that the impact on the bill for the end consumer would be, in any case very limited.

Thank you. Next question from the Internet is from Andrew Moulder from CreditSights.

And the first question is how significant is the decision on Brexit for EDF and would an exit cause you to evaluate Hinkley Point or even your current UK business?

Thank you for this question. It’s very important to have in mind two points.

The first one is that as regards the global EDF business in UK, EDF is a key operator in UK. EDF is in Great Britain for more than 10 years, clearly a key operator.

And as a consequence, EDF plays a key role in the energy mix in Great Britain. The second point as regards Hinkley Point.

Hinkley Point is based on regulated agreement, in particular as regards the energy price, which is called the CFD, the Contract for Difference. And this is a contract.

So being a contract, it cannot be changed. So it’s something which is not dependent from a change in policy.

Thank you. Operator, we can go through the telephone questions, please.

Hello, hi. This is Cosma Panzacchi from Bernstein.

Thank you for taking my two questions. The first one is again on the carbon price floor, so assuming that it’s really €30 per ton and assuming that it is a tax that will be proposed at the end of this year, considering the fact that more or less 7% of the French power production is actually thermal, wouldn’t it be fair to imagine a maximum impact on the power prices of approximately €2 per megawatt hour and also to imagine that, that will have mostly an impact starting from 2018 on EDF accounts also considering your hedging policies?

The second question with regards to AREVA, according to your original plan, you by now should have already identified other partners negotiated their shares and signed the agreement in the case of AREVA and the acquisition. And the acquisition should, in theory, be completed by H2 2016.

So, could you please update us on whether the timeline is still realistic, given the fact that AREVA is still entangled in its TVO litigation and whether the €2.7 billion price tag is still a fair valuation for AREVA given how the share price of the company has moved? Thank you.

Thank you for these questions. As regards to AREVA, discussions are going on and I will not say more today.

As regards the carbon price floor, we do not comment upon assessment of the impact on the electricity price. It’s obviously clear that unilateral decisions only taken on the French basis will have quite a limited impact.

It could have also an impact on stimulus for other countries. So in the long-term, it could have also more significant impact, but we will not either confirm or comment upon these evaluations.

Thank you. Cosma, just as a reminder, we – on the valuation of AREVA, we already said that it was €2.5 billion I think I heard €2.7 billion.

Next question, operator please from the telephone.

Hi, there. I will give carbon price floor a rest for now.

So, two questions from me. Firstly, aside from the carbon price floor, are there any other measures being proposed or considered, which could secure EDF a more stable power pricing for the nuclear fleet in the long run?

So, I know in the press, there has been some suggestions that there was a concept of spinning out the nuclear fleet into a special purpose vehicle and giving that a regulated power price. So, is that something that you think is workable, particularly in the context of any sort of EU hurdles to doing something like that?

And then secondly, Hinkley Point has been – or the final investment decision on Hinkley Point is now delayed until September. What are the key hurdles you need to jump over there in order to get that signed off?

What are you waiting for effectively?

Thank you for the two questions. As regards the power price, today what has been announced only focus on the carbon price floor and nothing more.

You know that there are also some debates as regards the capacity mechanism, the target of which being to give remuneration to reduce it, which are necessary for the global balance of the system and which are not used on a regular basis. As regards HPC, we have started consultation of the working council, and so this is ongoing.

And for the rest, the contracts are ready. They are in their definitive situation.

And so we’ll be in a position to submit the decision to our board once the consultation of the working council is completed.

Okay, thank you.

Thank you. Next question from telephone please?

Good afternoon to everybody and just the two. The first one relates to the cost reduction program that you have elaborated and obviously slightly increased in the announcements of last month.

If we stack that up against some of the cost reduction efforts that have been undertaken or underway from your immediate peer group, the EDF plan does look a little bit light in terms of its ambition. I just wondered why you don’t feel that you can go significantly further at this stage given the competitive pressures which you have quite clearly highlighted today in the presentation.

And then the second question sort of gets back to the formation of power prices in France, yourselves have used a slide from the CIE relating back to price formation in 2014 where we see I think it’s about 9% of the price being set by gas and 13% being set by domestic coal generation and hydro being somewhere in between the two, about 23%, 24%. So, is it right to think that about 40% to 45% of the power price formation, wholesale power price formation in France is being driven either directly by gas or coal or indirectly through the optionality pricing of hydro in the mix?

And extending that, if you had a €24 per ton delta on carbon moving from the current €6 to €30 that maybe the difference movement on the power price would be somewhere in the region of €6 or €7 per megawatt hour? Thank you.

Thank you. As regards to the power price in France as you know, the power price is set and the marginal cost of the energy, which is coal.

