PSA - 2019 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2019 Notes to the Consolidated Financial Statements at 31 December 2019

Counterparty and credit risks (3) The Automotive division places significant emphasis on guaranteeingthe securityof paymentsfor the goods and services deliveredto customers.Relationswith Peugeot Citroën, DS, Opel and Vauxhall dealers are managed within the framework of the Banque PSA Finance sales financing system described below. Paymentsfromother customersare securedby arrangementswith leading counterpartiesthat are validated by the Group Treasury Committee. At Faurecia,the main counterpartiesare leadingcarmakerswhose creditworthiness is trackedcustomer-by-customer. Othercounterpartyrisks concerninvestmentsof availablecash and transactions involving currency, interest rate and commodity derivatives.These two types of transactionsare carriedout solely with leading financial partners approved by the Group Treasury Committee.The relatedcounterpartyrisks are managedthrougha systemof exposurelimitsby amountand by commitmentduration. The limits are determinedaccordingto a rangeof criteriaincluding the results of specific financial analyses by counterparty, the counterparty’s credit rating andthe amountof itsequitycapital. Availablecash is investedeither in moneymarketsecuritiesissued by approvedcounterparties,or in mutualfundsor depositaccounts. The bulk of moneymarketsecuritiesin the portfolioare issuedby leading banks and the remainder by non-financialsector issuers. Mutual funds are selected according to guidelines specifying minimumfundcreditratingsandmaximummaturitiesof underlying assets. In addition, the amount invested in each fund is capped based onthe fund’s total managed assets. Derivatives transactions are governed by standard ISDA or FédérationBancaireFrançaise (FBF) agreements andcontractswith the most frequentlyused counterpartiesprovidefor weeklymargin calls. Currency risk (4) The manufacturing and sales companies manage their foreign exchange positions on transactions denominated in foreign currencieswith the objectiveof hedgingthe risk of fluctuationsin exchange rates. Automotivedivision currency risks are managed centrally,for the most part by PSA InternationalS.A. (PSAI) under the supervisionof executive management.All products used by PSAI are standard products covered by InternationalSwaps and DerivativesAssociation (ISDA) Master Agreements. The goal is to minimizeAutomotivedivision exchangedifferences by hedgingas soon as the foreign currency invoices are booked. This hedgingpolicyis appliedsystematically in the PeugeotCitroën DS business segment and is being implementing in the Opel Vauxhall businessegment. Currencyrisks are managedby requiringmanufacturingcompanies to bill sales companiesin the latter’slocal currency(exceptin rare casesor wherethis is not allowedunderlocalregulations).Currency risks on these intragroupbillings are also hedged using forward

foreign exchange contracts. In most cases, foreign currency intragroup loans of Automotivedivision companies are alsohedged. The foreigncurrencypolicyincludesthe hedgingof futureflowsfor the Automotive division. It consists of hedging the main net exposuresto currenciesof the Group,includingOpel Vauxhall.The rules of governanceof the cash flowhedgingpolicyare definedby the Group’sManagementBoard.Implementation is delegatedto the Treasuryand ForeignExchangeCommitteechairedmonthlyby the CFO. They are classified as cash flow hedges under IFRS 9. The maximumhorizon for these hedges is two years. The ratios are maximum 70% at 1 yearand40%at 2 years. As at 31 December2019, the hedgeratio are between20 and 40% dependingon the currency.The Automotivedivisionhad cash flow hedges onthe following currencies: GBP, JPY, PLN. The Groupdoesnot hedge its net investment in foreignoperations. PSAI also carries out proprietarytransactionsinvolving currency instruments.These transactionsare subjectto very strict exposure limits and are closely monitored.They are the only non-hedging transactionscarriedout by companiesin the PSAGroupand havea very limited impact on consolidatedprofit. The historicalValue at Risk (VaR) method is used to identify and manage market risks. The historical VaR uses volatilities and exchange rates for the various currenciessince the beginningof 2011. VaR representsthe maximumpossible loss on the portfolio, basedon the confidencelevel. The confidencelevelsmeasuredare 95% and 99%. For both of these confidence levels, applying historicalVaR to the portfolioat 31 December2019wouldnot have hada materialimpacton Groupearnings.Thismethodassumesthat futureVaR will followthe same trend as historicalVaR. It does not providean indicationof the lossesthat wouldbe incurredunderan extreme stress scenario. Currency risks relating to the commercial transactions of the Faurecia’ssubsidiariesare managedindependentlyand centrallyby Faureciausing forwardpurchaseand sale contractsand optionsas well as foreigncurrencyfinancing.Faureciamanagesthe hedgingof currencyrisks throughits GroupFinanceand Treasurydepartment, which reports to the executive management.Currency risks on forecastedtransactionsare hedgedon the basis of estimatedcash flows determined when budgets are prepared, validated by executive management.The related derivatives are classified as cashflowhedges whenthereis a hedgingrelationshipthat satisfies the IFRS 9 criteria. Subsidiarieslocatedoutside the euro zone are granted intragrouploans in their functionalcurrency.These loans are refinancedin euros, and the relatedcurrencyrisk is hedgedby swaps. Futuresoperationsand cash flowhedges The net positionbeinghedgedin the foreigncurrenciesversusthe euro is €2,955 millionas at 31 December2019 (€2,811 million in 2018 and€3,340 million in 2017).

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PSA - GROUPE PSA - 2019 UNIVERSAL REGISTRATION DOCUMENT