Renault Deutschland AGBrühlBefreiender Konzernabschluss zum Geschäftsjahr vom 01.01.2021 bis zum 31.12.2021RENAULT SABOULOGNE BILLANCOURT/FRANKREICH5.2 Statutory auditors’ report on the financial statements 5.2.1 Statutory auditors’ report on the consolidated financial statements For the year ended December 31, 2021 To the Annual General Meeting of Renault Opinion In compliance with the engagement entrusted to us by your Annual General Meeting, we have audited the accompanying consolidated financial statements of Renault for the year ended December 31, 2021. In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at December 31, 2021 and of the results of its operations for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. The audit opinion expressed above is consistent with the report the Audit, Risks and Compliance Committee. Basis for Opinion Audit Framework We conducted our audit in accordance with professional standards applicable in France. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Statutory Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. Independence We conducted our audit engagement in compliance with independence requirements of the French Commercial Code (code de commerce) and the French Code of Ethics (code de déontologie) for statutory auditors for the period from January 1st , 2021 to the date of our report and specifically we did not provide any prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014. Justification of Assessments - Key Audit Matters Due to the global crisis related to the Covid-19 pandemic, the financial statements of this period have been prepared and audited under specific conditions. Indeed, this crisis and the exceptional measures taken in the context of the state of sanitary emergency have had numerous consequences for companies, particularly on their operations and their financing, and have led to greater uncertainties on their future prospects. Those measures, such as travel restrictions and remote working, have also had an impact on the companies‘ internal organization and the performance of the audits. It is in this complex and evolving context that, in accordance with the requirements of Articles L.823-9 and R.823-7 of the French Commercial Code (code de commerce) relating to the justification of our assessments, we inform you of the key audit matters relating to risks of material misstatement that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period, as well as how we addressed those risks. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on specific items of the consolidated financial statements. Valuation of long-term assets of the Automotive sectors
Consolidation method and recoverable value of the equity investment of Renault in Nissan
Calculation of expected credit losses on retail and wholesale receivables in accordance with the new accounting standard IFRS 9 (RCI)
Specific Verifications We have also performed, in accordance with professional standards applicable in France, the specific verifications required by laws and regulations of the Group’s information given in the management report of the Board of Directors. We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements. We attest that the consolidated non-financial statement required by Article L. 225-102-1 of the French Commercial Code (Code de commerce), is included in the Group’s information given in the management report, it being specified that, in accordance with the provisions of Article L. 823-10 of this Code, we have verified neither the fair presentation nor the consistency with the consolidated financial statements of the information contained therein and the information must be reported by an independent third party. Report on Other Legal and Regulatory Requirements Format of presentation of the consolidated financial statements intended to be included in the annual financial report We have also verified, in accordance with the professional standard applicable in France relating to the procedures performed by the statutory auditor relating to the annual and consolidated financial statements presented in the European single electronic format, that the presentation of the annual financial statements intended to be included in the annual financial report mentioned in article L451-1-2, I of the French Monetary and Financial Code (code monétaire et financier), prepared under the responsibility of the Renault S.A Chief executive, complies with the single electronic format defined in the European Delegated Regulation No 2019/815 of 17 December 2018. As it relates to consolidated financial statements, our work includes verifying that the tagging of these consolidated financial statements complies with the format defined in the above delegated regulation. Based on the work we have performed, we conclude that the presentation of the consolidated financial statements intended to be included in the annual financial report complies, in all material respects, with the European single electronic format. We have no responsibility to verify that the consolidated financial statements that will ultimately be included by your company in the annual financial report filed with the AMF are in agreement with those on which we have performed our work. Appointment of the Statutory Auditors We were appointed as statutory auditors of Renault by the Annual General Meeting held on April 30, 2014 for KPMG S.A. and on June 19, 2020 for Mazars. As at December 31, 2021, KPMG SA was in the eighth year of total uninterrupted engagement and MAZARS in the second year. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless it is expected to liquidate the Company or to cease operations. The Audit, Risks and Compliance Committee is responsible for monitoring the financial reporting process and the effectiveness of internal control and risks management systems and where applicable, its internal audit, regarding the accounting and financial reporting procedures. The consolidated financial statements were approved by the Board of Directors. Statutory Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Objectives and audit approach Our role is to issue a report on the consolidated financial statements. Our objective is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with professional standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As specified in Article L.823-10-1 of the French Commercial Code (code de commerce), our statutory audit does not include assurance on the viability of the Company or the quality of management of the affairs of the Company. As part of an audit conducted in accordance with professional standards applicable in France, the statutory auditor exercises professional judgment throughout the audit and furthermore:
Report to the Audit, Risks and Compliance Committee We submit to the Audit, Risks and Compliance Committee a report which includes in particular a description of the scope of the audit and the audit program implemented, as well as the results of our audit. We also report, if any, significant deficiencies in internal control regarding the accounting and financial reporting procedures that we have identified. Our report to the Audit, Risks and Compliance Committee includes the risks of material misstatement that, in our professional judgment, were of most significance in the audit of the consolidated financial statements of the current period and which are therefore the key audit matters, that we are required to describe in this audit report. We also provide the Audit, Risks and Compliance Committee with the declaration provided for in Article 6 of Regulation (EU) N° 537/2014, confirming our independence within the meaning of the rules applicable in France such as they are set in particular by Articles L.822-10 to L.822-14 of the French Commercial Code (code de commerce) and in the French Code of Ethics (code de déontologie) for statutory auditors. Where appropriate, we discuss with the Audit, Risks and Compliance Committee the risks that may reasonably be thought to bear on our independence, and the related safeguards.
Paris La Défense, February 25, 2022 The statutory auditors French original signed by KPMG Audit Département de KPMG S.A. Bertrand Pruvost MAZARS Loic Wallaert 5.2.2 Consolidated financial statements 5.2.2.1. Consolidated income statement
*
Net income - parent-company shareholders’ share divided by the number of shares stated. 5.2.2.2. Consolidated comprehensive income
*
The figures reclassified to profit and loss in 2021 are presented in Note 18-F. 5.2.2.3. Consolidated financial position
5.2.2.4. Changes in consolidated shareholders’ equity
Details of changes in consolidated shareholders’ equity in 2021 are given in Note 18. 5.2.2.5. Consolidated cash flows
(1)
Cash flows before interest and tax do not include dividends received from listed companies.
(2)
In 2020, dividends received from Daimler (€11 million).
(1)
Cash subject to restrictions on use is described in Note 22-D. 5.2.2.6. Notes to the condensed consolidated financial statements 5.2.2.6.1. Information on operating segments and Regions The operating segments defined by Renault Group are the following:
The segment result regularly reviewed by the Board of Management (which replaces the Group Executive Committee from 2021), identified as the “Chief Operating Decision-Maker”, is the operating margin. The definition of this indicator is unchanged from previous years and is detailed in Note 2-D Presentation of the consolidated financial statements. The operating margin excludes restructuring costs. The new brand-based organization announced by Luca de Meo, effective from 2021, did not affect the operating segments defined above. The presentation of business results by segment to the Board of Management continues to use the same segments as at December 31, 2020. A. Information by operating segment A1. Consolidated income statement by operating segment
A2. Consolidated financial position by operating segment
A3. Consolidated cash flows by operating segment
(2)
Cash flows before interest and tax do not include dividends received from listed companies.
(3)
Dividends received from Daimler (€11 million). A4. Other information for the Automotive segments: net cash position (net financial indebtedness), Operational free cash flow and ROCE The net cash position or net financial indebtedness, operational free cash flow and ROCE are only presented for the Automotive segments. The net cash position or net financial indebtedness includes all non-operating interest-bearing financial liabilities and commitments less cash and cash equivalents and other non-operating financial assets such as marketable securities or the segment’s loans. Net cash position (net financial indebtedness)
Operational free cash flow
(2)
The amounts included in Restructuring Costs are presented in Note 6-A.
(2)
The amounts included in Restructuring Costs are presented in Note 6-A. ROCE ROCE (Return On Capital Employed) is an indicator that measures the profitability of capital invested. It is reported for the Automotive segments. The shares in Sales Financing and Mobility Services entities, Nissan, and Daimler (which was sold in 2021, see Note 22-B) are not included in the definition of capital employed by the Automotive segments.
Working capital is determined from the following segment reporting items:
B. Information by Region Consolidated revenues are presented by location of customers. Property, plant and equipment and intangibles are presented by location of subsidiaries and joint operations.
In 2021 the Group modified its international organization. The Africa - Middle East - India - Asia Pacific region has been split into two new regions:
The China region as presented at December 31, 2020 is now included in the Asia Pacific region. Romania, Bulgaria and French overseas territories are now included in the Europe region. The figures for 2020 correspond to the regions adopted in 2021. 5.2.2.6.2. Accounting policies and scope of consolidation Note 1 Approval of the financial statements Renault Group’s consolidated financial statements for 2021 were examined at the Board of Directors’ meeting of February 17, 2022 and will be submitted for approval by the shareholders at the General Shareholders’ Meeting. Note 2 Accounting policies In application of European regulations, the Renault Group’s consolidated financial statements for 2021 are prepared under IFRS (International Financial Reporting Standards) as issued by the IASB (International Accounting Standards Board) at December 31, 2021 and adopted by the European Union at the year-end. 2-A. Changes in accounting policies 2-A1. Changes in accounting policies in 2021 Renault Group applies the accounting standards and amendments that have been published in the Official Journal of the European Union and are mandatory from January 1, 2021. New amendments that became mandatory on January 1, 2021
The amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 concerning Phase 2 of the interest rate benchmark reform and financial instruments were applied early by the Group in its financial statements at December 31, 2020. In 2020, the Automotive segments (through the intermediary of Renault Finance) adhered to the ISDA 2018 Benchmarks Supplement Protocol. The Sales Financing segment adhered to the ISDA 2020 IBOR Fallbacks Protocol in 2020, and the ISDA 2018 Benchmarks Supplement Protocol in 2021. During the second half of 2021, the Sales Financing segment terminated interest rate swaps included in hedging relationships and involving benchmarks concerned by the reform. At December 31, 2021, the Group has no interest rate hedging relationship, as defined by IFRS 9, that involves an interest rate benchmark concerned by the reform, and it considers there is no uncertainty regarding the future of the EURIBOR rate since its validation by the European Banking Authority as benchmark regulation-compliant. Application of the other amendments from January 1, 2021 has no material impact on the Group’s financial statements. New amendment effective from April 1, 2021 In March 2021 the IASB published an amendment to IFRS 16 entitled “Covid-19-Related rent concessions beyond June 30, 2021”, with an effective date of April 1, 2021, extending the application period for the 2020 amendment “Covid-19-Related rent concessions”. In line with the position taken for 2020, the Group has not applied this amendment in the financial statements at December 31, 2021. As in 2020, the concessions from which the Group benefited in 2021 have no significant impact. New standards and amendments not applied early by the Group
The Group is currently analysing the potential impacts, but does not at this stage anticipate that application of these documents will have any significant impact on the consolidated financial statements. Other standards and amendments not yet adopted by the European Union The IASB has also published the following new standards and amendments that have not yet been adopted by the European Union.
