Plastic Omnium - 2018 Registration Document

1 PRESENTATION OF PLASTIC OMNIUM AND ITS BUSINESSES Risk factors and control PLASTIC OMNIUM 2018 REGISTRATION DOCUMENT 35 Risk management Consequently, all suppliers of specific automotive components must be accredited according to meticulously defined operational, financial and regional criteria. For approved suppliers, these criteria are then regularly monitored by the Purchasing and Quality Assurance Departments. At risk suppliers are subject to special monitoring and when necessary safety stocks are put in place. Lastly, operating units are especially vigilant in this area. They focus on effectively anticipating and managing breakdowns in the supply chain that, while infrequent, can ultimately develop rapidly. In 2018, Plastic Omnium had no major supplier failures with significant consequences related to a breakdown in logistics processes. MARKET RISKS Disclosures about market risks are also provided in Notes 6.2, 6.5 and 6.6 to the consolidated financial statements. Compagnie Plastic Omnium centrally manages the treasury of its subsidiaries through Plastic Omnium Finance, which manages liquidity, currency and interest rate risks on their behalf. The market risk hedging strategy, which involves entering into on- and off-balance sheet commitments, is approved every quarter by the Chairman and Chief Executive Officer. Currency risk Identification of risk Compagnie Plastic Omnium is exposed to exchange rate fluctuations, in particular where its manufacturing sites purchase raw materials and components or sell their production in currencies other than their accounting currency. Risk management Compagnie Plastic Omnium’s business relies primarily on local plants: by producing locally what is sold locally, the Group has little exposure to currency fluctuations, aside from currency translation adjustments for the financial statements. Compagnie Plastic Omnium’s policy is to minimize the currency risk on transactions involving a future inflow or outflow of funds. If a transaction does give rise to a material currency risk, it is hedged with a forward currency contract. The subsidiary involved places this hedge with the central treasury or, with the latter’s approval, locally. Interest rate risk Identification of risk Interest rate risk is due to fluctuations in interest rates, in particular those applicable to that part of debt financed at floating rates, and could result in an increase in the cost of finance. Risk management At December 31, 2018, 94% of the Group’s debt was financed at fixed rates. To eliminate or limit the impact on its income statement of a rise in interest expense from variable-rate instruments, Compagnie Plastic Omnium used interest rate hedges such as swaps and caps. Note 5.2.8.1 to the consolidated financial statements lists these hedges. Thus at December 31, 2018, unhedged interest rate risk was not significant (see Note 6.6 to the Consolidated financial statements). Raw materials price risk Identification of risk Compagnie Plastic Omnium’s operations use large quantities of plastic, steel, paint and other raw materials which are subject to price changes that could have an impact on its operating margin. Risk management To limit the impact of price fluctuations, Compagnie Plastic Omnium has negotiated price indexation clauses with most of its automotive customers or, failing that, regularly renegotiates selling prices. Thus, Compagnie Plastic Omnium considers that price variations of raw materials do not have a significant impact on its operating margin. LEGAL RISKS Compagnie Plastic Omnium’s Legal Affairs Department is supported, as needed, by local advisors and a network of correspondents in the main countries. The department helps operating and corporate units, in all their on-going and exceptional operations, to prevent, anticipate and manage legal risks relating to the business, as well as being responsible for claims and litigation. At the date of this report, there is no dispute or lawsuit and no governmental, legal or arbitration proceeding (including all proceedings of which Compagnie Plastic Omnium is aware, which are pending or with which the Group is threatened) that might have, or has had during the past twelve months, a negative material effect on the financial position or profitability of the Plastic Omnium Group. Risks related to the quality of products and services sold Identification of risk Compagnie Plastic Omnium is exposed to the risk of warranty and liability claims from customers in respect of the products it sells and services it provides. Compagnie Plastic Omnium is also exposed to the risk of third-party product liability claims.