FRENCH UNEMPLOYMENT INSURANCE INVESTOR PRESENTATION October 2017 Investor Presentation - October 2017 1
TABLE OF CONTENT Compensation by unemployment insurance Management of the insurance entrusted to the social partners Two public operators are in charge of collection and payment of benefits Continuity and sustainability of the scheme are guaranteed Possible future changes of the french unemployment insurance Investor Presentation - October 2017 2
COMPENSATION BY UNEMPLOYMENT INSURANCE Investor Presentation - October 2017 3
COMPENSATION BY UNEMPLOYMENT INSURANCE *at 12/31/2016 Investor Presentation - October 2017 4
MANAGEMENT OF THE INSURANCE ENTRUSTED TO THE SOCIAL PARTNERS Investor Presentation - October 2017 5
UNÉDIC MANDATES TWO PUBLIC AGENCIES TO CARRY OUT OPERATIONS OF CONTRIBUTION COLLECTION AND BENEFIT PAYMENT Investor Presentation - October 2017 6
CONTINUITY AND SUSTAINABILITY OF THE SCHEME ARE GUARANTEED Collective negotiation every 2 or 3 years to ensure financial balance over the cycle A legal obligation for a balanced budget (Labour Code Art. L 5422-12) Definition of the mechanisms for a 2 to 3 years term, depending upon the financial situation of the unemployment insurance, the job market and unemployment levels Adjustable variables in order to reach equilibrium: Contribution rate Unemployment insurance eligibility criteria Amount and duration of benefits A scheme with a tacit guarantee from the State Compulsory nature of the unemployment insurance (Labour Code Art. L 5422-13) Ministerial approval of the insurance agreements (Labour Code Art. L 5422-21) Unédic is substituted by the government take-over should the social partners and employers organisations fail and reach an agreement or obtain its governmental approval Bonds issuance supported by an explicit State guarantee, renewed since 2011 Amending Finance Law of 30 December 2016 (article 36): authorisation to provide an explicit guarantee Ministerial Order granting the guarantee (6 March 2017) Investor Presentation - October 2017 7
POSSIBLE FUTURE CHANGES OF THE FRENCH UNEMPLOYMENT INSURANCE FROM THE PRESIDENTIAL ELECTION CAMPAIN TO APPLICABLE MEASURES During the election campaign, President Macron announced new plans for unemployment insurance: Opening up unemployment benefits to new populations including independant and resigning workers Changes in payroll charges substituting contributions paid by the employees by increasing CSG taxes (General Social Contribution) The dialogue between social partners and the State is planned to start around the end of November 2017 Unédic has been involved in the expert group in charge of documenting baseline data for the dialogue: Legal implications Financial risks of the changes Verification and evaluation of the data gathered in the baseline data The new plans could lead to a stronger involvement of the State in the French unemployment insurance management Investor Presentation - October 2017 8
Economic outlook in France Improvement of business climate Reduction of business failures Improving GDP growth Unemployment stabilisation Investor Presentation - October 2017 9
IMPROVEMENT OF THE MACROECONOMIC SITUATION IN FRANCE After years of relative growth, various indicators show significant improvement of the situation Opinion survey index of business leaders Long term average Business climate Employment climate Source : INSEE Investor Presentation - October 2017 10
IMPROVEMENT OF THE MACROECONOMIC SITUATION IN FRANCE After years of relative growth, various indicators show significant improvement of the situation Evolution of business failures Source : Banque De France Investor Presentation - October 2017 11
IMPROVEMENT OF THE MACROECONOMIC SITUATION IN FRANCE After years of relative growth, various indicators show significant improvement of the situtaion GDP growth Long term average Japan United Kingdom United States France Business climat Employement climat Source : OECD Investor Presentation - October 2017 12
IMPROVEMENT OF THE MACROECONOMIC SITUATION IN FRANCE The amelioration of the situation is starting to produce effects on employment Unemployement level (ILO) 9.2% Source : INSEE Investor Presentation - October 2017 13
Financial Forecast Research methodology and forecasts Unédic hypotheses, revenue and expenditure Stable revenue, expenditure negatively correlated to the economic situation The 2017 new rules for the unemployment insurance scheme Savings generated by the new rules Unédic financial outlook and debt forecasts A leverage effect upon the balance of the unemployment insurance Position in the economic cycle and cyclical balance Unédic structural balance Structural balance analysis and impact on the 2017 agreement Investor Presentation - October 2017 14
