Groupe Renault - 2020 Universal Registration Document

104 GROUPE RENAULT I UNIVERSAL REGISTRATION DOCUMENT 2020 Find out more at group.renault.com 01 INTERNAL CONTROL AND RISK MANAGEMENT GROUPE RENAULT In addition, the Group hedges against the risk of non-payment for most payments originating from high-risk countries. The main exceptions relate to intra-Group sales, sales to industrial partners and to countries for which there is no possible hedging. Residual country risk is regularly monitored. In order to centrally manage the risk of non-payment and put in place hedges on competitive terms, the Group has designed a “hub and spoke” invoicing system. Manufacturing subsidiaries sell their exported production to Renault s.a.s, which sells it on to commercial subsidiaries and independent importers, granting them supplier credit. The associated risk is managed by the parent company. Some sales between countries covered by customs agreements do not use this system, however. As for the consequences on economic conditions of the COVID-19 pandemic, starting from the very first restrictions, Groupe Renault has implemented multi-functional crisis management cells, which convened on a daily basis at the start of the health crisis, weekly later, to define in a coordinated and hands-on manner the reactions to be implemented within the company, but also upstream with suppliers and downstream with network and customers. The Group has adjusted several of its processes to improve its reactivity to present and future consequences of the pandemic or any other similar systemic crisis. For example, the commercial demand versus industrial response balancing process was able to operate efficiently on a weekly rather than monthly basis. This flexibility in closely shadowing market evolution is paramount in Groupe Renault’s strategy in order to protect employees, optimize financial performance and seize all possible opportunities. Risk of insufficient ability to restore margins - high risk with impact > probability Restoring financial performance is a priority for Groupe Renault, as announced on May 29, 2020 when the 2o20 plan was released. Despite internal control systems, installed production capacities are greater than the volumes sold, product costs have ballooned under the effect of regulations and technological choices that are not financially efficient enough to offset this increase, and overall profitability suffers from the Group’s exposure to unprofitable countries and reduced presence in profitable segments such as the C and C+ segments. The rapidly changing competitive environment could result in an inability to restore the margins needed to finance the investments of the medium-term strategic plan announced on January 14, 2021. Risk management In the Renaulution plan announced on January 14, 2021 (see chapter 1.1.3 of this Document), cost-cutting targets were strengthened. The "2o22 plan" announced in May 2020, which targeted a reduction of more than €2 billion in fixed expenses over three years compared with 2019, has been accelerated and extended to €2.5 billion by 2023, with a target of €3 billion by 2025. The plan also provides for a reduction in variable expenses of €600 per vehicle by 2023. To tighten its cost control and financial performance within the framework of these objectives, Groupe Renault appointed a Chief Turnaround Officer at the end of 2020, tasked with restoring profitability in the short and medium terms. His scope for action and decision-making is based on the four pillars of profitability: variable costs, revenues, fixed costs and working capital. Risk of supply chain interruption - high risk with impact > probability The Group’s business relies heavily on a complex system of supply and delivery chains, both upstream and downstream of its production facilities. Various components of these supply chains could prove to be defective, despite the existing control system, the characteristics and strengthening of which are described below. Such breakdowns could lead to technical, planning or economic inefficiencies, or even interruptions in vehicle production, transport and/or delivery to distribution networks and end-customers, with negative consequences for the Group’s sales, revenues, profits or customer satisfaction. These potential interruptions may be either internal – due in particular to the interdependence underlying the Group’s industrial network (see chapter 1.1.3.4 of this Document) – or external, as seen in the COVID-19 health crisis, and can be analyzed according to the following typology: supplier default; P interruption in supply or transport systems; P interruption in supply of raw materials. P Supplier default Groupe Renault relies on a tier-one supplier base comprising more than 800 parts supplier groups and more than 400 service providers, with which it maintains significant business relationships. These suppliers may present risks of interruption in the design and production of compliant quality parts, in meeting delivery deadlines, in providing the necessary production capacity and in the financial, strategic, industrial, social and management, supply chain, sustainable development and compliance fields. Due to the COVID-19 pandemic and the accelerating decline in diesel engines, 2020 saw a further weakening of the supplier base in all of the countries where Groupe Renault operates. These factors have contributed to the significant increase in the number of suppliers at risk. At the end of 2020, this proportion, usually between 5% and 10%, was between 10% and 15%. However, the implementation of support measures for industry, in all countries around the world and in particular in France (State-guaranteed loans (PGE), coverage of tax and social security expenses, etc .) has enabled the supplier base not to suffer from multiple interruptions and domino effects. The supplier base has nevertheless increased its debt, which makes it more vulnerable over the long term. These difficulties have been observed in all of the Group’s sourcing countries, with the situation looking worse in Germany, the United Kingdom, Spain and South America, compared to the stronger resilience of the Turkish, Indian, Russian and, thanks to the action of the public authorities, French supplier bases. At the start of 2021, breaks in the supply chain for electronic components appear in the industry, particularly the automotive industry, and lead to production interruptions. The consequences of these ruptures for the Groupe Renault are analysed in real time and decisions are taken to limit their impact. Risk management systems are also mobilized for this purpose. As of the filing date of this Document, we expect that production losses will occur mainly in the first half, with a catch-up in the second half. We have assumed the risk of a net loss of around 100,000 vehicles over the year. We are working with our suppliers to reduce this risk, but cannot rule out the possibility of additional factors arising in this complex chain.