The Group is currently analysing the potential impacts, but does not at this stage anticipate that application of these amendments will have any significant impact on the consolidated financial statements. 2-A2. IFRS IC Agenda Decision on attributing benefit to periods of service (IAS 19) In May 2021 the IFRS IC published an Agenda Decision to clarify the periods of service to which an entity should allocate a retirement indemnity under a plan in which:
The decision clarifies that for such a plan, in application of IAS 19, the cost of the retirement indemnity must be attributed to the final years of service that earn the entitlement to the benefit (not spread over the employee’s entire career). The provision for vested benefits has been modified in the 2021 financial statements in accordance with this interpretation. The amount involved is not material. 2-A3. IFRS IC interpretation concerning configuration and customization costs in a Software as a Service (SaaS) arrangement (IAS 38) Regarding the interpretation issued by the IFRS IC in April 2021 on recognition of configuration and customisation costs in a Software as a Service (SaaS) arrangement, no significant impact on disclosed financial statements has been identified. 2-A4. IFRS IC interpretation concerning recognition of Targeted Long Term Refinancing Operations (TLTRO) (IFRS 9 and IAS 20) The IFRS IC decision clarifying analysis and recognition of TLTRO III transactions, which was due to be finalized in December 2021, has been deferred to February 2022. This decision applies to drawings of TLTRO III financing by the Sales Financing segment, to which the Group has opted to apply IFRS 9. More details of these transactions are provided in Note 23-C. 2-B. Estimates and judgments Specific context of 2020 and 2021 In the context of the Covid-19 pandemic that appeared in the first quarter of 2020 and continued throughout the year 2020, the global automotive market suffered a year-on-year downturn of 14.4% between 2019 and 2020. To protect its employees, and in compliance with the measures introduced by national governments, the Group suspended its commercial and production activities in most countries during March 2020. During the lockdown periods, practically all employees not working in production and sales worked from home, and furlough measures were put in place in 2020. Production and sales resumed mainly from May 2020, respecting the end-of-lockdown measures imposed by the governments of the countries where the Group has operations. A second lockdown and curfews were imposed in several countries, including France, during the second half of 2020; all these measures also had negative effects on the Group’s business activity in 2020. In addition to the effects of the Covid-19 pandemic, which were less serious but continued in 2021, business also began to be affected during the first half-year of 2021 by disruption to supplies of electronic components in the worldwide automotive sector. This disruption grew during the second half-year, with the principal consequence of losses of production output. As a result, after a fall of more than 20% between 2019 and 2020, sales volumes for 2021 were 4.5% lower than in 2020, at 2,696,401 units. To maintain a sufficient level of liquidity for its operations, in 2020 the Group arranged a €5 billion credit line guaranteed by the French government, on which it made three drawings totalling €4 billion. The €1 billion undrawn at December 31, 2021 ceased to be available at that date, and €1 billion of the August 2020 €2 billion drawing was repaid in August 2021 (Note 23-C). The Group also issued a new bond in November 2020 with nominal value of €1 billion (Note 23-C), and several bonds in 2021 (a €600 million bond in April 2021, a €1.2 billion Samurai bond in July 2021 and a €500 million bond in December 2021). The Group also generated a significant positive free cash flow in 2021 (Note 6.1.A4). At the date of publication of these consolidated financial statements, the Group has sufficient cash and sources of financing to ensure continuity of operations for the next twelve months and has demonstrated its capacity to issue debt (Note 23-C). Expenses and income recognized that are identified as resulting wholly or partly from the Covid-19 pandemic or the components supply crisis are not considered as “Other operating income and expenses”, except for expenses which due to their nature are always included in that category, such as impairment of tangible and intangible assets. Payroll costs net of state aid received, additional logistics costs, the costs of introducing new health protocols, and depreciation on assets unused or only partially-used during the period, mainly as a result of national lockdown rules or production halts due to disrupted electronic component supplies, are allocated to the relevant functions (cost of goods and services sold, research and development expenses, and selling, general and administrative expenses). The amounts concerned are not reported because it is impossible to reliably identify the amounts attributable solely to the Covid-19 pandemic or the components supply crisis. The 2020 consolidated financial statements included restatements of some assets and liabilities undertaken in the context of this pandemic, and the update of the “Renaulution” medium-term business plan (2021-2025). The principal impacts were €762 million of impairment in respect of certain tangible and intangible assets (Note 6), €248 million resulting from discontinuation of recognition of deferred tax assets (Note 8), and a €216 million increase in impairment for expected credit losses on Sales Financing receivables (Note 15). Estimation of the impacts of the Covid-19 pandemic on the 2020 financial statements, described in this paragraph, was particularly complex and involved the use of judgments explained in the Notes where relevant. No comparable significant accounting adjustments were made in 2021 due to the Covid-19 pandemic or disruption to supplies of electronic components. In France, on November 20, 2020 the Group signed an agreement with its social partners on the transformation of technical and service skills in preparation for future developments in the automotive world. This agreement defined the conditions for a new outplacement policy, and included a voluntary work-exemption plan for relevant personnel in 2021, and a Collective Contractual Separation plan for a maximum 1,900 employee departures. In the foreign subsidiaries, the Group has rolled out restructuring actions in line with the 3-year fixed cost reduction plan announced in May 2020. Restructuring and workforce adjustment provisions were recognized in 2020 for these plans, most of which were completed at December 31, 2021. A new agreement including a Collective Contractual Separation plan in France for a maximum 1,153 employee departures in 2022 was signed on December 14, 2021 as part of the 3-year trade union agreement “Re-Nouveau France 2025”. Through this key agreement Renault Group is making France the strategic and industrial centre of its promising future businesses, to strengthen the Group in its home country, contribute to its transformation and carry all its French businesses towards the automotive industry’s new value chain (Notes 6-A and 20). RBJAC is in financial distress, and its ability to continue as a going concern for the next 12 months has been considered uncertain since June 30, 2021. On January 12, 2022 RBJAC was placed in receivership (Note 13). In the context of the Covid-19 pandemic, new workforce reduction plans, the announcement in early 2021 of the new medium-term business plan “Renaulution” (2021-2025), and the electronic components supply crisis, the main items in the Group’s consolidated financial statements that are dependent on estimates and judgements and have been paid particular attention in 2020 and 2021 are:
This list is not exhaustive due to the constantly evolving Covid-19 situation and its effects on the financial health of the world’s economies, and it remains very difficult to predict the magnitude and duration of the pandemic’s economic impacts on our business. The same applies to the worldwide crisis electronic components supplies for the automotive industry. Other important estimates and judgments Renault Group often has to make estimates and assumptions that affect the book value of certain assets and liabilities, income and expenses, and disclosures made in certain notes to the financial statements. In preparing its financial statements, Renault Group regularly revises its estimates and assessments to take account of past experience and other factors deemed relevant in view of the economic circumstances. It takes into consideration forthcoming regulations (notably new European Union regulations on air pollution and CO2 emissions), the foreseeable effects of commitments made in response to environmental issues, forecast technological and market developments (commodity costs, changing customer demand, etc) and any other developments that could have a significant impact on the consolidated financial statements in application of IFRS rules. If changes in these assumptions or circumstances are not as anticipated, the figures reported in Renault Group’s future consolidated financial statements could differ from the estimates established at the time these financial statements were finalized. The main items in the Group’s consolidated financial statements at December 31, 2021 that are dependent on estimates and judgments are the following:
2-C. Consolidation principles The consolidated financial statements include the financial statements of all companies controlled exclusively by the Group either directly or indirectly (subsidiaries). Jointly controlled companies are accounted for under the equity method when they are classified as joint ventures and consolidated on the basis of the percentage share specific to each balance sheet and income statement item when they are classified as joint operations. Companies in which the Group exercises significant influence (associates) are included in the financial statements on an equity basis. Significant intercompany transactions and unrealized internal profits are eliminated. Investments in non-significant companies that are controlled exclusively by the Group but not consolidated, even though they fulfil the above criteria, are recorded as other non-current assets. Consolidation of all these companies would have a negligible impact on the consolidated financial statements, since their losses, if any, are recognized via impairment. Also, they are financed by the Group and acquire almost all their purchases, or carry out almost all their sales, with Group companies. Put options on non-controlling interests are carried in the consolidated financial position at fair value, and classified in other financial liabilities in the Automotive segments and in other non-current liabilities in the Sales Financing segment, with a corresponding adjustment to equity. Outstanding price supplements payable to shareholders who have sold shares to the Group are recorded in the financial position, in financial liabilities (Automotive and Mobilities segments) or in other liabilities (Sales Financing segment) to give a better estimation of the obligation. The liability is initially recognized via an adjustment to goodwill (or unconsolidated investments) and subsequently via profit and loss (other financial income and expenses, or the share in net income of associates and joint ventures, depending on the nature of the investment). 2-D. Presentation of the consolidated financial statements Valuation basis The consolidated financial statements are established under the historical cost convention, except for certain categories of assets and liabilities, in compliance with IFRS rules. The categories concerned are detailed in the following notes. Operating income and operating margin Operating income includes all revenues and costs directly related to the Group’s activities, whether recurrent or resulting from non-recurring decisions or operations, such as restructuring costs. The operating margin, which corresponds to the operating income of an individual segment as defined in IFRS 8, Operating Segments, corresponds to the operating income before other operating income and expenses, which are by nature unusual or significant and could affect comparability of the margin. Other operating income and expenses cover:
With the exception of the tax charge, the share in net income of associates and joint ventures, and financial interest on pension and other long-term employee benefit obligations, all income and expenses resulting from the Sales Financing activity are included in operating income and expenses. Equity method consolidation of associates and joint ventures The share in net income of associates and joint ventures reported in the Group’s consolidated income statement comprises the share in these entities’ profits or losses, impairment and recoveries of impairment relating to these entities (Note 2-M). The impairment booked is limited to the net book value of the investment, unless an additional commitment has been made. The gain or loss resulting from the sale or loss of significant influence or joint control over associates and joint ventures accounted for under the equity method, and the gain or loss on acquisition of control, as defined by IFRS 10, over companies that were already consolidated but not controlled, is reported in other operating income and expenses in the Group’s consolidated income statement. This includes transfers of accumulated translation adjustments during the period the entity was accounted for under the equity method. The Group recognizes a deferred tax liability on dividend distributions for all differences between the book and tax values of its investments in associates and joint ventures (Note 2-I). This tax is included in current and deferred taxes in the Group’s income statement. Goodwill relating to associates and joint ventures is included in the value of the relevant entities as stated in the assets in the consolidated statement of financial position. In the event of impairment, an impairment loss is booked and included in the consolidated income statement via the share in net income (loss) of associates and joint ventures (Note 2-J). Acquisition expenses related to investments in associates and joint ventures are included in the initial acquisition cost for these investments. Cross-investments between a consolidated entity and an associate are neutralized in measuring the investment in the associate as stated in the assets of the statement of financial position. Nissan’s 15% stake in Renault is therefore neutralized in valuing the investment in Nissan shown in the assets of the consolidated statement of financial position (Note 12). Dividends received from unlisted associates and joint ventures are included in the Automotive operational free cash flow, while dividends received from listed associates and joint ventures, i.e. Nissan, are excluded from Automotive operational free cash flow. Reporting by operating segment The information by operating segment is based on internal reporting to the Board of Management, identified as the “Chief Operating Decision-Maker”. This information is prepared under the IFRSs applicable to the consolidated financial statements. All Group financial data are assigned to the operating segments. The “Intersegment transactions” and “Intra-Automotive” columns are reserved for transactions between the segments, which are carried out on near-market terms. Dividend payments by the Sales Financing segment are included in that segment’s net financial income and expenses. The indicator used to evaluate segment performance is the operating margin. The effects of the French consolidated taxation system are included in the tax expense of the Automotive (excluding AVTOVAZ) segment. Assets and liabilities are specific to each segment. Receivables assigned by the Automotive segments to the Sales Financing companies are treated as operating assets by the assignee when the risks and benefits are substantially transferred. These receivables are mostly receivables on the dealership network. Vehicles and batteries for which the Automotive segment has a repurchase commitment are included in the segment’s assets. When these assets are financed by the Sales Financing segment, the Sales Financing segment recognizes a receivable on the Automotive segment. Current and non-current assets and liabilities Sales Financing receivables, other securities, derivatives, loans and financial liabilities of the Sales Financing segment (other than participating shares and subordinated loans) are considered as current assets and liabilities, because they are used in this operating segment’s normal business cycle. For the Automotive segments, in addition to items directly related to the business cycle, all assets and liabilities maturing within one year are classified as current. 2-E. Translation of the financial statements of foreign companies The Group’s presentation currency is the euro. For foreign companies, the functional currency is generally the local currency. In cases where most transactions are carried out in a different currency, that is adopted as the functional currency. Foreign companies’ accounts are established in their functional currency, and subsequently translated into the Group’s presentation currency as follows:
Goodwill generated by a business combination with a foreign company is treated as an asset or liability of the entity acquired, as appropriate. It is therefore expressed in the relevant entity‘s functional currency, and translated into euros at the closing rate. When a foreign company is sold, the accumulated translation adjustments on its assets and liabilities are transferred to other operating income and expenses in the income statement. In an exception to the above principles, the financial statements of entities in hyperinflationary economies are translated in accordance with IAS 29 “Financial reporting in hyperinflationary economies”. Non-monetary balance sheet items, income statement items, comprehensive income items and cash flow statement items are adjusted for inflation in their original local currency, then all the financial statements are translated at the closing exchange rate for the period. This hyperinflationary accounting leads to recognition of a gain or loss resulting from exposure to hyperinflation, which is classified as other financial income and expenses and thus included in reserves the following year. The effects of index-based restatement and translation of the equity of subsidiaries in Argentina are all included in the translation adjustment in other components of comprehensive income, since restatement based on price indexes is correlated with movements in the exchange rate between the Argentinian peso and the euro, and mitigates the effect of the peso’s devaluation. To determine whether a country is in hyperinflation, the Group refers to the list published by the International Practices Task Force (IPTF) of the Center for Audit Quality. The financial statements of the Group’s subsidiaries in Argentina are consolidated in accordance with the principles of IAS 29, which have been applied since January 1, 2018. As operations in Iran are no longer consolidated, the Group has no other subsidiary in countries on the IPTF list. 2-F. Translation of foreign currency transactions Transactions undertaken in a currency other than the functional currency of the entity concerned are initially translated to and recorded in the functional currency, using the rate applicable at the transaction date. For financial reporting purposes, monetary assets and liabilities in currencies other than the functional currency are translated at the closing rate. All resulting foreign exchange differences are recognized in the income statement, except for foreign exchange gains and losses on financial instruments designated as hedges of a net investment in a foreign entity (Note 2-X). The following impacts are therefore recorded in net income:
Derivatives are measured and recorded as described in Note 2-X. 2-G. Revenues and margin Revenues comprise all proceeds from sales of the Group’s automotive goods, services related to these sales, and the various Sales Financing products marketed by the Group’s companies to their customers. Sales of goods and services Sales and margin recognition Sales of automotive goods are recognized at the date control is transferred. The transfer of control over automotive goods takes place when the goods are made available to the distribution network in the case of non-Group dealers (at the time they are added to or removed from stock, depending on the contractual arrangements) or upon delivery to the end-user in the case of direct sales. However, there is no transfer of control in the case of goods sold under an operating lease by a Group finance company, or in the case of goods sold with a buy-back commitment if it is highly likely that they will be returned. In such transactions, the revenues are recognized progressively over the lease period, and a used vehicle sale is recorded when control of the used vehicle is transferred. The difference between the price paid by the customer and the buy-back price is treated as rental income, and spread over the period the automotive item is at the customer’s disposal. The production cost for the new automotive item concerned is recorded in inventories for contracts of less than one year, or included in property, plant and equipment under fixed assets leased to customers when the contracts exceed one year. The forecast resale value takes account of recent known developments on the second-hand automotive market but also future anticipated developments over the period in which the automotive goods will be sold, which may be influenced by factors both external (economic situation, taxation) and internal (changes in the range or the manufacturer’s pricing strategy). As soon as a loss is expected on the resale, a provision (if the automotive item is in inventories) or additional depreciation (if the automotive item is included in property, plant and equipment) is recognized to cover the loss. Sales incentive programs Sales incentive programs based on the volumes or prices of products sold are deducted from sales when the sales operations concerned are recorded. Any provisions are based on estimates of the most probable amount. The Group undertakes certain promotional campaigns offering reduced-interest customer credit or discounts on services. Because these are sales incentives, the cost of these operations is recognized as a reduction in sales by the Automotive segments when the vehicle sale takes place, and is not spread over the duration of the financing or the services concerned. Warranty The Group makes a distinction between insurance-type warranties and service-type warranties. Provisions are established for insurance-type warranties, while service-type warranties give rise to revenue that is spread over the duration of the warranty extension. The estimated or incurred costs relating to manufacturer’s product or part warranties classified as insurance-type warranties are charged to expenses when the sales are recorded. Provisions for costs still to be borne are valued on the basis of observed data for each model and engine regarding the level of costs, and their distribution over the periods covered by the manufacturer’s warranty. In the event of product recalls following incidents that come to light after the vehicle has been put on the market, provisions are established to cover the costs involved as soon as the decision to undertake the recall campaign has been made. Amounts claimed from suppliers are deducted from the warranty expense when it is considered practically certain they will be recovered. Services related to sales of automotive products Revenues from service contracts sold by the Group are recognized on a percentage-of-completion basis. These contracts may be for warranty extensions, maintenance or insurance. Such service contracts may be sold separately to the final customer or included free of charge in a sale package covering a vehicle and related services. In either case, the Group considers service contracts as a separate service obligation from delivery of the vehicle, and allocates a portion of revenue to the service contract. When the customer makes regular payments for the service contract, the revenue is recognized on a straight-line basis. When the contract is prepaid (for example, when it is paid for by the customer at the time of the vehicle purchase), the amounts received are recorded as deferred income, and spread over the duration of the contract, on a straight-line basis for warranty extensions and following an experience curve for maintenance contracts. Impairment of customer receivables Impairment is booked in respect of the Automotive segment’s customer receivables to reflect the prospective assessment of the credit risk at the inception of the receivable and any deterioration of that risk over time. When there is an incurred credit loss, impairment is recorded individually for each receivable. Sales Financing revenues Sales Financing revenues are generated by financing operations for sales of vehicles to dealers and end-users. These financing operations take the form of loans from the Sales Financing segment companies, and are carried in the balance sheet at amortized cost under the effective interest rate method, less any impairment. Income on these contracts is calculated so as to give a constant interest rate over the period, and is included in sales revenues. Sales Financing costs Sales financing costs are considered as operating expenses and included in the operating income (operating margin in the information by operating segment). They mainly comprise interest incurred by sales financing companies to refinance their customer loan transactions, other costs and revenues directly related to administration of this type of refinancing (temporary investments, hedging and management of exchange and interest rate risks), and the cost of risks related to receivables. Refinancing comes from diversified sources: public and private bond issues, public and private securitization backed by Automotive segment loans, negotiable debt instruments, savings collected and financing from credit institutions and assimilate or the European Central Bank. Commissions payable to business intermediaries Commissions are treated as external distribution costs, and therefore deferred as contract acquisition costs, so as to give a constant interest rate over the term of the financing contracts. Classification and impairment of receivables The impairment method for financial receivables depends on the category concerned. For healthy receivables (stage 1), impairment is equivalent to the 12-month expected credit loss; for receivables on which the credit risk has significantly deteriorated since initial recognition or which received extensions during the lockdown (stage 2), impairment is equivalent to the lifetime expected losses; and for receivables in default (stage 3), impairment is equivalent to the incurred credit loss. The Sales Financing segment uses an internal scoring system or external ratings to identify any significant deterioration in the credit risk. In addition, this segment has decided to use the assumptions set out in the standard and thus downgrades any receivable outstanding after 30 days to stage 2, and any receivable still outstanding after 90 days to stage 3. Receivables in default (stage 3) are identified by the Sales Financing segment in compliance with the European Banking Authority’s EBA/GL/2016/07 guidelines. The Sales Financing segment has opted for the “one step” approach, which consists of applying the new definition of default and adjusting its internal models concurrently for the Dealer portfolio and Customer portfolio. The Sales Financing segment refers to the current recommendations of the Basel Committee to generate the parameters needed to calculate the probability of default and the loss rates in the event of default on loans and financing, finance lease receivables, irrevocable financing commitments, and financial guarantees given to customers and dealers in its principal countries of business (Germany, Brazil, Spain, France, Italy and the United Kingdom for customer and dealer financing, Korea for customer financing only). For other assets, a standard approach based on a simplified methodology is applied. As the assumptions used are essentially based on observable market data, the calculation of impairment for expected credit losses in the Sales Financing segment also incorporates forward-looking macro-economic data (GDP, long-term rates, etc) to reflect changes in indicators and sector-specific information. Write-off rules the gross book value of a financial asset is written off when there are no reasonable expectations of recovery. The asset is derecognized via a loss account, and the associated impairment is reversed when the non-recoverability of receivables is confirmed, or at the latest when the Sales Financing segment’s rights as creditor are extinguished. Examples of receivables that become non-recoverable and are derecognized are waivers negotiated with customers (notably as part of a recovery plan), time-barred receivables, receivables concerned by an unfavourable legal judgement (when the outcome of a lawsuit or litigation is negative), and receivables owed by a customer that no longer exists. 2-H. Financial income (expenses) The cost of net financial indebtedness comprises the cost of gross financial indebtedness less income associated with cash, cash equivalents and financial assets of the Automotive segments. The cost of gross financial indebtedness consists of income and expenses generated by the Automotive segments’ financial indebtedness during the period, including the impact of the effective portion of the related interest rate hedges. Other financial income and expenses mainly include foreign exchange gains and losses on financial items and related hedges, the gain or loss caused by exposure to hyperinflation (Note 2-E), the net interest on provisions for pensions, and dividends and impairment of companies that are neither controlled nor under significant influence by the Group. 2-I. Income tax The Group recognizes deferred taxes for all temporary differences between the tax and book values of assets and liabilities in the consolidated statement of financial position. Deferred taxes are calculated at the latest tax rate enacted at the closing date applicable to the period when temporary differences are reversed. Each individual fiscal entity (legal entity, establishment or group of entities that pays tax to the tax administration) that is authorized to offset its current tax assets and liabilities reports deferred tax assets and liabilities net. Recognition of deferred tax assets depends on the probability of future recovery. For associates and joint ventures, a deferred tax liability on dividend distributions is booked for differences between the book value and tax value of shares held. Tax credits that can only be used against a taxable profit are recorded as a deduction from the income tax payable. Tax credits that are recoverable regardless of whether the company makes a taxable profit are set against the relevant nature of expense. To determine the provisions for uncertain tax liabilities, the Group uses a case-by-case method based on the most probable value. In view of their qualitative characteristics these provisions are reported on specific lines in the consolidated financial position. 2-J. Goodwill Non-controlling interests (formerly called “minority interests”) are carried at fair value (the full goodwill method) or at their share in the fair value of assets acquired and liabilities transferred (the partial goodwill method). To date Renault has only recognized goodwill valued under the partial goodwill method. The choice of which method to use is made for each individual case. Goodwill is not amortized, but impairment tests are carried out at least annually or whenever there is evidence of loss of value. After initial recognition, goodwill is stated at cost less any accumulated impairment. Goodwill relating to associates and joint ventures is included in the value of the entities concerned as reported in the assets in the statement of financial position. In the event of impairment, an impairment loss is booked and included in the consolidated income statement via the share in net income (loss) of associates and joint ventures. Acquisitions of additional investments concerning non-controlling interests in companies controlled by the Group are treated as equity transactions. The positive or negative difference between the cost of acquiring shares and the book value of the non-controlling interests acquired is recorded in shareholders’ equity. 2-K. Research and development expenses and other intangible assets Research and development expenses Development expenses incurred between the decision to begin development and implement production facilities for a new vehicle or component (e.g. engine or gearbox) and the subsequent approval of the design for mass production are capitalized as intangible assets. They are amortized on a straight-line basis from the date of approval for production, over the expected market life of the vehicle or part, which is initially no longer than seven years. Market lives are regularly reviewed and subsequently adjusted if there is a significant difference from the initial estimate. Capitalized development expenses mainly comprise the cost of prototypes, the cost of studies invoiced by external firms, the cost of personnel assigned to the project and a share of overheads dedicated exclusively to development activities. Borrowing costs directly attributable to the development of a project requiring at least 12 months of preparation before commissioning are included in the gross value of the asset, which is a “qualifying asset”. The capitalization rate for borrowing costs is limited such that capitalized borrowing costs do not exceed the total borrowing costs borne during the year. When a project is financed through a specific borrowing, the capitalization rate is equal to the interest rate on the borrowing. Expenses incurred before the decision to begin product development are recorded as costs in the period they are incurred, in the same way as research expenses. Expenses incurred after the start of mass production are treated as production costs. Other intangible assets Other intangible assets comprise patents, leasehold rights, intangible business assets, licences, software, brands and similar rights purchased by the Group. When they have a finite useful life, patents, leasehold rights, licences, brands and similar rights purchased are amortized on a straight-line basis over the period of protection stipulated by the contact or the law, or over the useful life if shorter. Intangible business assets and softwares are amortized over their useful life. The useful life of intangible assets is generally between 3 and 5 years. Intangible assets with an indefinite useful life, such as the Lada brand (Note 11-C), are subjected to an impairment test at least once a year and when there is any indication of impairment. 2-L. Property, plant and equipment and right-of-use assets The gross value of property, plant and equipment corresponds to historical acquisition or production cost. Design and preparation expenses are included in the asset’s production cost. The production cost for property, plant and equipment also includes financing costs borne during the construction phase, under the same method as for intangible assets. When a project is financed through a specific borrowing, the capitalization rate is equal to the interest rate on the borrowing. Investment subsidies received are, where relevant, presented as a deduction from the gross value of the assets concerned. Subsequent expenses for property, plant and equipment, except those incurred to increase productivity or prolong the life of an asset, are charged to expenses as incurred. Assets leased to customers include vehicles leased for more than one year from a Group finance company with a buy-back commitment by the Group, and vehicles sold under an agreement including a clause for buy-back after a minimum one year of use. Assets leased to customers also include vehicles covered by operating leases longer than one year from Group finance companies, and batteries leased to electric vehicle users by Group finance companies (Note 2-G). Right-of-use assets The Group is a party to leases of real estate property (land, concessions, warehouses, offices, etc) and movable property (IT and operating equipment, transport equipment). A contract contains a lease if it gives the lessee the right to use an identified asset for a specified period of time in exchange for payment. At the contract’s commencement date, a lessee recognizes an asset related to the right of use, and a financial liability that represents the lease obligation. The right-of-use asset is amortized over the term of the lease. The lease liability is initially recognized at the present value of lease payments over the expected term of the lease. The discount is unwound using the implicit interest rate of the lease agreement if it can be readily determined, or at the incremental borrowing rate otherwise. As lessee, the Group uses the incremental borrowing rate, calculated for each monetary zone as the risk-free rate applicable in the zone, plus the Group’s risk premium for the local currency. In the income statement, amortization of the right-of-use asset is recorded in the operating income (operating margin in the information by operating segment) and a financial expense corresponding to the interest on the lease liability is recorded in financial income and expenses. The tax impact of this consolidation adjustment is recognized via deferred taxes. In the cash flow statement, cash flows from operating activities are impacted by interest expenses paid, and cash flows from financing activities are impacted by the reimbursed lease liability. Lease payments on short-term leases (12 months or less) and leases of low-value assets are treated as operating expenses. The term of the lease is the non-cancellable period of a lease contract during which the lessee has the right to use the leased asset, extended by any renewal options the Group is reasonably certain to exercise. For French commercial leases, the lease term is generally 9 years. Lease term estimation and consideration of extension and termination options is conducted with the help of the real estate department, considering the types of site and their development plans. To reduce its real estate footprint for a better fit to actual needs, the Group renegotiates property leases (entailing a lease modification) or applies early termination clauses contained in its lease agreements (lease reassessment under IFRS 16). When a lease is renegotiated to shorten the term or reduce the space leased, the Group recognizes the reassessment of the lease obligation by discounting the revised lease payments using a revised discount rate, and reduces the book value of the right-of-use asset in the statement of financial position to reflect the partial termination of the lease. The gain or loss resulting from partial termination is recognized in the operating income (other operating income and expenses). When the term of a lease is revised, the lease obligation is reassessed by discounting the revised lease payments using a revised discount rate, and the right-of-use asset is adjusted by the same amount in the group’s statement of financial position. Improvements to leased buildings are depreciated over a duration that is equal to or shorter than the lease term used to estimate the lease liability (if the lessee has neither the intention nor the ability to use them for a longer period). When a lease contract contains a purchase option the Group is reasonably certain to exercise, it is in substance a purchase rather than a lease. The corresponding liability is considered as a financial liability under IFRS 9, and the asset as a tangible asset in compliance with IAS 16. Provisions for repairs required contractually by lessors are recognized at the start of the lease, with a corresponding tangible asset. Impairment tests of right-of-use assets are applied at the level of the cash-generating unit, in accordance with the principles presented in Note 2-M. Sale and leaseback operations In application of IFRS 16, for a sale and leaseback operation, reference is made to the requirements of IFRS 15 to determine whether the transfer of the asset should be treated as a sale or a financing operation. If the transfer of an asset does not qualify under IFRS 15 for recognition as a sale, the asset transferred remains in the assets reported in the statement of financial position, and a financial liability equal to the proceeds of the transfer is recognized. If the transfer of an asset is recognized as a sale and the Group then leases back part or all of the asset sold, only the amount of the gain or loss on the rights transferred to the buyer-lessor is recognized, and the right-of-use asset is adjusted in proportion to the interest retained in the net book value of the asset transferred. Depreciation In the Automotive (excluding AVTOVAZ) segment and the Sales Financing segment, depreciation is calculated on a straight-line basis over the following estimated useful lives:
(1)
Buildings in use before 1987 are depreciated over a period of up to 40 years. Useful lives are regularly reviewed, and accelerated depreciation is recorded when an asset's useful life becomes shorter than the initially expected period of use, particularly when it is decided to withdraw a vehicle or component from the market. Depreciation for the AVTOVAZ segment is calculated on a straight-line basis over useful lives that may be longer than those used in other Renault Group companies. 2-M. Impairment Impairment of fixed assets Fixed assets are subjected to impairment tests as soon as there is any indication of a loss of value, such as significant adverse changes in the market in which the company operates, or changes affecting the circumstances and manner of use of the assets. For the Automotive (excluding AVTOVAZ) segment, impairment tests are carried out at two levels: At the level of vehicle-specific assets (including components) Vehicle-specific assets (including components) consist of capitalized development expenses and tools. Impairment tests are carried out by comparing the net book value of the assets with the recoverable value, calculated based on discounted future cash flows related to the vehicle and its components. These assets may be specific to the model and/or the country of destination. At the level of cash-generating units A cash-generating unit is defined as a coherent subset that generates largely independent cash flows. Cash-generating units may represent an economic entity (plant or subsidiary) or the whole Automotive (excluding AVTOVAZ) segment. Net fixed assets related to cash-generating units notably include goodwill, specific assets and capacity assets, and components of working capital. For each of the two levels, impairment tests are carried out by comparing the net book value with the recoverable value. Recoverable value is defined as the higher of value in use or fair value less selling costs. Value in use is the present value of estimated future cash flows expected to arise from the use of an asset. Future cash flows derive from the business plan drawn up and validated by the Management, plus a terminal value based on discounted normative cash flows after application of a growth rate to infinity. They also include a bonus (“excess earnings”) paid to the Automotive segments for business referrals to the Sales Financing segment. The assumptions underlying the business plan include estimates of market developments in countries in which the Group operates and its share of those markets, changes in the sale price of products and the prices of purchased components and commodities. The pre-tax discount rate used is the weighted average cost of capital as determined by the company. When the recoverable value is lower than the net book value, impairment equivalent to the difference is recorded against the assets concerned. For the Sales Financing segment, an impairment test is carried out at least once a year or whenever there is an indication of loss of value, by comparing the book value and recoverable value of assets. Recoverable value is defined as the higher of fair value (less selling costs) and value in use. The value in use is based on a market approach, determined by using multiples for each group of cash-generating units made up of legal entities or groups of legal entities in the same country. For AVTOVAZ, impairment tests are also carried out at several levels (specific assets, and the Group as a whole). The AVTOVAZ Group as a whole is considered as one cash-generating unit, and no tests are conducted for individual factories or economic entities. Impairment of investments in associates and joint ventures Impairment tests of the value of investments in associates and joint ventures are carried out as soon as there is any indication of a loss of value, essentially significant adverse changes in the markets in which the company operates, or a major or long-term decline in stock market value. Impairment tests are carried out in compliance with IAS 28 and IAS 36, by comparing the book value of the investment in the associate or joint venture with the recoverable value, which is the higher of value in use and fair value, less selling costs. The value in use is equal to the share of the present value of future estimated cash flows expected by the associate or joint venture. If the associate or joint venture is listed, the fair value is its stock market value. When the recoverable value is lower than the book value, impairment equivalent to the difference is recorded against the relevant investment in an associate or joint venture, and included in the Group’s income statement via the share in net income (loss) of associates and joint ventures. 