UNÉDIC RESEARCH METHODOLOGY AND FORECASTS Forecast updated three times a year Based on macro-economic indicators from the Consensus of Economists: Forecast in change of GDP rate CPI Some hypotheses used by Unédic in its forecast model can differ from the State macro economic framework Careful monitoring of the working population, wage bill change, unemployment benefits paid, etc. Forecasts reviewed by unemployment insurance managers for daily management Unédic has an obligation to conduct every years a 3 year forecast and analysis of cyclical effects on its finances Finance Law for 2014-2019 Art. 29: Unédic reports every year to the Parliament and the Government, before the 30 June at the latest, its three year financial forecast, detailing in particular the cyclical effects of salaried employment evolution on the financial balance of the unemployment insurance scheme The 3 year forecast and structural and cyclical balance analysis help the social partners adapt the rules for the Unemployment insurance Unédic has to keep a balanced budget over the economic cycle Investor Presentation - October 2017 15
UNÉDIC HYPOTHESES, REVENUE AND EXPENDITURE Unédic financial balance is based on the following macroeconomic indicators The macroeconomic hypotheses used for Unédic forecasts are based on the Consensus Forecasts : 2012 2013 2014 2015 2016 2017 (f.) 2018 (f.) 2019 (f.) 2020 (f.) GDP growth (in volume) 0,2% 0,6% 1,0% 1,0% 1,1% 1,5% 1,5% 1,5% 1,5% Wage bill growth 2.2% 1.2% 1.6% 1.7% 2.4% 2.7% 2.5% 2.5% 2.8% Unemployment level 9,7% 9,7% 10,1% 9,9% 9,7% 9,3% 9,1% 8,9% 8,7% The macroeconomic indicators and Unédic cautious statistical method result in revenue and expenditure forecast : 2012 2013 2014 2015 2016 2017 (f.) 2018 (f.) 2019 (f.) 2020 (f.) Annual revenues ( M) 32,466 33,274 33,936 34,520 35,146 35,935 37,044 37,909 38,845 Annual expenditures ( M) 35,193 37,271 37,746 38,769 39,503 39,581 39,996 39,782 39,607 Sources: Unédic, INSEE, Consensus Forecasts June 2017, Unédic Calculations Note: Unédic forecasts are based on hypotheses which may differ from the State macro economic framework Investor Presentation - October 2017 16
STABLE REVENUE, EXPENDITURE NEGATIVELY CORRELATED TO THE ECONOMIC SITUATION Contribution and expenditure relative to GDP Sources: Unédic, INSEE, Consensus Forecasts June 2017, Unédic Calculations Note: Unédic forecasts are based on hypotheses which may differ from the State macro economic framework Investor Presentation - October 2017 17
THE 2017 NEW RULES FOR UNEMPLOYMENT INSURANCE Collective negotiations conducted every 2 to 3 years by taking into account the changes of the economic situation. The 2017 agreement should generate up to 300M each year thanks to the 0.05% additional exceptional contribution paid by employers for the next three years. Considering the same legal framework, 10% of the additionnal revenue will be redistributed to Pôle emploi. Meanwhile, from 2018 to 2020, thanks to the new set of measures, Unédic expenditures are projected to progressively decrease by 280-400M per year. Implemented in October 2017 but only producing effects as of 2019, raising the eligibility for receiving longer unemployment benefits to people aged 53 years old or older (instead of 50 years old) will further decrease Unédic expenditures. Eventually, the measure should achieve full effects by 2022 onward and generate savings worth 900M. Investor Presentation - October 2017 18
SAVINGS GENERATED BY THE NEW RULES Projected savings generated between 2018 and 2022 Full effect Sources : Unédic, Unédic calculations June 2017 Note: Unédic studies are based on hypotheses which may differ from the State macro economic framework Investor Presentation - October 2017 19
UNÉDIC FINANCIAL OUTLOOKS AND DEBT FORECASTS Significant improvement of Unédic financial forecast In month of revenue Sources: Unédic, INSEE, Consensus Forecasts June 2017, Unédic Calculations Note: Unédic forecasts are based on hypotheses which may differ from the State macro economic framework Investor Presentation - October 2017 20
A LEVERAGE EFFECT UPON THE BALANCE OF THE UNEMPLOYMENT INSURANCE With the current parameters of unemployment insurance (contribution rate and compensation rate), the contributions of roughly 9 affiliated employees are necessary to compensate 1 jobseeker 1 employee losing his job has a compounded negative effect upon the finances of unemployment insurance: - 1 contributor + 9 contributions consumed 1 jobseeker finding a job has an enhanced positive effect upon unemployment insurance finances: + 1 contributor + 9 contributions available There usually is a delay of 6 months to a year before this levered effect can be noticed Investor Presentation - October 2017 21
STRUCTURAL AND CYCLICAL BALANCE THEORY Structural and cyclical balance relative to the economic cycle Unédic cyclical and structural debtanalysis to help monitor the unemployement insurance management Current situation Negative structural balance or structural deficit : years of surplus cannot compensate enough for years of deficit. Structural deficit = 1,5bn Cyclical deficit Financial situation indebtedness increases Target hypothical situation Structural balance: years of surplus compensate for years of deficit. Surplus Financial situation indebtedness remains at zero Deficit time Source : Unédic Investor Presentation - October 2017 22
POSITION IN THE ECONOMIC CYCLE AND CYCLICAL BALANCE Output gap Unédic uses the methodology used by international organizations (IMF, OECD ) to measure the cyclical component of its year-end result based on the analysis of the output gap estimating the present position in the economic cycle. Since 2009, the cyclical balance of Unédic has been negative due to prolonged negative output gap over the period. Sources : European commission Note: Unédic studies are based on hypotheses which may differ from the State macro economic framework Investor Presentation - October 2017 23
