PSA - 2019 Universal Registration Document

GROUPE PSA Risk factors DPEF.B

Financial and market risks 1.5.3.

COMMODITY RISKS HIGHRISK

1.5.3.1.

Riskfactors

Riskmanagement andcontrolprocesses

The Group’sAutomotivedivisionis directlyor indirectlyexposed to the raw materials risk through its procurement of partsor jobs. In 2019, purchases of raw materials for Europeamounted to nearly €7.3 billion (or around 23% of the purchasing budget). The main raw materialsused are: steel (34% of the total cost of productionraw materials purchases),polymers and elastomers (28%),aluminium (7%) and precious metals (5%) TheGroup has identified two main types ofraw materials risk: procurement risk; 1. economic risk. 2.

For theserisks,thePurchasingDepartment implementsa number of actionlevers:optimisationof globalsourcing,bulk purchases, searchesfor replacementmaterials,use of recycledand green materials, recovery and recycling of sub-products and implementation of financial hedging. Bearingin mind the growingscarcityand increasingcost of raw materialsoverthe long-term,the PurchasingDepartmentandthe R&D Departmentare workingtogether, via a MaterialsStrategy Committee, to manage and secure the Group’s supply of materialsover the long term and to direct the focus of its R&D towards replacement materials. In order to limit the economicrisk of traded commodities,the Group set up a process for financial hedging in 2009. Every quarter,recommendations, accordingto establishedgovernance rules,aresubmitted to theChiefFinancialOfficerandtheDirector of GroupPurchasing for arbitrationandapproval.TheProtection, Audit and Risk ManagementDepartmentregularly audits this process. For additional information, please refer to Note 12.6 to the Consolidated Financial Statements as at 31 December 2019, in Section 5.6 below. From the vehicledesignphase,Groupe PSAteams are charged with limiting the Group’s imprint on natural resources, by improvingvehicle ability to be recycled, repaired, etc. In additionto ensuringthat its vehiclescomplywith environmental legislation,eco-designalso guaranteesthat the Groupwill stay one stepaheadof the competition with regard to newmaterials. (See 2.2.1.3.) Today, three quarters of the waste produced is waste metal whichis then recycled.Over90%of otherwasteis recycledand mostplants do not send waste o landfills. In order to get to a point where it can recycleall of its waste whilstretainingits economicefficiency,the Groupis streamlining its materials consumption,rolling out short circular economy channelsfor optimalwasterecycling,improvingthe composition of its packaging and reducing the diversityof the materials used. (See 2.2.2.3.)

[DPEF.B][DV.7]Wiseuse of materialin the vehiclelife cycle - including recycling To reducethe risk of dependencyand controlproductioncosts, Groupe PSA must: use fewernaturalresources; > eliminate hazardous substances targeted by regulations > (REACH, etc.); use materials that are compatible withthe circulareconomy; > handle end-of-life products (notably electric vehicles and > batteries) responsibly, in response to increasing regulatory pressure worldwide. [DPEF.B] Optimisationof materials cycles - including waste management - in manufacturing Groupe PSA’s industrialefficiency is dependenton theoptimisation of the materialsused in the manufacturingand product waste recycling processes.

EXPOSURE TOCHANGES IN EXCHANGE RATES HIGHRISK

1.5.3.2.

Risk factors

Risk management and control processes

The Group is exposed to exchange rate variations due to the invoicingof productionentitiesto marketingentitiesin their local currency around the world. These variations impact operating results. The main exposures are: GBP, JPY, ARS, PLN and TRY.Debts are mainly ineuros.

Globalnet exposuresare monitoredquarterly.The transactional exchange risk is hedged. Invoices in foreign currencies are subjectto systematichedgingbetweenthe date of the invoice andthedateof thepaymentto reduceaccounting impacts.Cash Flowhedgeare realizedon themainexposuresup to 24months (essentially12 months):GBP, JPY, and PLN. The Group favors natural hedging on emerging currencies. The exchange rate policy is decidedby the GroupManagingBoard.Its application andmonitoringare ensuredby the MonthlyCashand Exchange Committeechairedby theGroupCFO.Translational currencyrisk is not hedged due to the uncertainty of revenues.

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GROUPE PSA - 2019 UNIVERSAL REGISTRATION DOCUMENT