And of course, it depends on the balance between the demand and supply. But on many occasions, these prices set the gas price and some occasions and the coal price.

So, this is why the carbon price floor, which could switch this merit order, could have quite an impact on the electricity price. As regards the cost reduction program, I really do not consider that the $1 billion bottom line between 2015 and 2019 is the right program.

First, it comes after already $0.3 billion cost cut in 2015 in comparison with 2014. So, it’s an ongoing process.

And secondly, we definitely want to both reduce cost and maintain competencies in order to develop our energy mix in both nuclear and renewables. So, it’s important for us to find the right equilibrium.

So €1 billion in 2019, once more it’s bottom line, it’s something that we should shoot for at least. As we said, it’s a minimum of €1 billion and we are clearly dedicated to that.

Thank you. Operator, can we have the next question on the telephone please?

Hi, good afternoon. So, I will not go on CO2.

There have been many attempts. Just it would be interesting to know if we may have a teaching for investors, if you can offer a comment on the impact at least educate us potentially on the integral dilution on the CO2.

Regarding the capital increase, that’s my question number one. Here we have a temporary fix of the balance sheet that benefits the credits.

It’s at the expense of the equity investors’ dilution, but we will need a proper regulatory reform after that. This is a temporary thing.

When we listen to the parliament hearings, it seems that they have some discussions ongoing with the government, between EDF and the government, which is great. Do you have any type of color you could provide us on the type of schemes you are potentially discussing there, I know one of my competitors and colleagues talked about spinning off the nuclear asset in the different division, that’s one example.

There are a number of other ways to potentially solve the equation, it would be great if you could give some color there. And then the second question I would have is coming back for example, for the cost reduction, we are talking here about an OpEx reduction.

However, I would like to be sure that here we are talking about cost savings and that fuel costs are excluded, so just to understand how I should model that. We know commodity prices have been going down, so there is a mechanical effect on the fuel cost, so what is the cost saving, is this €1 billion a proper cost saving excluding fuel?

Thank you.

Thank you for the two questions. First, our cost base excludes fuel.

It’s clearly our OpEx base. To give you the figure, I mean for 2015, the OpEx base was €22.055 billion.

And it’s clearly on this basis that we shoot for at least €1 billion cut in 2019. This OpEx base once more was at the level of €22.35 billion in 2014.

So clearly, this excludes fuel. This includes on the other hand, staff costs and other operational costs.

As regards to your second question, we are not at all considering any kind of spin-off within the group. We are developing, implementing our strategy of what we call capital [ph] midpoint being integrated utilities dedicated to any kind of low carbon power.

And clearly, our global plan with including the capital increase, including also scrip dividend to which the States has already opted for, will help us to finance this global and integrated strategy.

My question was not whether we will have a spin-off or not, it was more what type of solution are you potentially contemplating regarding regulatory fix after the elections? Thank you.

The regulatory what, sorry, could repeat your question?

Regulatory fix, some regulations which should provide sufficient stability for enabling EDF to do the investments necessary to get the lights on in France?

I mean as regards the regulatory matters, there are clearly two points which are on the table. And then which the government has already commented upon, which are the carbon price floor and capacity mechanism.

As of today, there is nothing else on the table.

Thank you. Operator, we are going to go through the Internet questions now.

The next question is from Julie ARAV at Kepler Cheuvreux. First question is when do you expect the PPE on nuclear to be published, is 1 of July still a deadline and will it trigger EDF’s Board decision to extend the depreciation life of the nuclear fleet, that’s the first question.

And the second question is what regulatory evolutions are needed and discussed with French government to secure sufficient returns on the Grand Carénage program in France?

So the second question is the same, we already answered. As regards the PPE, we understand that the government is considering publishing the PPE for the 1 of July.

And on the basis of this PPE, we will consider the extension of the lifetime from an accounting point of view of our nuclear fleet. We have of course discussions about that.

We have also received some questions by the ASN, the safety regulator and we have answered all the questions that have been asked about this matter. This is where we stand today.

Thank you. We have another question from the Internet from Jim Sparrow at BNP Paribas.

The first question is, do you think the measures you proposed will be sufficient to prevent a more than one notch credit rating downgrade if you proceed with Hinkley Point. Question number two, how confident are you that the latest issue that Areva Le Creusot plant will not be too serious?

As regards to the Le Creusot announcement that has been done by Areva, of course we take them very seriously. We are – of course we are waiting for the assessment of the situation, which is currently being done, before commenting about the complication of this announcement.

As regards the – our rating, I will not comment upon what we expect from the rating agencies. But I would like to highlight that our action plan is a comprehensive one.

