PSA_GROUP_REGISTRATION_DOCUMENT_2017

CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017 Notes to the consolidated financial Statements at December 2017

31 December 2016

Intraday to one year

2 to 5 years

Beyond 5 years

Total

(in millions euros)

Fixed rate

824

109

386

1,319

Total assets

Variable rate

11,490 (736)

-

50 11,540

Fixed rate

(1,351)

(2,806) (4,893)

Total liabilities

Variable rate (1,077)

(36)

-

(1,113)

FIXED RATE

88

(1,242)

(2,420) (3,574)

NET POSITION BEFORE HEDGING

VARIABLE RATE 10,413

(36)

50 10,427

Fixed rate

(79)

(436)

- -

(515)

Derivative financial instruments

Variable rate FIXED RATE

79

436

515

9

(1,678)

(2,420) (4,089)

NET POSITION AFTER HEDGING

VARIABLE RATE 10,492

400

50 10,942

Counterparty and credit risks (3) The Automotive Division places significant emphasis on guaranteeing the security of payments for the goods and services delivered to customers. Relations with Peugeot and Citroën dealers are managed within the framework of the Banque PSA Finance sales financing system described below. Payments from other customers are secured by arrangements with leading counterparties that are validated by the Group Treasury Committee. At Faurecia, the main counterparties are leading carmakers whose creditworthiness is tracked customer-by-customer. Other counterparty risks concern investments of available cash and transactions involving currency, interest rate and commodity derivatives. These two types of transactions are carried out solely with leading financial partners approved by the Group Treasury Committee. The related counterparty risks are managed through a system of exposure limits by amount and by commitment duration. The limits are determined according to a range of criteria including the results of specific financial analyses by counterparty, the counterparty’s credit rating and the amount of its equity capital. Available cash is invested either in money market securities issued by approved counterparties, or in mutual funds or deposit accounts. The bulk of money market securities in the portfolio are issued by leading banks and the remainder by non-financial sector issuers. Mutual funds are selected according to guidelines specifying minimum fund credit ratings and maximum maturities of underlying assets. In addition, the amount invested in each fund is capped based on the fund’s total managed assets. Derivatives transactions are governed by standard ISDA or Fédération Bancaire Française (FBF) agreements and contracts with the most frequently used counterparties provide for weekly margin calls. Currency risk (4) The manufacturing and sales companies manage their foreign exchange positions on transactions denominated in foreign currencies with the objective of hedging the risk of fluctuations in exchange rates. Automotive Division currency risks are managed centrally, for the most part by PSA International S.A. (PSAI) under the supervision of executive management. All products used by PSAI are standard products covered by International Swaps and Derivatives Association (ISDA) Master Agreements. The goal is to minimise Automotive Division exchange differences by systematically hedging as soon as the foreign currency invoice is booked. At Group level, currency risks are managed by requiring manufacturing companies to bill sales companies in the latter’s local

currency (except in rare cases or where this is not allowed under local regulations). Currency risks on these intragroup billings are also hedged using forward foreign exchange contracts. In most cases, foreign currency intragroup loans of Automotive Division companies are also hedged. The foreign currency policy includes the hedging of future flows for the Automotive Division. It consists of hedging the main net exposures to G10 currencies. These hedges are underpinned by governance rules and a strict decision-making process. They are classified as cash flow hedges under IAS 39. The maximum horizon for these hedges is two years. The hedging ratios depend on the maturity. At 31 December 2017, the Automotive Division had cash flow hedges on the following currencies: GBP, CHF, PLN, CNY, KRW and JPY. The Group does not hedge its net investment in foreign operations. PSAI also carries out proprietary transactions involving currency instruments. These transactions are subject to very strict exposure limits and are closely monitored on a continuous basis. They are the only non-hedging transactions carried out by companies in the PSA Group and have a very limited impact on consolidated profit. The historical Value at Risk (VaR) method is used to identify and manage market risks. The historical VaR uses volatilities and exchange rates for the various currencies since the beginning of 2011. VaR represents the maximum possible loss on the portfolio, based on the confidence level. The confidence levels measured are 95% and 99%. For both of these confidence levels, applying historical VaR to the portfolio at 31 December 2017 would not have had a material impact on Group earnings. This method assumes that future VaR will follow the same trend as historical VaR. It does not provide an indication of the losses that would be incurred under an extreme stress scenario. Currency risks relating to the commercial transactions of the Faurecia’s subsidiaries are managed independently and centrally by Faurecia using forward purchase and sale contracts and options as well as foreign currency financing. Faurecia manages the hedging of currency risks on a central basis, through its Group Finance and Treasury Department, which reports to the executive management. Hedging decisions are made by a Market Risk Management Committee that meets on a monthly basis. Currency risks on forecasted transactions are hedged on the basis of estimated cash flows determined when budgets are prepared, validated by executive management. The related derivatives are classified as cash flow hedges when there is a hedging relationship that satisfies the IAS 39 criteria. Subsidiaries located outside the euro zone receive intragroup loans in their functional currency. These loans are refinanced in euros, and the related currency risk is hedged by swaps.

209

GROUPE PSA - 2017 REGISTRATION DOCUMENT