PSA_GROUP_REGISTRATION_DOCUMENT_2017

GROUPE PSA Risk Factors

Furthermore, the Group develops connected after-sales services and data service activities, primarily for cities. The Free2Move application, launched in April 2017, is available in Europe, and has recently become so in Seattle. It will subsequently become more widely deployed in the United States. It incorporates urban car-sharing between private individuals, with single-click choice of the most appropriate transport mode. It offers a solution to every need, with options to rent a bicycle, scooter or vehicle from a consumer, a partner-operated service or Groupe PSA. Risk factors Groupe PSA is exposed to the risk of customer and dealer default in the normal course of its distribution and lending activities. For sales with a buyback commitment, the risk concerns the difference between the vehicle’s estimated resale price, as determined at the contract’s inception, and the actual resale price. The provisions and charges recognised to cover these risks are presented in Note 13.2 for Banque PSA Finance and Note 12.2 for the manufacturing and sales companies in the Notes to the 2017 Faced with the risk of customer default, the Group has placed particular importance on the security of the payments it receives for goods and services delivered to its customers. The Group has developed a secure payment policy to avoid credit risks. Banque PSA Finance has set up its own system for managing the credit risk associated with financing activities (see paragraph 1.5.3 below). For Automotive Division sales not financed by Banque PSA Finance, a standard has been issued that specifies: (i) the payment and credit terms to be applied to customers according to the type of product (new vehicle, used vehicle, spare parts, CKD – Complete Knocked Down or subassemblies); and (ii) the level of approval required for granting special dispensation from the rules set out in the standard. Among these rules, protection mechanisms must be set up to fully guarantee the payment of amounts owed by foreign importers. Exemptions granted are subject to formal validation depending on authorised open credit limits. The Group monitors outstandings against authorised limits on an ongoing basis. A system has also been set up for measuring the residual value of vehicles sold with a buyback commitment. An initial valuation is carried out in the contract negotiation phase and subsequent valuations are regularly performed throughout the term of the contract which enables the values to be adjusted for new contracts where required. In 2017, the Group opted for harmonisation of the provisioning methods, and for more reliable residual values using, for France, the reference system of Autobiz, one of the world leaders in vehicle price listing. This residual value is reviewed periodically, and includes the best estimates of foreseeable market trends, particularly as regards petrol and diesel propulsion systems. Risk factors The Group’s Automotive Division is exposed to raw materials risks through its direct and indirect purchases of commodities. In 2017, purchases of raw materials for Europe amounted to nearly €5 billion (or around 30% of the purchasing budget). The main raw materials used, in declining order of their impact, are: steel (38% of the total cost of production raw materials „ purchases), polymers and elastomers (27%); aluminium (9%). „ CUSTOMER AND DEALER RISKS 1.5.1.4. consolidated financial statements, Section 5.6 below. Risk management and control processes RAW MATERIALS RISKS 1.5.1.5.

The Group has identified two main types of raw materials risk: the supply risk related to the availability of materials; 1. the economic risk relating to price fluctuations that could not be 2. further passed on to the Group’s product selling prices. Risk management and control processes To deal with these risks, the Purchasing Department aims to fully leverage a number of measures, in particular: optimising global sourcing, using bulk purchases, searching for substitute materials, using recycled and green materials, recovering and reusing by-products and implementing financial hedges. The implementation of this raw materials strategy is managed during reviews chaired by the Director of Quality and Engineering and the Director of Group Purchasing. It is deployed within joint technical networks organised by material. In order to limit the economic risk of traded commodities, the Group set up a management, steering and monitoring process for financial hedging in 2009. Every quarter, positions according to established governance rules are submitted to the Chief Financial Officer and the Director of Group Purchasing for arbitration and approval. The Protection, Audit and Risk Management Department regularly audits this process. For additional information, please refer to Note 12.7 to the consolidated financial statements as at 31 December 2017, in Section 5.6 below. Risk factors Given that the parts and components purchased from suppliers represent more than 75% of a vehicle’s production cost. These companies’ technical, quality, logistical and financial performances are essential to the Groupe PSA’s overall performance. Failure by suppliers to fulfil their commitments, even for a seemingly minor component, could lead to a serious risk of production stoppages (component used in the production cycle) and delays in the commercial launch of new vehicles (component used in the developing cycle). Risk management and control processes Suppliers are evaluated, selected and monitored according to various criteria including: competitiveness, quality, logistics performance, the ability to develop new products and manufacture them in large quantities, sustainability, exposure to natural risks, and environmental and social responsibility (CSR). The Purchasing Department leverages its extensive expertise in production costing and commodity price management and its in-depth understanding of global markets to efficiently manage competitive bidding processes and supplier relationships. World-class automotive suppliers were invited by car manufacturers to support their global expansion. These suppliers have become leading economic players whose responsibility weighs heavily on the subcontracting chain. In view of this risk, the Group implemented operating procedures with these global Player that ensure a quality long-term relationship and involve said suppliers in the process of managing any risks (including CSR risks) that may occur across the subcontracting chain. In addition, dedicated teams are responsible for preventive and curative managing of the risks related to supplies’ quality, logistics and sustainability. SUPPLIER RISKS 1.5.1.6.

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GROUPE PSA - 2017 REGISTRATION DOCUMENT