PSA COUV page . page RA GB - PEUGEOT Presse

Growth Strategy
Corporate
Governance
Business Review
Corporate Policies
Management’s
Discussion
and Analysis
Statistics
higher premiums, despite the sharp rise
in rates in the global insurance market.
2. LEGAL AND REGULATORY RISKS
The PSA Peugeot Citroën Group is exposed
to legal risks as an employer and in
connection with the design and
distribution of vehicles, the purchase of
components and the supply of services.
To manage these risks, the Group
implements preventive policies in
the areas of workplace hygiene and safety,
the manufacturing environment, industrial
and intellectual property. Priority is also
given to vehicle safety and the quality of
the Group’s products and services.
The Automobile Division may become
involved in claims and litigation arising
from its dealings with the dealer network
and customers. Motor vehicle distribution
and after-sales services in Europe are
subject to the new European Union Block
Exemption Regulation 1400/02 dated
July 31, 2002. The Group does not expect
its Automobile Division to be exposed to
any specific legal or regulatory risks as
a result of the new regulations.
As of December 31, 2002, no Group
company was involved in any claims or
litigation that had or were likely to have a
material impact on the Group’s accounts.
3. FINANCIAL RISKS
PSA Peugeot Citroën is exposed to financial
risks in connection with its automobile
business and other manufacturing
activities, including the risk of losses due
to unfavorable changes in exchange rates
affecting the currencies of countries where
it manufactures products—primarily in
the euro zone—and the countries in
which these products are sold. The
introduction of the euro at the beginning
of 1999 has had the effect of reducing
these risks, which now primarily concern
the British pound and, to a lesser extent,
the Argentine peso, the Brazilian real, the
Polish zloty and the Japanese yen.
Currency risks of the Automobile Division
are managed primarily by having the
manufacturing companies bill the sales
companies in the sales companies’ local
currency, except in those rare cases where
the sales company’s local currency is not
convertible. Currency risks on these intercompany
billings are systematically hedged
by means of forward contracts maturing
on the invoice settlement date, which is
determined based on the subsidiaries’
operating cycle. The hedges are set up by
a specialized subsidiary, PSA International,
or on PSA International’s instructions in
the case of non-convertible currencies.
In accordance with these principles,
currency risks on future sales are not hedged,
with the result that future operating
margin may vary depending on exchange
rates. As of December 31, 2002, however,
the Group had purchased Japanese yen
put options in a total nominal amount of
€765 million to guarantee a minimum
exchange rate for its vehicle sales in Japan
until the end of 2005.
On the basis of the 2002 figures, the
Group estimates that a 1% fluctuation in
the euro against all other currencies
would have an impact of around
€70 million on consolidated operating
margin. A 1% change in the pound-euro
exchange rate would have an impact of
around €38 million on consolidated
operating margin.
The exposure of the Group’s manufacturing
and sales activities to changes in interest
rates is not material.
The Group 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 sales financing system
described below. Appropriate mechanisms
have been set up to guarantee the security
of payments from other Group customers.
Inter-company settlements are systematically
covered against political risks whenever
necessary.
4. RISKS ASSOCIATED WITH THE ACTIVITIES
OF THE FINANCE COMPANIES
The Group finance companies provide
financing for dealer vehicle and
replacement parts inventories and offer a
wide range of loans and lease financing
solutions to customers, together with
related services. As a result, they are
exposed to credit risks. Wholesale financing
credit risks are spread across a large
number of dealers and are managed
internally by Credit Committees set up in
each country as well as by a Group Credit
Committee, based on clearly defined,
closely monitored credit limits. Retail
PSA PEUGEOT CITROËN - MANAGING BOARD REPORT 117