UNÉDIC STRUCTURAL BALANCE SINCE 1990 Structural balance Structural balance average around - 1.5bn Between 2010 and 2016, the structural balance of Unédic was negative and represents up to -1,5bn Euros on average each year. Sources: Unédic, INSEE, Consensus Forecasts June 2017, Unédic Calculations Note: Unédic forecasts are based on hypotheses which may differ from the State macro economic framework Investor Presentation - October 2017 24
THE 2017 AGREEMENT STABILISED THE STRUCTURAL DEFICIT Structural deficit and 2017 negociation for unemployment insurance new measures The social partners last negociation was conducted bearing in mind Unédic structural deficit around 1.5bn. Specific rules between European States are being reformed. The reform would generate additionnal savings worth 480M. Other expenditure involving the French State responsability (the entertainment temporary worker status, equal share of Pole emploi operating costs between the State and Unédic ) could further improve Unédic structural balance. A positive structural balance would produce regular surpluses in the coming years for debt reduction. About 1.5bn average structural deficit since 2010 2017 Agreement new set of measures +930M Reform of crossborder workers between European States +480M Stabilisation of Unédic balance in the medium term Sources : Unédic Investor Presentation - October 2017 25
Financial management Unédic funding programmes Investment-grade rating reflects Unédic rigorous management Funding Programme for 2017 Longer average maturity funding EMTN programme investors NEU MTN programme investors Unédic 2017 new primary issuance Bond issues welcomed by institutional investors Unédic rating Investor Presentation - October 2017 26
UNÉDIC S 3 FUNDING PROGRAMMES AT A GLANCE Funding Programmes NEU CP (ex Billet de trésorerie) NEU MTN (ex BMTN) EMTN Nature of the guarantee no explicit guarantee no explicit guarantee explicit guarantee* Investor Presentation - October 2017 27
INVESTMENT-GRADE RATING REFLECTS UNÉDIC RIGOROUS MANAGEMENT Capital market financing EMTN Programme ( 37 billion) Explicit guarantee NEU MTN (ex BMTN) Programme ( 8 billion) No explicit guarantee NEU CP French Commercial Paper Programme ( 10 billion) Active management of the French CP Programme Setting of a duration target and active maturity management Setup of a liquidity buffer Risk management No foreign exchange risk Interest rate risk managed through issuance along the yield curve of the rates representing the economic outlook for Unédic Investor Presentation - October 2017 28
FUNDING PROGRAMME FOR 2017 NEU CP (French commercial paper, ex-billets de trésorerie) Daily issue of commercial paper Minimum 3 months WAM Between 2bn and 5.4bn outstanding NEU MTN Negotiable Euro MTN (ex-bmtn) Fixed rate, in Euros, maturity up to 7 years No explicit guarantee ECB-eligible (Tier-1) 0% risk weight 1.45bn issued in 2017 EMTN programme of 5bn for 2017 Fixed rate, in Euros, maturity up to 15 years First demand explicit guarantee from the French State ECB-eligible (Tier-1) 0% risk weight 5bn issued in 2017 Investor Presentation - October 2017 29
LONGER AVERAGE MATURITY FUNDING Unédic objective is to structure its debt by the economic cycle and extend the average maturity of its outstanding debt 4 months average maturity for the outstanding NEU CP 2 years 10 months average maturity for the outstanding NEU MTN 6 years 7 months average maturity for the outstanding EMTN The maximum maturity for new EMTN and NEU MTN issuance is 15 years and 7 years respectively Investor Presentation - October 2017 30
UNÉDIC EMTN PROGRAMME: INVESTORS BREAKDOWN IN 2016 & 2017 28,8 Investor Presentation - October 2017 31
UNÉDIC NEU MTN PROGRAMME DISTRIBUTION Investor Presentation - October 2017 32
FOR MORE INFORMATION, VISIT UNÉDIC INVESTORS WEBSITE https://www.unedic.org/investors Investor Presentation - October 2017 33
DISCLAIMER This document is a draft for discussion purposes only, it is highly confidential and proprietary and should not be transmitted to any person other than its original addressee(s) without the prior written consent of Unédic. Prices and margin are meant to be indicative only and are subject to change at any time depending on market conditions. Unédic cannot be held responsible for any financial loss or other consequences of the implementation of the transactions described in this document. The French Autorité des Marchés Financiers granted its visa under number 17-100 dated 17 March 2017 with respect to a base prospectus (hereinafter referred to as the Base Prospectus ) which details this operation. The Base Prospectus is available at no cost at Unédic registered office, 4, rue de Traversière, 75012 Paris, France and on its website www.unedic.org. You are invited to report to the section risks of the Base Prospectus before taking a decision with respect to the implementation of the transactions described in this document or in the Base Prospectus. Should you so require, you should contact your financial, legal or tax advisor, or any other specialist, in order to confirm that any decision taken is consistent with your personal financial situation. Investor Presentation - October 2017 34