PSA - 2019 Universal Registration Document

GROUPE PSA Risk factors DPEF.B

RISKS ASSOCIATEDWITH NATURALAND INDUSTRIAL DISASTERS HIGHRISK 1.5.2.4.

Riskfactors

Riskmanagement andcontrolprocesses

Groupe PSA’s industrialsitesmay,dependingon the geographical areasin whichtheyare situated,be subjectto naturalphenomena such as earthquakesor climaticphenomenasuch as hurricanes, cyclonesand floodsas well as risks of fire or explosion.Climatic eventssuchas globalwarmingneedto be factoredintothechoice of new industrialsites of Groupe PSA,with means of protection provided for certainexisting sites locatedin areas at risk. The occurrenceof a majorincidentat a manufacturing site of the Groupor of its supplychaincouldcompromise theproductionand saleof severalhundredthousandvehicles.Forexample, in 2011,the earthquakeoff Fukushimain Japandisruptedpart of the Group's diesel engineproductiondue to a supply shortageat one of its Japanese suppliers.

The Group has implementedsteps to lower the probabilityof occurrenceof undesirableeventsand mitigatepotentialimpacts on human,environmental andeconomicresourcesby meansof a continuous,cross-functionalpreventionpolicy based on global standardsandregularleadership for localplayersfromthecentral team. Actions to manage risks and promotebusiness continuityare conductedat eachorganisationby the operatingentitiesassisted by risk managementexperts and the various business lines involved. The risk managementprocessesand associatedbest practices are also implemented for the new technical centres and manufacturing sites, as well as in plans to modify existing i es. Theseinitiativesandmeasuresare assessedon a regularbasisby our insurance partners. A monthlyreportis sent to facilityand clustermanagersas well as to membersof theGEC,IndustrialDepartment, LogisticsChain and Europe Department managers. In the specificarea of manufacturing processes,the regionalrisk management systemis builton threepillars:theconvergentrend towards the “Excellent Plant”, the Global Risk Management Systemand the ManufacturingManagementControlSystem,all of whichserveto cover,monitorandcontrolthroughout he year all the major risks identified within the industrial entities. Lastly, concerningthe quality of manufacturingprocesses,the assemblyplants have been ISO 9001certifiedby UTAC (except for Section 7.3“Designand Development”), to complywith the requirements of European Directive 2007/46/EC,Annex X, “Conformityof production procedures”. In order to assess the physical risks at Groupe PSAsites, the Company uses natural disaster risk analyses from insurance databases,suchas theNatCatService fromMunichRE andSigma from Swiss RE. They monitor and analyse the number of geophysical, meteorological, hydrological and climatological eventsthat haveoccurredand relatedfinanciallosses.Theyalso make provisionfor future occurrencesof natural disastersand their potentialphysicalimpacts.Basedon this data, Groupe PSA assessesthe probabilityof future impactsdue to earthquakes, floodsand storms/hurricanes acrossall sites.A relevantbusiness continuity plan is published and updated. In termsof thesupplierselectionprocess,climate-related physical risk analysesbasedon the sametoolsare alsoappliedto supplier sitesusingtheirGPScoordinates.ThismeansthatGroupe PSA is in a positionto identifythe strongestsupplychain optionsand related suppliers.

RISKS ASSOCIATEDWITH THE GROUP’S ABILITY TO EXPAND SUSTAINABLY

1.5.2.5. AND PROFITABLY IN CHINA, IN PARTICULAR, WITHOUR JVS

AVERAGERISK

Riskfactors

Riskmanagement andcontrolprocesses

Overthe 2018-2019period,Groupe PSA’smarketsharefell to 0.7% of the Chinese market, which was down 8.2%. The downward trend should slow but China is becoming increasinglycompetitiveand localmanufacturers havea presence in a large number of segments. This commercial under-performanceis impacting the JVs’ profitabilityandfinancial soundness.

In September 2019, the Groupand its partner,DongfengMotors, announced a plan to salvage their JV business in China. The plan includesoptimisingits investmentsand, in particular, plant activity in China to lower the breakevenpoint. It also involves restructuring its dealership networks. As regardsproducts,the Groupand its partnerplan to launcha number of new models over the next few years with electric models from 2020.

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GROUPE PSA - 2019 UNIVERSAL REGISTRATION DOCUMENT