2-N. Non-current assets or groups of assets and liabilities held for sale Assets and liabilities held for sale are non-current assets or groups of assets and liabilities that are available for immediate sale, and are highly likely to be sold within twelve months due to advanced discussions with a known buyer. Assets or groups of assets and liabilities considered to be held for sale are measured and recorded at the lower of net book value or fair value less selling costs. No further depreciation or amortization is recorded on non-current assets that are classified as held for sale (or included in a group of assets and liabilities held for sale). These assets and liabilities are reported on specific lines in the statement of consolidated financial position. 2-0. Inventories Inventories are stated at the lower of cost or net realizable value. Cost corresponds to acquisition cost or production cost, which includes direct and indirect production expenses and a share of manufacturing overheads, based on a forecast level of activity, and the results of any related hedges. The level of activity is forecast site by site, in order to determine the share of fixed costs to be excluded if the actual level of activity is lower. Inventories of the Automotive (excluding AVTOVAZ) segment and the Sales Financing segment are valued under the FIFO (First In First Out) method. Inventories of AVTOVAZ are valued at weighted average cost. When the net realizable value is lower than the financial position value, impairment equal to the difference is recorded. 2-P. Assignment of receivables and reverse factoring Receivables assigned to third parties (through securitization, discounting, or factoring) are removed from Group assets when the associated risks and benefits are also substantially transferred to the third parties in question. Risk analysis principally concerns the credit risk, the risk of late payment and the country risk. The same rule applies in the Automotive (excluding AVTOVAZ) segment and the Sales Financing segment. The Automotive segments sometimes uses reverse-factoring programs. These programs can be used to support a supplier, or to benefit the Group by extending payment deadlines. In the first case, the liability continues to be considered as part of the operating cycle and the amounts concerned remain in trade payables in the financial position. In the second case, if the reverse factoring contract includes an unconditional commitment by the Group to pay the amount initially due to the supplier to the financial institution that is a party to the contract, the liability is no longer considered as part of the operating cycle and the amounts concerned are reclassified as financial liabilities (this has no impact on the cash flow statement at the reclassification date). If the contract is considered as a financial liability and covers a financing requirement for the group subsidiary involved, the repayments to financial institutions impact cash flows from financing activities in the cash flow statement; otherwise, they are included in cash flows from operating activities. 2-Q. Treasury shares Treasury shares are shares held for the purposes of stock option plans, performance share plans and other share-based payment arrangements awarded to Group managers and executives. They are recorded at acquisition cost and deducted from Group shareholders’ equity until the date of sale. When these shares are sold, the sale price is directly included in consolidated shareholders’ equity. Consequently, no gain or loss on treasury shares is included in the net income for the period. 2-R. Performance share plans attribution plans and other share-based payment agreements The Group awards performance shares and other share-based payments made in Renault shares. The grant date is the date at which beneficiaries are informed of the decision to award performance shares, and the terms of the performance share plan. For plans subject to performance conditions, an estimate of achievement of the conditions is taken into account in determining the number of shares awarded. This estimate is reviewed annually based on changes in the probability of performance condition achievement. The final fair value of services rendered in return for performance shares is measured by reference to the fair value of those shares at their grant date. Entitlements to performance shares are valued based on the share value at the grant date less dividends expected during the vesting period. The share price volatility factor applied is implicit volatility at the grant date. The expected dividend is determined by reference to the dividend payout schedule announced at the time each plan is valued. The total fair value calculated in this way is spread on a straight-line basis over the entire vesting period. This expense is included in personnel expenses, with a corresponding adjustment to consolidated reserves. When the performance shares vest, the cash amount received by the Group in settlement of the exercise price is booked in cash and cash equivalents, with a corresponding adjustment to consolidated reserves. 2-S. Pensions and other long-term employee benefit obligations The Group’s payments for defined-contribution benefit plans are recorded as expenses for the relevant period. For defined-benefit plans concerning post-employment benefits, the Group uses the Projected Unit Credit Method to determine the present value of its obligations. Under this method, benefits are attributed to periods of service according to the plan‘s benefit formula, principally on a straight-line basis over the years of service that earn benefit entitlements. The future payments for employee benefits are measured on the basis of future salary increases, retirement age, mortality and length of employment with the company, and are discounted at a rate determined by reference to yields on long-term high quality corporate bonds of a duration corresponding to the estimated average duration of the benefit plan concerned. The actuarial gains and losses resulting from revisions of the underlying assumptions and experience-based adjustments are included in other components of comprehensive income. The net expense for the year, corresponding to the current period service cost plus the past service cost where relevant, is charged to the operating income (operating margin in the information by operating segment). The interest expense on the net defined-benefit liability (asset) is recorded in the net financial income and expenses. 2-T. Workforce adjustment measures The estimated cost of workforce adjustment measures, which for accounting purposes is treated as an employee benefit, is covered by a provision over the estimated residual employment period of the employees concerned. The cost of termination indemnities is recognized as soon as a detailed plan has either been announced or is in progress. The amount recorded is net of existing provisions for pensions. 2-U. Financial assets The Group recognizes a financial asset when it becomes a party to the contractual provisions of a financial instrument. Financial assets comprise investments in non-controlled companies in which Renault does not exercise significant influence, marketable securities, negotiable debt instruments, loans, and derivative assets related to financial transactions (Note 2-X). These instruments are presented as non-current assets, apart from those maturing within 12 months of the closing date, which are classified as current assets. Investments in non-controlled companies in which Renault does not have significant influence Investments in non-controlled companies in which Renault does not have significant influence are classified as equity instruments at fair value through profit and loss. The fair values of such financial assets are determined in priority by reference to the market price. If this is not possible, the Group uses a valuation method that is not based on market data. In an exception to this rule, by virtue of an irrevocable option the Daimler shares were presented at fair value in other components of comprehensive income until their disposal in 2021. Marketable securities and negotiable debt instruments Short-term investments in the form of marketable securities and negotiable debt instruments are undertaken for the management of cash surpluses, but do not meet the requirements to qualify as cash equivalents. These are debt instruments carried at fair value through other components of comprehensive income, except for shares in investment funds (UCITS) which are carried at fair value through profit and loss. Impairment equivalent to expected credit losses is booked upon initial recognition of debt instruments carried at fair value through other components of comprehensive income. Loans Loans essentially include loans for investment of cash surpluses and loans to associates. Loans are carried at amortized cost. Impairment equivalent to expected credit losses is recognized upon initial recognition of the financial asset, and when there is objective evidence of loss of value caused by an event arising after the initial recognition. 2-V. Cash and cash equivalents Cash includes cash on hand, current accounts and other demand deposits, with the exception of bank overdrafts, which are included in financial liabilities. Cash equivalents are investments held for the purpose of meeting short-term cash commitments. For an investment to qualify as a cash equivalent, it must be considered as liquid, be readily convertible for a known amount of cash and be subject to an insignificant risk of change in value. These instruments are stated at amortized cost except for shares in investment funds (UCITS) which are carried at fair value through profit and loss. Bank accounts subject to restrictions due to sector-specific regulations (for example, banking or insurance regulations) or bank accounts allocated to increasing credit on securitized receivables are included in cash and cash equivalents. 2-W. Financial liabilities of the Automotive segments and Sales Financing debts The Group recognizes a financial liability (for the Automotive segments) or a Sales Financing debt when it becomes a party to the contractual provisions of a financial instrument. Financial liabilities and Sales Financing debts comprise participating shares, subordinated debt, bonds, other debts represented by a certificate, borrowings from credit institutions, lease liabilities in application of IFRS 16 (Notes 2-L), other interest-bearing borrowings and derivative liabilities related to financial transactions (Note 2-X). Participating shares of the Automotive segments are listed subordinated debt instruments that earn a variable return indexed on consolidated revenues. They are carried at amortized cost, determined by discounting forecast coupons using the effective interest rate on borrowings. The estimated effective interest rate takes account of indexation, and the amortized cost recorded in financial result is re-estimated when there is a significant change in future sales prospects, particularly when medium-term business plans are released. Financial liabilities not concerned by specific hedge accounting methods (Note 2-X) are generally recorded at amortized cost using the effective interest rate method. Financial expense calculated in this way includes issuance expenses and issuance or redemption premiums, together with the impact of debt renegotiations when the old and new terms are not substantially different. 2-X. Derivatives and hedge accounting Measurement and presentation Derivatives are initially stated at fair value. This fair value is subsequently reviewed at each closing date.
The Automotive segments’ derivatives are reported in the financial position as current if they mature within 12 months and non-current otherwise. All Sales Financing segment derivatives are reported in the financial position as current. Hedge accounting The treatment of derivatives designated as hedging instruments depends on the type of hedging relationship:
The Group identifies the hedging instrument and the hedged item as soon as the hedge is set up, and documents the hedging relationship, stating the hedging strategy, the risk hedged and the method used to assess the hedge’s effectiveness. The Sales Financing segment documents hedging relationships concerning one or more homogeneous items to cover its risks. This documentation is subsequently updated such that the effectiveness of the designated hedge can be demonstrated. Hedge accounting uses specific measurement and recognition methods for each category of hedge. • Fair value hedges: the hedged item is adjusted to fair value up to the risk hedged and the hedging instrument is recorded at fair value. As changes in these items are recorded in the income statement simultaneously, only the ineffective portion of the hedge has an impact on net income. It is recorded in the same income statement item as changes in the fair value of the hedged item and the hedging instrument. • Cash flow hedges: no adjustment is made to the value of the hedged item; only the hedging instrument is adjusted to fair value. Following this adjustment, the effective portion of the change in fair value attributable to the hedged risk is recorded, net of taxes, in other components of comprehensive income, while the ineffective portion is included in net income. The cumulative amount included in shareholders’ equity is transferred to the income statement when the hedged item has an impact on net income. • Hedge of a net investment in a foreign operation: the hedging instrument is adjusted to fair value. Following this adjustment, the effective portion of the change in fair value attributable to the hedged exchange risk is recorded, net of taxes, in other components of comprehensive income, while the ineffective portion is included in net income. The cumulative amount included in shareholders’ equity is transferred to net income at the date of liquidation or sale of the investment. The interest rate component of borrowings in yen used to hedge the investment in Nissan is considered as the ineffective portion, and is therefore recorded directly in financial income and expenses. Derivatives not designated as hedges Changes in the fair value of derivatives not designated as hedges are recognized directly in financial income, except in the case of derivatives entered into exclusively for reasons closely related to business operations. In this case, changes in the fair value of derivatives are included in the operating income (operating margin in the information by operating segment). Note 3 Changes in the scope of consolidation and assets and liabilities held for sale
The principal changes concerning the scope of consolidation in 2021 were the following. 3-A. Automotive (excluding AVTOVAZ) segment • In May 2021 the Group set up a joint venture Hyvia, owned in equal shares with the partner Plug Power Inc. This joint venture provides a full ecosystem of turnkey solutions comprising fuel cell-powered light commercial vehicles, hydrogen charging stations, supplies of carbon-free hydrogen, and fleet maintenance and management. It is valued at €4 million, and accounted for under the equity method. • In July 2021, the Group acquired a minority stake of 23.64% in French start-up Verkor for the purchase price of €25 million, with a view to co-developing a high-performance battery. The partnership will also involve development of a pilot production line for battery cell and module prototyping in France starting in 2022. In a second phase, Verkor aims to construct France’s first gigafactory for high-performance batteries in France from 2026, with an initial capacity of 10 GWh for Renault Group, potentially rising to 20 GWh by 2030. The Group holds derivative instruments that will entitle it to subscribe to future capital increases by Verkor while remaining a minority shareholder, subject to conditions concerning development of the high-performance battery. As an entity subject to significant influence, Verkor is accounted for under the equity method. The provisional goodwill on this operation is €9 million. • In September 2021, the Group acquired a 21.28% investment and joint control of French start-up Whylot for the purchase price of €10 million. Whylot is developing an innovative axial-flux electric motor. Renault Group is the beneficiary of a unilateral promise of sale that will enable it to acquire 70% of Whylot and take control of the company, provided Renault places an order by September 1, 2023. The purchase price is to be determined by expert assessment and capped at a maximum enterprise value of €80 million. Whylot, as a joint venture, is accounted for under the equity method. The provisional goodwill on this operation is €9 million. • On December 31, 2021, the Group grouped its three factories in the north of France at Douai, Ruitz and Maubeuge to form Renault ElectriCity, by partial business transfers from the entities SNC Renault Douai, Société de Transmissions Automatiques (STA) and Maubeuge Construction Automobile (MCA), which have all retained their land assets. Renault ElectriCity will begin operations on January 1, 2022. • In April 2021, the Group ceased all commercial operations by its Australian subsidiary Vehicle Distributors Australia and transferred its assets to an importer that now takes charge of selling Renault and Dacia brand vehicles in Australia. Vehicle Distributors Australia is now in liquidation. • In April 2021, the Group sold its 40% minority shareholding in Renault South Africa, an entity accounted for under the equity method, to the majority shareholder Motus Corporation Proprietary Ltd for the price of €15 million. • In November 2021, the Group sold its distribution subsidiary Renault Nissan Wien to a private dealer for the price of €6 million (excluding real estate assets). • In December 2021, Renault s.a.s. disposed of its 98% investment in Carizy through an exchange for 3.25% of Mobility Trader Holding GmbH. RCI Banque concurrently made a €30 million investment in the same entity, thus acquiring 4.97% of its capital (Note 3-C) for the purposes of the Heycar used vehicle platform project. As the Group has a seat on the Board of Directors, Mobility Trader Holding GmbH is subject to significant influence and is thus accounted for under the equity method at the value of €50 million at December 31, 2021. • The joint ventures Alliance Mobility Company France and Alliance Mobility Company Japan, set up with Nissan in June 2019 to conduct research into driverless cars, no longer have any activity and are currently in liquidation. Their projects are now handled by Renault s.a.s. 3-B. AVTOVAZ • Following a capital increase by capitalization of receivables, Renault Group’s percentage ownership in the Netherlands-based holding company Alliance Rostec Auto b.v. increased from 67.61% to 67.69% during the second half of 2021. In December 2021, Alliance Rostec Auto b.v. transferred all its shares in AVTOVAZ to LADA Auto Holding OOO, a Russian-based company set up in September 2021. This transfer has no consequences for the consolidated financial statements. Renault’s percentage ownership in LADA Auto Holding OOO and AVTOVAZ was 67.69% at December 31, 2021, the same as the percentage ownership in Alliance Rostec Auto b.v. and AVTOVAZ prior to the transfer of the AVTOVAZ shares to LADA Auto Holding OOO. Alliance Rostec Auto b.v. was in the process of liquidation at December 31, 2021. • In December 2021, AVTOVAZ acquired a 40% investment in its components supplier JSC OAT and its subsidiaries, for the purchase price of 847 million roubles (€10 million). AVTOVAZ has joint control and accounts for JSC OAT and its subsidiaries under the equity method. The shareholder agreements include an exit option after two years and successful implementation of a business recovery plan. If the plan succeeds, the resale price is set at 1 billion roubles. If it fails, AVTOVAZ will receive 100% of the shares in three subsidiaries of JSC OAT in exchange for its 40% stake in JSC OAT. The provisional negative goodwill on this operation is 184 million roubles (€2 million). • In December 2021, LADA ZAPAD (formerly GM AVTO), purchased from the General Motors group in 2019, was merged with PAO AVTOVAZ. • During the second half-year of 2021, AVTOVAZ sold three distribution subsidiaries operating in Russia, AO Saransk-Lada, AO Oka-Lada and OA Sarov-Lada, for the price of €4 million. 3-C. Sales Financing • In July 2021, RCI Banque acquired all the shares in the Spanish company BI-PI Mobility SL and its subsidiaries, which specialize in flexible vehicle rentals, for the purchase price of €67 million. The provisional goodwill on this operation is €68 million. • In December 2021, RCI Banque made a €30 million investment to acquire 4.97% of Mobility Trader Holding GmbH, concurrently with Renault s.a.s.’ exchange of its Carizy shares (Note 3-A). Mobility Trader Holding GmbH manages the online used car platform Heycar. This investment is accounted for under the equity method. 3-D. Mobility Services • The Group is rolling out its knowhow in recharging infrastructures and solutions across Europe, through subsidiaries and joint ventures owned jointly with Elto Holding, operating under the Mobilize Power Solutions brand. Elto Holding is a French-based subsidiary of Renault s.a.s. that holds the following European entities, which have all been fully consolidated since their formation during the first half-year of 2021: Elto BeLux and Elto DACH GmbH owned 51%, Elto Iberia s.l. Unipersonal owned 60%, Elto UK and Elto Italy S.r.l. owned 100%. Elto France, a joint venture owned 40%, is accounted for under the equity method. • In December 2021, the Group exercised its option to buy minority interests in Coolnagour Ltd (iCabbi), and now owns all the shares of that entity and its subsidiaries, as opposed to 78% previously. 3-E. Non-current assets held for sale In application of its strategic plan “Renaulution”, the Group has started to sell certain real estate assets (land, industrial sites), branches (in France) and vehicle distribution subsidiaries (outside France). At December 31, 2021, the group of assets held for sale consists of €129 million of assets and €182 million of debts and other liabilities. The difference between these amounts at December 31, 2021 and the amounts reported in the financial statements at June 30, 2021, i.e. a €265 million decrease in assets held for sale, is mainly explained by sales that took place during the second half of 2021, including €214 million concerning property, plant and equipment, intangible assets and goodwill (see Note 6-C). The reclassification of these assets held for sale and the associated liabilities is reflected in other changes in the relevant notes.
