Groupe Renault - 2020 Universal Registration Document

404 GROUPE RENAULT I UNIVERSAL REGISTRATION DOCUMENT 2020 Find out more at group.renault.com 04 CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS INTEREST RATE RISK – AUTOMOTIVE SEGMENTS The Automotive segment’s net financial income is exposed to a risk of variations in market interest rates affecting its cash surpluses and financial liabilities, and to a lesser degree its shareholders’ equity. The interest rate risk management policy applies the following principles: liquidity reserves are generally established using floating-rate P financing: the Automotive segments available cash is managed centrally by Renault SA as far as possible and invested in short-term bank deposits by Renault Finance; long-term investments by the Automotive (excluding AVTOVAZ) P segment generally use fixed-rate financing. Fixed-rate borrowings remain at fixed rates as long as the rate curve is close to zero, or even negative; AVTOVAZ cash surpluses and bank debts principally bear P floating-rate interest. In 2020, AVTOVAZ did not set up any hedging instruments for its financial liabilities. The Finance department of AVTOVAZ closely monitors interest rate movements in Russia, and if rates rise it will take steps to reduce the impact on the net financial income, by increasing the proportion of fixed-rate debt as it refinances its portfolio. The ratio of liquidity reserve hedging by floating-rate debts is monitored monthly. Interest rate hedging instruments for the Automotive (excluding AVTOVAZ) segment are standard interest swaps that are adequately covered by hedged liabilities, such that no ineffectiveness is expected. The financing in yen undertaken as part of the partial hedge of the investment in Nissan equity is fixed-rate. Finally, Renault Finance carries out interest rate transactions on its own behalf, within strictly defined risk limits, and positions are monitored and valued in real time. The risk associated with this arbitrage activity is very limited, and has no significant impact on the Group’s consolidated net income. INTEREST RATE RISK – SALES FINANCING SEGMENT The overall interest rate risk represents the impact of fluctuating rates on the future gross financial margin. RCI Banque’s operating results may be affected by movements in market interest rates or interest rates applicable to customer deposits. The Sales Financing segment’s aim is to limit these risks as far as possible in order to protect its margin on sales. To take account of the difficulty of precisely matching the structure of borrowings with the structure of loans, a limited amount of flexibility is allowed in each subsidiary’s interest rate hedging. This flexibility is reflected in a sensitivity limit assigned to each subsidiary and validated by the Finance Committee, in an individual adaptation of part of the limit Renault assigns to the Sales Financing segment. currency and each management entity (central refinancing office, French and foreign sales financing subsidiaries) for the purpose of overall management of interest rate risks across the consolidated scope of the Sales Financing segment. A daily sensitivity calculation by currency, management entity, and asset portfolio is used to ensure that each entity respects its assigned limits. All RCI Banque entities use the same method for this assessment of interest rate sensitivity, which measures the impact of a 100 base point increase in interest rates on the value of balance sheet items for each entity. Sensitivity is calculated daily for each Each entity’s position with regard to its limit is checked daily, and immediate hedging directives are issued to the subsidiaries if circumstances require. The results of the checks are reported monthly to the Sales Financing segment’s Finance Committee, which checks that the positions comply with the Group’s financial strategy and current procedural instructions. Analysis of the Sales Financing segment’s structural interest rate risk shows the following: virtually all loans to customers by sales financing subsidiaries bear P interest at a fixed rate and have terms from one to seventy-two months. These loans are hedged by fixed-rate resources with the same structure. They are covered by macro-hedging and only generate a residual interest rate risk. In subsidiaries where the financing bears interest at a floating rate, the interest rate risk is hedged by macro-hedging using interest rate swaps; the main activity of the Sales Financing segment’s central P refinancing office is refinancing the segment’s sales subsidiaries. The outstanding credit issued by sales financing subsidiaries is backed by fixed-interest resources, some of which are micro-hedged by interest rate swaps, and floating-rate resources. Macro-hedging transactions in the form of interest rate swaps keep the sensitivity of the refinancing holding company below the limit set by the Group (€32 million). These macro-hedging transactions concern floating-rate resources and/or fixed-rate resources converted to floating-rate resources by micro-hedging of swaps. ANALYSIS OF GROUP FINANCIAL INSTRUMENTS’ SENSITIVITY TO INTEREST RATE RISKS The Automotive and Sales Financing segments are exposed to the following interest rate risks: variations in the interest flows on floating-rate financial P instruments stated at amortized cost (including fixed-rate instruments swapped to floating rate, and structured products); variations in the fair value of fixed-rate financial instruments P stated at fair value; variations in the fair value of derivatives. P Impacts are estimated by applying a 100 base point rise in interest rates over a one-year period to financial instruments reported in the closing statement of financial position. For the Sales Financing segment, the impact on shareholders’ equity corresponds to the change in fair value before reclassification in profit or loss (section 4.2.2) of fixed-rate debt instruments classified as financial assets at fair value through other components of comprehensive income and cash flow hedges after a 100 base point rise in interest rates. All other impacts affect net income. Calculation of the individual segments’ sensitivity to interest rates includes intersegment loans and borrowings.