Clearly, we have said prefer on costs, on CapEx. We have also build a comprehensive disposal program and some clearer actions to reinforce our balance sheet to which the State has already announced its intention.

So I consider that this comprehensive action plan is appropriate to enable us to finance our investments that are once more necessary to – for the next years. And this action plan is appropriate to finance these investments even if we are downgraded and even if the market conditions were not as positive as they are today.

Thank you. Please, operator, can we go back to the telephone questions, please?

Yes. Good evening to all of you.

I have just one question, it’s mainly concerning to the French dam, the decree has been published on the French official journal, could you just update us about, first the diary. Secondly, the hypotheses which are included in the CAP 2030 based on the possible loss of market share and capacities regarding this French dam opening process?

Many thanks.

Thank you. The decree has been published on the 30 of April.

We – so first, it’s a decree that’s been taken in the frame of the law of last year about energy transition. This decree opens some opportunities as regards the blueprint concessions, in the same value, in a consistent value.

So it enables to combine the concessions. And second, it enabled the creation of hydroelectric semipublic companies made up of shareholder operator chosen by tender and a public partner.

And third, it opened possible extension of certain concessions in return for work required to achieve energy policy objectives. So, we consider the decree is quite positive consistent with the goals that are pursued.

Alright, thank you. We are going to have another question from the internet from Sofia Savvantidou at Exane.

Have customer losses in France and the UK been in line with your expectations? And can you tell us a bit on the trend in supply margins in those two countries?

Yes. Of course, we have faced a key event at the end of last year, which was in France the end of the yellow and green tariffs for enterprises and we had to structure and to offer to our customers, new offers.

We have convinced more than 70% of them to sign new offers with us, which we consider a very positive achievement. And at the beginning of the year, it’s also quite positive both on B2B and B2C according to our expectations.

As regards the UK where we face also stiff competition. And as I have explained, we have lost some volumes, but this is also in line with our expectations in the frame of stiff competition and also quite significant price pressure in this country.

Thank you. Maybe one or two last questions from the telephone, please.

Yes. So, I would like to try to focus a bit on the positive there.

I know this set of results shows a lot of organic growth being in the negative territory, but are there any elements where you actually have been surprised versus your planning and budgeting so far? That would be question number one.

And regarding that, we see that you understandably decreased your French nuclear targets to reflect the extended Paluel outage, but I understand that your maximum theoretical UK output is much really higher than last year. So, could you give us a generation target for the UK or an idea of what we can expect on this side of things?

Thank you.

I am sorry could you please repeat your first question?

The nuclear output one?

No, no, this was the second one. The first one.

I was asking just – because when I look at it, I see a lot. I mean, we know there are difficulties with commodity price evolution and we saw a negative organic growth in all the divisions there.

I am wondering what are potentially the positive surprises that you have seen when basically building these Q1 numbers?

Okay, thank you. As regards the trends or the market trends and our top line trend for this first quarter, clearly, it’s not a surprise.

We had expected that due to the market conditions and due in France to the specific circumstance of the end of these yellow and green tariffs. Once more, there is no bad surprise there and this is why we are in a position to confirm our 2016 guidance.

As regards the nuclear output, we have slightly reduced our perspective for 2016 nuclear output in France due to this accident in Paluel 2, which will extend the duration of the outage of Paluel 2, which will not come back in 2016. And as regards the UK, as you have seen we are really perfectly consistent with the first quarter of 2015.

We do not give guidance or perspective for our nuclear output in UK, but as you can see this is month after month an improvement and the beginning of the year was slightly hampered by mild weather, but the operational performance is very good in the UK.

Thank you. We are going to finish with the last question on the phone.

Operator, please.

Hi. Just one final one for me, could you just say whether you are comfortable with the consensus on your website for net income, which is recurring net income ex pre-hybrid of €3.6 billion to €3.7 billion for 2016?

Harry, the website has been updated. It’s not €3.6 billion, €3.7 billion, now it’s €3.5 billion, just FYI.

Okay. Different from the one I looked just now.

So, are you comfortable with €3.5 billion then?

Thank you for your question. So you asked me to comment upon euro consensus.

This consensus is based for most of the analysts on a change in the depreciation policy from 40 to 50 years for the entire nuclear fleet with the corresponding impact, which is assumed by the market to be around €450 million, net income impact. And there is also a second hypothesis which is taken by the market and most of the analysts, which is a level of capital gains of around €500 million in 2016.

So taking into consideration these two hypotheses, yes, I feel comfortable with the consensus.

Thank you. That will end our call.

I leave the floor to Xavier to conclude.

I thank you for your attention. It was my pleasure to welcome you to this conference call.

I hope you got what you expected from our company and it will be our pleasure to meet you in our next calls. Thank you.

Bye-bye.