5.2.2.6.3. Consolidated income statement Note 4 Revenues 4-A. Breakdown of revenues
4-B. 2020 revenues applying 2021 scope and methods
Note 5 Other income and expenses included in the operating margin, by nature 5-A. Personnel expenses Personnel expenses amount to €5,959 million in 2021 (€6,157 million in 2020). The average workforce during the year for consolidated entities is presented in section 2.3- Human Capital of the 2021 Universal Registration Document. Details of pensions and other long-term employee benefit expenses are presented in Note 19. Share-based payments concern performance share plans and other share-based payment arrangements awarded to personnel. They amounted to a personnel expense of €31 million for 2021 (€46 million in 2020). The plan valuation method is presented in Note 18-G. 5-B. Foreign exchange gains/losses In 2021, the operating income includes a net foreign exchange expense of €68 million, mainly related to movements in the Argentinian peso, Brazilian real and Turkish lira (compared to a net foreign exchange expense of €125 million in 2020 mainly related to movements in the Argentinian peso, Brazilian real and Turkish lira). 5-C. Lease payments At December 31, 2021, lease payments in the statement of financial position that are not restated under IFRS 16 because they relate to non-material or short-term leases:
Note 6 Other operating income and expenses
As stated in Note 2-B, expenses and income recognized for 2021 that are identified as resulting wholly or partly from the Covid-19 pandemic are not considered as “Other operating income and expenses”, except for expenses which due to their nature are always included in that category, such as impairment of tangible and intangible assets. 6-A. Restructuring and workforce adjustment costs In 2021, these costs included €(65) million for a work exemption plan in France which eligible employees can join between February 1, 2022 and January 1, 2023, and provisions of €(120) million relating to a new Collective Contractual Separation plan for a maximum 1,153 employee departures in 2022. These plans are part of the 3-year trade union agreement “Re-Nouveau France 2025” signed on December 14, 2021. Through this key agreement Renault Group is making France the strategic and industrial centre of its promising future businesses, to strengthen the Group in its home country, contribute to its transformation and carry all its French businesses towards the automotive industry’s new value chain. Restructuring and workforce adjustment costs in 2021 also concern restructuring plans outside France (principally in South Korea, Spain and Romania) undertaken as part of the plan to reduce fixed costs announced on May 29, 2020. In 2020, restructuring and workforce adjustment costs included €(115) million for a work exemption plan in France which eligible employees could join between April 1, 2020 and January 1, 2021, and provisions relating to the agreement to transform technical and service skills in preparation for future developments in the automotive world, signed in France in November 2020. This agreement was part of the plan to reduce fixed costs by more than €2 billion over 3 years, including a workforce reduction by 4,600 employees in France and 10,000 employees worldwide, announced in May 2020. It defined the conditions for a new outplacement policy, a new voluntary work-exemption plan in 2021, open from February 1, 2021 to January 1, 2022, and a Collective Contractual Separation plan for a maximum 1,900 employee departures. Restructuring provisions were recorded at December 31, 2020 amounting to €(70) million for the new voluntary work-exemption plan, and €(197) million for the Collective Contractual Separation plan. 6-B. Gains and losses on disposal of businesses or operating entities In April 2021, the Group sold its 40% minority shareholding in Renault South Africa to the majority shareholder Motus Corporation Proprietary Ltd for the price of €15 million. As the investment was accounted for under the equity method at nil value, this operation generated a gain of €15 million. In December 2021, Renault s.a.s. disposed of its 98% investment in Carizy through an exchange for 3.25% of Mobility Trader Holding GmbH. This operation generated a gain of €18 million. In 2020, costs associated with the sale of Renault’s share in the joint venture DRAC and the takeover of the after-sales activity were recognized in the total amount of €(172) million. 6-C. Gains and losses on disposal of property, plant and equipment and intangible assets The Group undertook real estate operations in 2021 that generated a total gain of €452 million. The principal operations were:
6-D. Impairment of fixed assets and goodwill (excluding goodwill of associates and joint ventures) Impairment amounting to €(149) million net of reversals was recorded in 2021 (€(762) million in 2020). The new impairment was principally recognized as a result of (i) impairment tests on vehicles given the downturn in sales volumes in 2021, (ii) jointly-owned assets following the decision to terminate real estate leases, and (iii) assets associated with vehicles and components the Group has decided to stop producing. No reversal of impairment was recorded in 2021 or 2020. In 2021, €(80) million of new impairment concerns intangible assets (€(565) million in 2020) and €(69) million concerns property, plant and equipment (€(197) million in 2020) (Notes 10 and 11). 6-E. Other unusual items Provisions for clean-up and demolition costs amounting to €(54) million were recognized during 2021 in respect of sites that are being sold, in compliance with environmental regulations. Provisions amounting to €(65) million for costs resulting from decisions to discontinue businesses, production or developments were recognized in 2021. In 2020, impairment tests on vehicles led to recognition of unusual expenses corresponding to advance and future payments to partners and suppliers in connection with those vehicles, amounting to €(75) million. Business activity in Algeria was halted in early 2020 following decisions by the Algerian government, but resumed during 2021. Consequently, during 2021 Renault recovered €15 million of the €(99) million impairment recognized in 2020 on assets associated with its Algerian business (receivables, inventories, etc.). Provisions and write-offs of receivables amounting to €(25) million were recognized during 2021 in connection with business in China, particularly Renault Brillance Jinbei Automotive Company (RBJAC), which was placed in receivership on January 12, 2022. Note 7 Financial income (expenses)
The net cash position (or net financial indebtedness) of the Automotive segments is presented in the information by operating segment (see section 6.1.A4). Note 8 Current and deferred taxes As Renault SA elected to determine French income taxes under the domestic tax consolidation regime when it was formed, this is the regime applicable to the Group in which Renault SA is taxed in France. The Renault Group also applies other optional tax consolidation systems in Germany, Italy, Spain, Romania, the Netherlands and the UK. 8-A. Current and deferred taxes
In 2021, €(371) million of the current income tax charge comes from foreign entities including AVTOVAZ (€(263) million in 2020). This charge increased in 2021, due to the better taxable income achieved in a more favourable economic context. The current income tax charge for entities included in the French tax consolidation group amount to €(92) million in 2021 (€(43) million in 2020). The deferred tax charge is slightly higher in 2021 than 2020, due mainly to the utilization of tax credits in Turkey, together with other changes. The deferred tax charge for 2020 reflected the fact that recognition of deferred tax assets on AVTOVAZ tax loss carryforwards had been discontinued (with an effect of €(248) million or (20,510) million roubles), due to the substantial downturn in prospects on the Russian market, largely attributable to the Covid-19 pandemic. 8-B. Breakdown of the tax charge
French tax consolidation group For the French tax consolidation group, the current tax charge amounts to €(92) million, principally consisting of the business tax Cotisation sur la valeur ajoutée des entreprises (CVAE) and provisions for tax risks. The deferred tax charge amounts to €(2) million. Entities not in the French tax consolidation group The effective tax rate for non-French entities other than AVTOVAZ was 24% in 2021 (35% for 2020) due to the higher taxable income achieved in a more favourable economic context, and the non-recognition of deferred taxes on tax losses. For the Russian AVTOVAZ entities, the effective tax rate was 11% in 2021 (not relevant for 2020), and benefits from the reversal of unused deferred tax positions. 8-C. Changes in current tax liabilities, current tax receivables and provisions for uncertain tax liabilities
8-D. Breakdown of net deferred taxes 8-D1. Change in deferred tax assets and liabilities
8-D2. Breakdown of net deferred tax assets (liabilities) by nature
(1)
Including tax on future dividend distributions. The residual unrecognized deferred tax assets of entities included in the French tax consolidation group amounted to €3,741 million (€3,845 million at December 31, 2020). They comprise tax losses that can be carried forward indefinitely to set against future taxable income up to a limit of 50% of that income. €321 million of these unrecognized assets were generated by items booked through shareholders’ equity (effects of the partial hedge of the investment in Nissan), and €3,420 million were generated by items affecting the income statement (respectively €372 million and €3,473 million at December 31, 2020). For entities not in the French tax consolidation group, unrecognized deferred tax assets totalled €873 million at December 31, 2021 (€913 million at December 31, 2020), including €259 million for AVTOVAZ (€252 million at December 31, 2020) and €614 million for the Group excluding AVTOVAZ (€661 million at December 31, 2020) and principally comprising tax loss carryforwards generated by the Group in Brazil and India. 8-D3. Breakdown of deferred taxes on tax losses by expiry date Unrecognized loss carryforwards represent a potential tax saving of €4,476 million at December 31, 2021.
The decrease in deferred taxes on tax losses in France is mainly explained by the lower income tax rate in 2022, which led to a decrease in deferred taxes on tax losses that can be carried forward indefinitely at December 31, 2021. The tax losses presented above do not reflect the consequences of ongoing tax litigation not booked. Contingent liabilities resulting from notified tax reassessments are presented in Note 28-A. Note 9 Basic and diluted earnings per share
The number of shares used to calculate the basic earnings per share is the weighted average number of ordinary shares in circulation during the period, i.e. after neutralization of treasury shares and Renault shares held by Nissan.
The number of shares used to calculate the diluted earnings per share is the weighted average number of ordinary shares potentially in circulation during the period, i.e. the number of shares used to calculate the basic earnings per share plus the number of rights to performance shares awarded under plans that have a potential dilutive effect which fulfil the performance conditions at the reporting date when issuance is conditional (Note 18-G). 5.2.2.6.4. Operating assets and liabilities, shareholders’ equity Note 10 Intangible assets and property, plant and equipment 10-A. Intangible assets and goodwill 10-A1. Changes in intangible assets and goodwill Changes in 2021 in intangible assets were as follows:
Most goodwill is located in Europe and Eurasia. Acquisitions of intangible assets in 2021 include €1,084 million of self-produced assets and €93 million of purchased assets (respectively €1,390 million and €110 million in 2020). In 2021, amortization and impairment of intangible assets include €80 million of impairment concerning vehicles (including components), compared to €565 million of impairment in 2020 (Note 6-D). Changes in 2020 in intangible assets were as follows:
(1)
Including impairment of €(565) million concerning intangible assets. 10-A2. Research and development expenses included in income
Research and development expenses are reported net of research tax credits for the vehicle development activity. The decrease in research and development expenses over 2021 is explained by the end of an initial cycle of upgrades to the product range, the lower level of business, and actions to reduce fixed costs, which focused particularly on subcontracting and purchases of prototypes. This decrease was accentuated by the Covid-19 pandemic, although it did not significantly affect the level of capitalized development expenses under the rules set out in IAS 38. Amortization of capitalized development expenses was lower than in 2020, but as the decrease in amortization was smaller than the decrease in capitalized development expenses, it is thus slightly higher than the amount of capitalized development expenses reported for 2021. 10-B. Property, plant and equipment Changes in 2021 in property, plant and equipment were as follows:
Changes in property, plant and equipment in 2020 were as follows:
(1)
Including €(197) million of impairment on property, plant and equipment. Note 1 1 Impairment tests on fixed assets The Group carried out impairment tests on its fixed assets under the approach described in the section on accounting policies (Note 2-M). 11-A. Impairment tests on vehicle-specific assets (including components) and the assets of certain entities Following impairment tests of specific assets dedicated to vehicles (including components) and assets belonging to certain entities, impairment of €(78) million was booked during 2021 (€(762) million in 2020), comprising €(48) million for intangible assets (€(565) million in 2020), and €(30) million for property, plant and equipment (€(197) million in 2020). This impairment was allocated in priority to capitalized development expenses. A further €(71) million of impairment was also recognized in 2021, notably after decisions to discontinue production or terminate leases. This impairment did not result from impairment testing. The impairment recognized in 2020 principally concerned petrol and diesel engine vehicles (including components) in view of the lower sales volumes in 2020, the downward revision of business prospects due to the COVID-19 pandemic, and the assumptions used in the medium-term plan for the period 2021-2025 presented in January 2021. 11-B. Impairment tests of country-specific assets or cash-generating units of the Automotive (excluding AVTOVAZ) segment Automotive (excluding AVTOVAZ) segment The recoverable value used for the purpose of impairment tests for the Automotive (excluding AVTOVAZ) segment is the value in use, determined under the discounted future cash flow method on the basis of the following assumptions:
The assumptions used for impairment testing at December 31, 2021 are derived from the medium-term plan for the period 2021-2025, which was presented in January 2021 and updated in late 2021. They include volume assumptions based on unfavourable market trends, mostly caused by the Covid-19 pandemic, and expect a return to pre-pandemic volume levels in 2024-2025 for the European market, and starting from the second half-year of 2022 in other regions of the world were the Group does business (the 2020 tests assumed that the situation on these markets would return to normal in 2021). The negative effects of the components supply crisis for 2022 were also factored into the 2021 impairment tests. The growth rates to infinity used in the tests at December 31, 2021 and 2020 include the impacts of commitments made by the States that are signatories to the Paris Agreement on climate change. In 2020, no impairment was recognized on assets of the Automotive (excluding AVTOVAZ) segment as a result of the impairment test, and it was considered that a reasonably possible change in the main assumptions used should not result in a recoverable value lower than the book value of the assets tested. At December 31, 2021, no reasonably possible change in the main assumptions used should result in a recoverable value lower than the book value of the assets tested. The recoverable value of the assets tested would remain higher than the book value in the event of the following changes in those assumptions:
11-C. Impairment tests on the AVTOVAZ cash-generating unit AVTOVAZ was delisted from the Moscow stock exchange in May 2019, and consequently reference is no longer made to its market capitalization to assess the recoverable value of its net assets, including goodwill which amounts to €727 million (62,004 million rubles) and a depreciable brand amounting to €108 million (9,248 million rubles) at December 31, 2021 (respectively €678 million and €101 million at December 31, 2020). In application of the approach presented in the note on accounting policies (Note 2-M), the annual impairment test of AVTOVAZ was conducted at December 31, 2021. The assets tested included goodwill and the Lada brand which were both recognized when Renault Group took control of AVTOVAZ. The value in use was calculated using an after-tax discount rate of 15.2%, an assumption that volumes would return to their pre-Covid 19 pandemic levels in 2022, and a growth rate to infinity (including the effect of inflation) of 3.2%. The test results did not lead to recognition of any impairment at December 31, 2021 and no reasonably possible change in the main assumptions used should lead to a recoverable value below the book value of the assets tested. Note 1 2 Investment in Nissan Renault Group’s investment in Nissan in the income statement and financial position:
12-A. Nissan consolidation method Renault Group and the Japanese automakers Nissan and Mitsubishi have developed an alliance between their three distinct companies with common interests, uniting forces to achieve optimum performance. The Alliance is organized so as to preserve individual brand identities and respect each company‘s corporate culture. Consequently: • Renault Group is not assured of holding the majority of voting rights in Nissan’s Shareholders’ Meeting. • The terms of the Renault Group-Nissan agreements do not entitle Renault Group to appoint the majority of Nissan directors, nor to hold the majority of voting rights at meetings of Nissan’s Board of Directors; Renault Group cannot unilaterally appoint the CEO of Nissan. • In March 2019, Renault Group, Nissan and Mitsubishi announced the creation of the new Alliance Operating Board (AOB) which oversees Alliance operations and governance. The Alliance Operating Board consists of the Chairman of the Board of Renault Group, the Chief Executive Officer of Renault Group, the Chief Executive Officer of Nissan and the Chief Executive Officer of Mitsubishi Motors. Orientations are taken by consensus. In November 2019, the AOB appointed an Alliance Secretary General, who reports to the AOB and the CEOs of the three alliance companies. • At December 31, 2021, Renault Group occupied two seats on Nissan’s Board of Directors and was represented by Jean-Dominique Senard, Chairman of the Renault Group Board and Pierre Fleuriot, Lead Director in Renault Group. • Renault Group can neither use nor influence the use of Nissan’s assets in the same way as its own assets. • Renault Group provides no guarantees in respect of Nissan’s debt. In view of this situation, Renault Group is considered to exercise significant influence over Nissan, and therefore uses the equity method to include its investment in Nissan in the consolidation. 12-B. Nissan consolidated financial statements included under the equity method in the Renault Group consolidation The Nissan accounts included under the equity method in Renault Group’s financial statements are Nissan’s consolidated accounts published in compliance with Japanese accounting standards (as Nissan is listed on the Tokyo Stock Exchange), after adjustments for the requirements of the Renault Group consolidation. Nissan publishes consolidated financial statements quarterly, and annually at March 31. For the purposes of the Renault Group consolidation, Nissan results are included in line with the Renault Group calendar (the results for the period January to December are consolidated in Renault Group’s annual financial statements). Nissan held 0.6% of its own treasury shares at December 31, 2021 (0.7% at December 31, 2020). Consequently, Renault SA’s percentage interest in Nissan is 43.7% (43.7% at December 31, 2020). Renault SA holds 43.7% of voting rights in Nissan at September 30, 2021 (43.7% at September 30, 2020). 12-C. Changes in the investment in Nissan as shown in Renault Group’s statement of financial position
12-D. Changes in Nissan equity restated for the purposes of the Renault Group consolidation
12-E. Nissan net income under Japanese GAAP Since Nissan’s financial year ends at March 31, the Nissan net income included in the 2021 Renault Group consolidation is the sum of Nissan’s net income for the final quarter of its 2020 financial year and the first three quarters of its 2021 financial year.
12-F. Nissan financial information under IFRS The table below presents Nissan financial information, restated under IFRS for the purposes of the Renault Group consolidation, for the twelve-month period from January 1 to December 31 of each year. The restatements do not include the fair value adjustments of assets and liabilities applied by Renault Group at the time of the acquisitions in 1999 and 2002, or the elimination of Nissan’s investment in Renault Group accounted for under the equity method.
12-G. Hedging of the investment in Nissan The Group has partially hedged the yen/euro exchange risk on its investment in Nissan since 1999. Details of this hedge are given in Note 25-B2. At December 31, 2021, the corresponding hedging operations totaled ¥18.3 billion (€140 million) of private placements in bonds issued directly in yen on the Japanese Samurai bond market. In 2021 foreign exchange differences generated a favourable effect of €4 million (foreign exchange gains and losses offset each other in 2020). 12-H. Valuation of Renault Group’s investment in Nissan at stock market prices Based on the quoted price at December 31, 2021 of ¥556 per share, Renault Group’s investment in Nissan is valued at €7,812 million (€8,110 million at December 31, 2020 based on the price of ¥560 per share). 12-I. Impairment test of the investment in Nissan At December 31, 2021, the stock market value of the investment was 51.9% lower than the value of Nissan in Renault Group’s statement of financial position (44.5% at December 31, 2020). In application of the approach presented in the Note on accounting policies, an impairment test was carried out at December 31, 2021. An after-tax discount rate of 6.53% and a growth rate to infinity (including the effect of inflation) of 1.47% were used to calculate value in use. The terminal value was calculated under profitability assumptions consistent with Nissan’s past data and conservative medium and long-term prospects, incorporating new medium-term forecasts for volumes and exchange rates. The test result did not lead to recognition of any impairment on the investment in Nissan at December 31, 2021 and it is considered that a reasonably possible change in the main assumptions used should not result in a recoverable value lower than the book value of the investment in Nissan. The same conclusion was reached following the impairment test performed at December 31, 2020 applying an after-tax discount rate of 6.21% and a growth rate to infinity (including the effect of inflation) of 1.71%. 12-J. Operations between Renault Group and the Nissan Group 12-J1. Automotive (excluding AVTOVAZ) and Sales Financing Renault Group and Nissan follow joint strategies for vehicle and component development, purchasing, production and distribution resources. This cooperation is reflected in synergies that reduce costs. The Automotive (excluding AVTOVAZ) segment is involved in operations with Nissan on two levels: • Industrial production: cross-over production of vehicles and components in the Alliance’s manufacturing plants: • Sales by Renault Group to the Nissan group in 2021 totalled approximately €1,763 million (€1,785 million in 2020), comprising around €1,065 million for vehicles (€1,017 million in 2020), €579million for components (€669 million in 2020), and €119 million for services (€99 million in 2020). • Purchases by Renault Group from the Nissan group in 2021 totalled approximately €1,559 million (€1,361 million in2020), comprising around €1,206 million of vehicles (€1,000 million in 2020), €226 million of components (€277 million in 2020), and €127 million of services (€84 million in 2020). • The balance of Renault Group receivables on the Nissan group is €424 million at December 31, 2021 (€463 million at December 31, 2020) and the balance of Renault Group liabilities to the Nissan group is €607 million at December 31, 2021 (€664 million at December 31, 2020). • Finance: In addition to its activity for Renault Group, Renault Finance acts as the Nissan group’s counterparty in financial instrument trading to hedge foreign exchange and interest rate risks. Renault Finance undertook approximately €12.4 billion of forex transactions on the foreign exchange market for Nissan in 2021 (€9.9 billion in 2020). Operations undertaken with Nissan on foreign exchange and interest rate derivatives are recorded at market price and included in the positions managed by Renault Finance. In the balance sheet, the derivative assets on the Nissan group amount to €11 million at December 31, 2021 (€36 million at December 31, 2020) and derivative liabilities amount to €34 million at December 31, 2021 (€35 million at December 31, 2020). Renault Group’s Sales Financing segment helps to attract customers and build loyalty to Nissan brands through a range of financing products and services incorporated into the sales policy, principally in Europe. In 2021, RCI Banque recorded €75 million of service revenues in the form of commission and interest received from Nissan (€91 million in 2020). The balance of sales financing receivables on the Nissan group is €32 million at December 31, 2021 (€68 million at December 31, 2020) and the balance of liabilities is €121 million at December 31, 2021 (€156 million at December 31, 2020). The Alliance partners also hold investments in associates and joint ventures that manage their cooperation. Details of these entities’ activity and location, and Renault Group’s influence over them, are given in Note 13. 12-J2. AVTOVAZ In 2021, total sales by AVTOVAZ to Nissan and purchases by AVTOVAZ from Nissan amounted to an estimated €3 million and €23 million (respectively €56 million and €15 million in 2020). In the AVTOVAZ financial position at December 31, 2021, the balances of transactions between AVTOVAZ and the Nissan Group consist mainly of operating payables amounting to €12 million (€14 million at December 31, 2020). Note 13 Investments in other associates and joint ventures Details of investments in other associates and joint ventures are as follows in the Group’s financial statements:
13-A. Information on the principal other associates and joint ventures accounted for under the equity method
The tables below show the total amount of sales and purchases made between Renault Group and the principal other associates and joint ventures accounted for under the equity method, as well as Renault Group‘s balance sheet positions with those entities.
13-B. Cumulative financial information on other associates accounted for under the equity method
13-C. Cumulative financial information on joint ventures accounted for under the equity method
Renault-Nissan B.V., which is jointly owned with Nissan, is not consolidated as it is not significant. Note 14 Inventories
Note 15 Sales Financing receivables 15-A. Sales financing receivables by nature
Details of fair value are given in Note 24-A. 15-B. Assignment of Sale financing receivables
The Sales Financing segment has undertaken several public securitization operations (in Germany, France, Italy and the United Kingdom) and several conduit financing operations (France, the United Kingdom and Germany) involving loans to final customers and receivables on the dealership network. Both types of operation are conducted through special purpose vehicles. Some public operations were subscribed by RCI Banque, which makes it possible to have securities eligible as collateral for the European Central Bank. In 2021, the Sales Financing segment placed a public automotive loan-backed securitization in Germany, and issued €900 million of senior instruments (of which €200 million were self-subscribed). The receivables assigned through such operations are not derecognized, as all risks are retained by the Group. The associated liabilities correspond to securities resulting from the securitization operations, and are recognized in other debts represented by a certificate. The difference between the receivables assigned and the amount of the associated liabilities corresponds to the higher credit necessary for these operations, and the share of securities retained by RCI Banque to form a liquidity reserve. Securitized assets can no longer be assigned or pledged. Subscribers to debt securities only have claims on the assets assigned. Assets pledged as guarantees for management of the liquidity reserve are presented in Note 28-A.4. 15-C. Sales financing receivables by maturity
15-D. Breakdown of sales financing receivables by level of risk The Sales Financing segment launched its compliance programme for the new definition of default in 2018, opting for the “One Step” approach, which consists of adjusting its internal models concurrently for the Dealer portfolio and Customer portfolio. For countries whose solvency ratio is calculated by the advanced approach (France, Italy, Spain, Germany, the United Kingdom and South Korea), the ECB’s work on new default calibration was finalized in December 2020, leading to a non-significant increase in provisions. For countries whose solvency ratio is calculated by the standard approach (Brazil and non-G7 countries), the new definition of default has been applied to the Customer and Dealer portfolios since January 1, 2021. This has led to an increase in impaired receivables in Brazil (and consequently a decrease in the provisioning rate of those receivables) but had no impact on non-G7 countries.
15-E. Exposure of sales financing to credit risk The maximum exposure to credit risk for the Sales Financing activity is represented by the net book value of sales financing receivables plus the amount of irrevocable financing commitments for customers reported under off-balance sheet commitments given (Note 28-A). This risk is reduced by guarantees provided by customers, as reported in off-balance sheet commitments received (Note 28-B). In particular, guarantees held in connection with overdue or impaired sales financing receivables amounted to €805 million at December 31, 2021 (€866 million at December 31, 2020). Customer credit risk is assessed (using a scoring system) and monitored by type of activity (customers and dealers). There is no indication at the year-end that the quality of sales financing receivables not yet due or unimpaired has been adversely affected, nor is there any significant concentration of risks within the sales financing customer base as defined by the regulations. Note 16 Receivables Net value of receivables
These receivables do not include accounts receivable assigned to the Group’s sales financing companies or other non-Group entities when substantially all the risks and benefits associated with ownership of the receivables are transferred. The risk of dilution (essentially the risks of non-settlement after a commercial dispute) is retained by the Group, but is considered negligible. Receivables assigned in this way to Group sales financing companies are included in sales financing receivables, principally dealership receivables. Furthermore, there is no significant concentration of risks within the customer base of the Automotive (excluding AVTOVAZ), AVTOVAZ, and Mobility Services segments, and no single external customer accounts for more than 10% of the total revenues of those segments. The management policy for credit risk is described in Note 25-B6. The maximum exposure to credit risk for receivables is represented by the net book value of those receivables. The impairment model for Automotive receivables is presented in Notes and 2-G. Details of fair value are given in Note 24-A. Note 17 Other current and non-current assets
Note 18 Shareholders’ equity 18-A. Share capital The total number of ordinary shares issued and fully paid at December 31, 2021 is 295,722 thousand, with par value of €3.81 per share (unchanged since December 31, 2020). Treasury shares do not bear dividends. They account for 1.55% of Renault SA’s share capital at December 31, 2021 (1.53% at December 31, 2020). The Nissan Group holds approximately 15% of Renault SA through its wholly-owned subsidiary Nissan Finance Co. Ltd (no voting rights are attached to these shares). 18-B. Capital management In managing its capital, the Group’s objective is to guarantee continuity of business in order to provide returns for shareholders and benefits for other stakeholders, and to maintain optimum capital structure in order to optimize its cost. The Group may adjust dividend payments to shareholders, redeem some of the capital or issue new shares. The Group’s objectives are monitored in different ways in the different operating segments. The Sales Financing segment must comply with regulatory ratios specific to banking operations. The minimum solvency ratio (shareholders’ equity including subordinated loans to total weighted risks) is 8%. RCI Banque’s Core Tier 1 solvency ratio is 14.76% at December 31, 2021 (17.34% at December 31, 2020). The Group also partially hedges its investment in Nissan (Notes 12-G and 25-B2). 18-C. Renault treasury shares In accordance with decisions approved at General Shareholders’ Meetings, the Board of Directors decided to allocate all Renault treasury shares to current stock option and performance share plans and other share-based payment agreements awarded to Group managers and executives.
18-D. Distributions At the General and Extraordinary Shareholders’ Meeting of April 23, 2021, it was decided not to distribute dividends (no change compared to 2020). 18-E. Translation adjustment The change in translation adjustment over the year is analyzed as follows:
Changes related to hyperinflationary economies consist of changes in the translation adjustment attributable to the Argentinian subsidiaries since January 1, 2018. In 2020, the effects of the partial hedge of the net investment in Nissan offset each other. Other changes in the translation adjustment mostly result from movements in the Russian ruble and the Brazilian real. 18-F. Financial instrument revaluation reserve 18-F1. Change in the financial instrument revaluation reserve The figures below are reported net of tax effects.
18-F2. Breakdown of the amounts related to cash flow hedges transferred from the financial instrument revaluation reserve to the income statement
18-F3. Schedule of amounts related to cash flow hedges transferred from the financial instruments revaluation reserve to the income statement
This schedule is based on the contractual maturities of hedged cash flows. 18-G. Performance share plans and other share-based payments arrangements The Board of Directors periodically awards performance shares to Group executives and managers, with vesting and minimum holding periods specific to each plan. All plans include performance conditions which determine the number of performance shares granted to beneficiaries. Loss of the benefit of performance shares follows the applicable regulations: all rights are forfeited in the event of resignation or termination and a decision is made for each individual case when an employee leaves at the Company’s instigation. Performance share plan 28 was introduced in 2021, concerning 1,605 thousand shares with initial total value of €40 million. The vesting period for rights to shares is 3 years, and there is no minimum holding period. Share-based payments have been valued by the methods described in the accounting policies (Note 2-R). The main details are as follows:
18-G1. Changes in the share rights held by personnel Changes in the number of share rights held by personnel were as follows:
18-G2. Performance shares and shares awarded as variable remuneration For plans 23 to 25, vesting and minimum holding periods are different depending on whether beneficiaries are French tax residents or tax residents of other countries, in order to take account of local tax constraints. The vesting period for shares awarded to French tax residents is three years followed by a holding period of one year. For non-French tax residents, the vesting period is four years and there is no minimum holding period. As from plan 26, the vesting period is three years with no holding period for French or foreign tax residents.
18-H. Share of non-controlling interests
The Group has granted minority shareholders of Banco RCI Brasil, Rombo Compania Financiera, RCI Colombia S.A. put options to sell their investments. A liability corresponding to these put options is included in other liabilities, amounting to €102 million for the Brazilian subsidiary, €4 million for the Argentinian subsidiary, and €63 million for the Colombian subsidiary at December 31, 2021 (€100 million, €4 million and €61 million respectively at December 31, 2020). A corresponding charge is made to shareholders’ equity, allocated in priority to the non-controlling interests’ share with any residual amount allocated to the parent-company shareholders’ share. The liability is stated at fair value. Fair value is determined by estimating the potential purchase price, taking into account future results of the financing portfolio as it exists at the closing date and the provisions of the partnership contracts. This is a level 3 fair value, as it uses recognized models but their significant data are not based on observable market data. Partnership agreements were signed in 2018 with Oyak in Turkey, including put and call options (see Note 28-A3). The Group also holds call options for shares in several entities in the Oyak group (Note 28-B). There are no significant restrictions on the Group’s capacity to access or use its assets and settle its liabilities, other than restrictions that result from the regulatory framework in which the subsidiaries operate. The local supervisory authorities may require banking subsidiaries to keep a certain level of capital and liquidities, limit their exposure to other group parties, and comply with other ratios. Note 19 Provisions for pensions and other long-term employee benefit obligations 19-A. Pension and benefit plans Pensions and other long-term employee benefit obligations essentially concern active employees. These benefits are covered either by defined-contribution plans or defined-benefit plans. Defined-contribution plans The Group makes earnings-related payments, in accordance with local custom, to the national organizations responsible for paying pensions and similar financial benefits. There is no actuarial liability concerning these pension arrangements. The total expense for defined-contribution plans was €393 million in 2021 (€415 million in 2020). Defined-benefit plans The accounting treatment of defined-benefit plans is described in Note 2-S and involves establishment of provisions. These plans concern:
Defined-benefit supplementary pension plans are generally covered by contracts with pension funds or insurance companies. In such cases, the obligations and assets are valued separately. The difference between the obligation and the fair value of the assets held to fund it may indicate underfunding or overfunding. In the event of underfunding, a provision is booked. In the event of overfunding, an asset is recognized subject to certain conditions. Principal defined-benefit plans of the Group In France, the Group’s retirement indemnities result from agreements negotiated with each French entity and employee representatives. They are based on employees’ salaries and length of service; payment is conditional on being in the company’s employment at the time of retirement. Retirement benefit obligations for France are entirely covered by provisions, and account for most of the Group’s liabilities for retirement indemnities. The Group’s most significant supplementary pension plan is in the United Kingdom, where two defined-benefit pension plans are managed as part of a dedicated pension fund comprising two compartments: one concerns Automotive (excluding AVTOVAZ) subsidiaries and the other RCI Financial Services Ltd, together covering 1,745 people. This plan has been closed to new members since 2004, and no further rights have been earned under it since December 31, 2019. All employees benefit from a defined-contribution pension plan from January 1, 2020. Underfunding at December 31, 2021 is valued at £39 million for the fund compartment dedicated to the Automotive (excluding AVTOVAZ) segment and £9 million for the fund compartment dedicated to RCI Financial Services Ltd. This pension fund (a trust) is a legal entity. It is administered by a board of Trustees with equal representation for the participating companies and their current and former employees. The fund is governed by local regulations, which set the minimum funding requirements that can lead to additional contributions being made by the Group. After the last three-yearly valuation in 2018, the Group made a commitment to cover the funding shortfall by 2027 through payments amounting to £5 million maximum per year. The asset investment policy is defined for each section of the fund by a supervisory body which examines the performance of investments quarterly. The risks associated with these plans are the usual risks (lower future returns on fund assets, a decline in the equities markets, longer life expectancy for beneficiaries, a rise in inflation, etc). Main changes in the Group’s defined-benefit plans At December 31, 2021, an amount of 60 million (€108 million at December 31, 2020) was reclassified from retirement indemnities to provisions for restructuring, for employees who will benefit from the Collective Contractual Separation plan. 19-B. Main actuarial assumptions used to calculate provisions and other data for the most significant plans
19-C. Net expense for the year
19-D. Details of the balance sheet provision 19-D1. Breakdown of the provision
(1)
Essentially Romania and Turkey.
(2)
Essentially Germany and Switzerland.
(3)
Flexible holiday entitlements and long-service awards. 19-D2. Schedule of amounts related to net defined-benefit liability
The weighted average duration of plans is 15 years at December 31, 2021 (14 years at December 31, 2020). 19-E. Changes in obligations, fund assets and the provision
Accumulated actuarial gains and losses, net of tax (excluding the associates’ share) recorded in other components of comprehensive income amounted to an expense of €758 million at December 31, 2021 (an expense of €855 million at December 31, 2020). A 100 base point decrease in the discount rates used for each plan would result in a €537 million increase in the amount of obligations at December 31, 2021 (€569 million at December 31, 2020), and a 100 base point increase in the discount rates used for each plan would result in a €472 million decrease in the amount of obligations at December 31, 2021 (€452 million at December 31, 2020). 19-F. Fair value of fund assets Details of the assets invested via pension funds and insurance companies are as follows:
Pension fund assets in bonds mainly relate to plans located in the United Kingdom (52.2%). Insurance contracts in bonds principally concern the Netherlands (26.4%), France (12.2%), Switzerland (4.2%) and Germany (3.8%). The actual returns on plan assets in the United Kingdom are shown in Note 19-B. The weighted average actual rate of return on the Group’s main funds was 5.4% in 2021 (2.2% in 2020). At the date of this report, the best estimate of contributions that will be payable to the funds in 2021 is approximately €11 million. The Group’s pension fund assets do not include Renault Group’s financial instruments. Real estate investments do not include real estate properties occupied by the Group. Note 20 Change in provisions
(1)
Technical reserves established by the Sales Financing segment’s insurance companies. All known litigation in which Renault or Group companies are involved is examined at each closing. After seeking the opinion of legal advisors, any provisions deemed necessary are set aside to cover the estimated risk. During 2021, the Group recorded no provision in connection with significant new litigation. Information on contingent liabilities is provided in Note 28-A2. Increases to restructuring provisions essentially comprise the effect of workforce adjustment measures in the Europe Region (Note 6-A). In France, restructuring provisions have been recorded for employee departures expected under the Collective Contractual Separation plan, at the relevant amount net of existing provisions for retirement indemnities. At December 31, 2021, other provisions include €98 million of provisions established in application of environmental regulations (€91 million at December 31, 2020). These include provisions to cover expenses relating to end-of-life vehicles and used batteries, and environmental compliance costs for industrial land in the Europe Region and for industrial sites in the Americas and Eurasia Regions. Note 21 Other current and non-current liabilities
Other current liabilities mainly correspond to asset payables that amounts to €597 million (€1,116 million at December 31, 2020), amounts payable under sales incentive programs (€1,731 million at December 31, 2021 and €1,883 million at December 31, 2020) and deferred income recorded in connection with sales contracts including a buy-back commitment (€370 million at December 31, 2021 and €660 million at December 31, 2020). Deferred income includes deferred income on Automotive service contracts such as maintenance and warranty extension contracts, and advances received under cooperation contracts with partners. This income concerns payments received under contracts defining a customer payment schedule that does not depend on the group’s execution of its performance obligation (advance payment in full, or regular payments due at the end of specified periods). Deferred income is transferred to revenues over the duration of the contracts, and breaks down as follows:
5.2.2.6.5. Financial assets and liabilities, fair value and management of financial risks Note 22 Financial assets - cash and cash equivalents 22-A. Current / non-current breakdown
Information on the counterparty risks associated with financial assets and cash and cash equivalents is provided in Note 25-B6. 22-B. Daimler shares In March 2021 the Group sold its entire investment in the Daimler Group, representing 1.54% of the capital, for the price of€69.50 per share or a total of €1,143 million, through a placement to qualified investors. The Group had opted to value the Daimler shares at fair value via other components of comprehensive income, without the possibility of transfer to profit and loss in the event of sale. Their fair value was determined by reference to the share price and amounted to €951 million at December 31, 2020. The gain realized on the sale (compared to the acquisition price of €35.52 per share) amounts to €554 million, of which €187 million are recognized in Other Components of Comprehensive Income in 2021. The Nissan Group also sold its investment in the Daimler Group during the first half-year of 2021 (Note 12-D). 22-C. Other investments in non-controlled entities At December 31, 2021, other investments in non-controlled entities include an amount of €37 million (€27 million at December 31, 2020) paid to the Funds for the Future of the Automobile (Fonds Avenir Automobile) under the support plan for automobile industry suppliers introduced by the French authorities and automakers. The outstanding amount payable by Renault Group at December 31, 2021 is €88 million. 22-D. Cash not available to the Group The Group has liquidities in countries where repatriation of funds can be complex for regulatory or political reasons. In most of these countries, such funds are used locally for industrial or sales financing purposes. Some current bank accounts held by the Sales Financing Securitization Fund are used to increase credit on securitized receivables, and consequently act as guarantees in the event of default on payment of receivables (Notes 15-B1 et 28-A4). These current bank accounts amount to €909 million at December 31, 2021 (€670 million at December 31, 2020) Note 23 Financial liabilities and sales financing debts 23-A. Current / non-current breakdown
23-B. Changes in Automotive financial liabilities and derivative assets on financing operations
23-C. Changes in financial liabilities and sales financing debts Changes in participating shares of the Automotive segments The participating shares issued in October 1983 and April 1984 by Renault SA are subordinated perpetual shares listed on the Paris Stock Exchange. They earn a minimum annual return of 9% comprising a 6.75% fixed portion and a variable portion that depends on consolidated revenues and is calculated based on identical Group structure and methods. Participating shares are stated at amortized cost, calculated by discounting the forecast interest coupons at the effective interest rate of the borrowing. These shares traded for €442.00 at December 31, 2021 (€373.65 at December 31, 2020). The financial liability based on the stock market value of the participating shares at December 31, 2021 is €353 million (€298 million at December 31, 2020). Changes in bonds and other debts of the Automotive segments Under its EMTN program, Renault SA issued a Eurobond in April 2021 with nominal value of €600 million, 7-year maturity and a 2.5% coupon, and another Eurobond in December 2021 with nominal value of €500 million, 5½-year maturity and a 2.5% coupon. As parts of its Shelf Registration program, Renault SA launched a dual-tranche bond on the Japanese market on July 6, 2021 for a total of ¥150 billion, consisting of a ¥40 billion tranche with 2-year maturity, and a ¥110 billion tranche with 3-year maturity. In 2021, Renault SA redeemed bonds for a total of €826 million. In 2021, the AVTOVAZ group repaid financial liabilities totalling €93 million. State-guaranteed credit facility of the Automotive segments In 2020, Renault Group opened a credit line with a pool of five banks, for the maximum amount of €5 billion covered by a French State guarantee for up to 90% of the amount borrowed. At December 31, 2020, €4 billion had been drawn on this credit line in three tranches: €2 billion drawn on August 5, 2020, €1 billion on September 22, 2020 and €1 billion on December 23, 2020. The remaining €1 billion credit is no longer available. The initial maturity for each drawing was 12 months, extendable by Renault Group for a further three years, with repayment of one third each year. The interest rate on each drawing was indexed on the12-month Euribor for the first year, then the 6-month Euribor for any extensions. Early repayment after extension is possible for a principal amount of at least €330 million. If extended, these credit drawings will be repayable in one-third instalments in 2022, 2023 and 2024 on the anniversary dates of the initial drawings, with early repayment of outstanding instalments at Renault Group’s initiative at each repayment date. The Group exercised the extension options on all these drawings except for the drawing maturing in August 2021, of which €1 billion was repaid. The change of intent between December 31, 2020 and June 30, 2021 concerning €1 billion of the drawing made on August 5, 2020, was treated as a modification of a financial liability in compliance with IFRS9, paragraph B5.4.6. This led to a decrease in the financial liability with recognition of a corresponding amount of €23 million in financial income (Note 7). An early repayment of €340 million was made on 7 February 2022, corresponding to the final instalment (maturing August 2024) of the first tranche. The decision to make this early repayment had not been taken at December 31, 2021, and this liability is therefore classified as non-current in the 2021 financial statements. The Group will also announce on 18 February 2022 that it intends to make an early repayment of €1.02 billion in 2022 (including the €340 million mentioned above), starting with the most distant maturities (August, September and December 2024). Reclassifications between current and non-current liabilities, and the impact of these changes on the net financial income, will be recognised in 2022. Consequently, the entire non-current liability at 31 December 2021 will be reclassified as current during 2022 or at the 2022 year-end. Changes in Sales Financing debts In 2021, RCI Banque group issued new bonds totalling €666 million with maturities between 2023 and 2025, and redeemed bonds for a total of €4,292 million. The Group had access to the TLTRO III program (targeted long-term refinancing operations) set up by the European Central Bank (ECB). • Three drawings were made during 2020, of €750 million maturing in June 2023, €500 million maturing in September 2023 and €500 million maturing in December 2023, giving a total amount of €1,750 million maturing in 2023. • Two further drawings were made during 2021, of €750 million maturing in September 2024 and €750 million maturing in December 2024. The Group has opted to apply IFRS 9 to its drawings on the TLTRO III program, considering the interest rate set by the European Central Bank as a market rate since it applies to all banks that benefit from the program, and the European Central Bank decides the rate and can change it unilaterally at any time. The initial effective interest rate on TLTRO drawings takes account of the Group’s achievement of loan grant targets set for the reference period ending in March 2021. The ECB confirmed that these targets had been met in September 2021. For reasons of conservatism, the group’s estimates do not include achievement of loan grant targets in the special additional reference period. As a result, the interest rate changes presented in ECB decision 2021/124 of January 29, 2021 have no impact on future estimated cash flows relating to the borrowing, and do not therefore affect the accounting treatment of the drawings. The interest rate applicable to the period June 2021-June 2022 could still be reduced if loan grant targets for the special additional reference period are met. If this happens, under the current IFRS 9 rules, the impact of the interest rate reduction met would be recognized as an adjustment to the value of the liability in application of paragraph B5.4.6. RCI Banque Group also had access to the Bank of England’s TFSME (Term Funding for SMEs) scheme in 2020, and in 2021 made a drawing of £409 million maturing in September and October 2025. The maximum interest rate applicable to this financing during 2021 was calculated as the Bank of England’s base rate (0.10% at December 31, 2021) plus a margin of 0.25%. RCI Banque Group could be granted a more favourable rate if it meets certain eligibility criteria, notably concerning growth in loans granted over a period ending in June 2021. RCI Banque Group has applied IFRS 9 to this financing, considering this adjustable rate as a market rate because it is applicable to all banks benefiting from the TFSME scheme. The effective interest rate has been set at the maximum level as the Group does not expect to meet the loan grant growth criterion. New savings collected rose by €512 million during the year (€1,009 million of sight deposits and €(497) million of term deposits) to €21,020 million (€15,724 million of sight deposits and €5 296 million of term deposits), and are classified as other interest-bearing borrowings. These savings are collected in Germany, Austria, Brazil, France, the United Kingdom and Netherlands. Cash outflows on leases Cash outflows on leases restated in application of IFRS 16 amounted to €145 million in 2021 (€170 million in 2020). This includes €126 million of repayments of the principal value of lease liabilities (€148 million in 2020) and €19 million of interest (€22 million in 2020). Cash outflows on leases that were reclassified as purchases in substance in application of IAS 16 amounted to €11 million in 2021 (€1 million in 2020). This amount does not include repayments of interest. Cash outflows on leases benefiting from the exemption for low-value and very short-term leases amounted to €95 million in 2021 (€91 million in 2020) (Note 5-C). The potential future cash outflows resulting from the exercise of extension options and contracts already signed which take effect after the 2021 year-end amount to €49 million. Changes in financial liabilities of the Mobility Services segment The financial liabilities of the Mobility Services segment consist of internal Group financing issued by Renault s.a.s. in the form of interest-bearing loans. At December 31, 2020 these liabilities included a put option on minority interests in Coolnagour Limited which was exercised in 2021. 23-D. Breakdown by maturity For financial liabilities including derivatives, contractual flows are similar to the expected flows and correspond to the amounts to be paid. For floating-rate financial instruments, interests are calculated using interest rates as at December 31, 2021. No contractual flows are reported for Renault SA and Diac participating shares as they have no fixed redemption date. Financial liabilities of the Automotive segments
Financial liabilities and debts of the Sales Financing segment
Financial liabilities and debts of the Mobility Services segment
23-E. Financing by assignment of receivables and reverse factoring Automotive segments financing by assignment of receivables Some of the Automotive segment’s external financing comes from assignment of commercial receivables to non-Group financial establishments. Details of financing by assignment of commercial receivables is as follows:
The total amount of tax receivables assigned and derecognized in 2021 is €205 million, comprising €139 million of CIR receivables and €66 million of VAT receivables (€165 million of CIR receivables and €49 million of VAT receivables in 2020). French tax receivables assigned outside the Group (the “CIR” Research Tax Credit), with transfer of substantially all the risks and benefits associated with ownership of the receivables, are only derecognized if the risk of dilution is deemed to be non-existent. This is notably the case when the assigned receivables have already been subject to a tax inspection or preliminary audit. No assigned tax receivables remained in the balance sheet at December 31, 2021. The assigned receivables are derecognized when the associated risks and benefits are substantially transferred, as described in Note 2-P. The Automotive segments assigns its dealership receivables to the Sales financing segment. The total dealership receivables transferred to the Sales financing segment principally concerns Renault Group. The amounts are presented in Note 15-D. Automotive segments financing by reverse factoring programs The accounting treatment for these programs is described in Note 2-P, Assignment of receivables and reverse factoring. The Group did not use reverse factoring programs in 2021, and consequently there are no financial liabilities for reverse factoring at December 31, 2021 (€26 million at December 31, 2020) Note 24 Financial instruments by category, fair value and impact on net income 24-A. Financial instruments by category and fair values by level IFRS 9 defines three categories of financial instruments:
The following breakdown by level of fair value is presented for financial instruments carried in the balance sheet at fair value:
Fair values have been determined on the basis of information available at the end of the year and do not therefore take account of subsequent movements. In 2021, no financial instruments were transferred between level 1 and level 2, or into or out of level 3.
FINANCIAL ASSETS AND OTHER ASSETS
(2)
The fair value of Renault and DIAC participating shares is identical to the stock
market price. 24-B. Changes in Level 3 financial instruments Level 3 financial instruments correspond to Sales Financing receivables (€39,209 million at December 31, 2021, €40,645 million at December 31, 2020), loans and other (€551 million at December 31, 2021, €618 million at December 31, 2020), investments in non-controlled entities (€72 million at December 31, 2021 and €46 million at December 31, 2020) and certain cash equivalents, essentially term deposits (Note 22-A). These financial assets remain at historical cost. Other investments in non-controlled entities also remain at historical cost, but in an exception to the general approach, if historical cost is inappropriate they are valued on the basis of the share of net equity or using a method based on non-observable data. 24-C. Impact of financial instruments on net income
(1)
Including financial liabilities subject to fair value hedges. For the Automotive segments, the impact of financial instruments on the operating margin mainly corresponds to foreign exchange gains and losses on operating transactions. 24-D. Fair value hedges
Hedge accounting methods are described in Note 2-X. Note 25 Derivatives and management of financial risks 25-A. Derivatives and netting agreements 25-A1. Fair value of derivatives and hedged notional values The fair value of derivatives of the Automotive segments corresponds to their balance sheet value:
The fair value of derivatives of the Sales Financing segment corresponds to their balance sheet value:
25-A2. Netting agreements and other similar commitments Framework agreements for operations on financial futures and similar agreements The Group negotiates its derivatives contracts in accordance with the framework agreements issued by the International Swaps and Derivatives Association (ISDA) and the FBF (Fédération Bancaire Française). In the event of default, the non-defaulting party has the right to suspend execution of its payment obligations and to demand payment or transfer of a termination balance for all terminated transactions. The ISDA and FBF framework agreements do not meet the requirements for netting in the financial statements. The Group currently has no legally enforceable right to net the reported amounts, except in the case of default or a credit event. Netting of financial assets and liabilities: summary
25-B. Management of financial risks The Group is exposed to the following financial risks:
Risk management differs depending on the operating segment. The risks described below concern the Automotive segments, (considering AVTOVAZ separately in certain cases), and the Sales Financing segment. The Mobility Services segment does not have any specific financial risks since it is financed by the Automotive segments. 25-B1. Liquidity risk The Group must have sufficient financial resources to finance its automotive and sales financing businesses and the investments necessary for their growth. To ensure this is the case, the Automotive and Sales Financing segments borrow on the capital and banking markets to refinance their gross debt and guarantee liquidity. This exposes them to liquidity risks if markets are closed for long periods or credit is hard to access. The Automotive and Sales Financing segments are also credit-rated by several agencies. Any downgrading of external credit ratings could limit and/or increase the cost of their access to the capital markets. Liquidity risks - Automotive segments The Automotive segments’ liquidity risk is managed by the Financing and Treasury department. It is founded on an internal model that defines the level of the liquidity reserve the Automotive segments must maintain to finance their operations and development. The liquidity reserve is closely monitored by a monthly review and reported to the Chief Financial Officer. The shortage of semi-conductors in 2021 caused general disruption to the automobile market, and a downturn in the Group’s business activity. Renault SA handles most refinancing for the Automotive segments through long-term resources via the capital markets (bond issues and private placements), short-term financing such as NEU CP (Negotiable European Commercial Paper), or bank financing. Renault SA has several debt programs at December 31, 2021:
Renault SA and its debt programs are credit-rated by several agencies. In 2021, Renault SA’s rating was confirmed by S&P and Moody’s (by S&P on March 5 at BB+ with a negative outlook and by Moody’s on September 5 at Ba2 with a negative outlook). The Japanese agency R&I also confirmed its rating of Renault SA at A- with a negative outlook, while the Japanese agency JCR upgraded Renault SA’s credit outlook from negative to stable on October 18, keeping its credit rating at A-. Renault SA maintained its access to the capital markets in 2021 with the issuance of two Eurobonds and one Samurai bond. The two Eurobonds were issued under the EMTN program, one in April with nominal value of €600 million and 7-year maturity, and the other in December with nominal value of €500 million and 5½-year maturity. The Samurai bond was issued in early July with nominal value of ¥150 billion. It comprises one tranche of ¥40 billion with 2-year maturity and one tranche of ¥110 billion with 3-year maturity. Renault SA also maintained its access to short-term financing through use of its NEU CP (Negotiable European Commercial Paper) program. In August 2021, Renault SA reimbursed €1 billion of the €4 billion drawn in 2020 on the bank credit line guaranteed by the French government. This credit line of an initial €5 billion was set up in 2020 to cover liquidity requirements resulting from the Covid-19 pandemic. It was available until December 31, 2020, and three drawings totalling €4 billion were made on it during the second half-year of 2020. Renault SA also has confirmed credit lines opened with banks worth €3,430 million at December 31, 2021 (3,430 million December 31, 2020). These credit lines mature in more than one year and were undrawn at December 31, 2021 (and 2020). They form a liquidity reserve for the Automotive segments. The maturities of the Automotive segments’ financial liabilities at December 31, 2021 are presented in Note 23-D. The contractual documentation for Renault SA’s confirmed credit arrangements, bank loans and market financing does not contain any clause that could affect the continued supply of credit as a result of changes in either Renault Group’s credit rating or its financial ratios. Certain types of financing, particularly market financing, contain standard clauses (pari passu, negative pledge and cross-default clauses). AVTOVAZ also uses local bank credit for refinancing , including a confirmed credit line maturing over one year with an available amount of €117 million at December 31, 2021. AVTOVAZ decides to make drawings on the basis of cash forecasts. The maturities of AVTOVAZ financial liabilities at December 31, 2021 are presented in Note 23-D. These financial liabilities contain no covenant that would lead to accelerated repayment if certain financial ratios were not respected. At December 31, 2021, the Automotive segments have a liquidity reserve of €17.3 billion, sufficient to cover their commitments over a 12-month horizon. This reserve consists of €13.9 billion of cash and cash equivalents, and €3.4 billion of unused confirmed credit lines (excluding the AVTOVAZ credit line). Liquidity risks -Sales Financing segment The Sales Financing segment is very attentive to diversification of its sources of liquidity. In recent years Renault Group has widely diversified its sources of financing, moving into new distribution zones in addition to its longstanding base of Euro bond investors. RCI Banque’s liquidity risk management follows the recommendations of the European Banking Authority. It uses several indicators and analyses (static liquidity, liquidity reserve, several stress scenarios), which are updated and reported to RCI Banque’s Financial Committee on a monthly basis. The stress scenarios include assumptions concerning deposit leakage, loss of access to new financing, partial unavailability of certain elements of the liquidity reserve and forecasts for issuance of new credit. The alternation of different maturities and issue formats is part of the Sales Financing segment’s diversification strategy for financing sources. This policy has been followed for several years and enables the segment to reach the maximum number of investors. With no growth in the sales portfolio, financing requirements remained modest and RCI Banque group took a certain number of initiatives to reduce its liquidity reserve, which had reached a record level at the end of 2020. Given this situation, the Sales Financing segment made no bond issues, and took steps to slow down the growth in customer deposits which nonetheless increased by €0.5 billion to €21.0 billion at December 31, 2021, a year-on-year increase of 2.6% after the 15% increase in 2020. To diversify its financing sources, the Group extended its savings business to the Netherlands in July 2021, through the intermediary of the fintech company Raisin. In preparation for the future, the Sales Financing segment repeated the self-subscribed securitization operation in Italy, raising it from €1.4 billion to €1.8 billion. The Sales Financing segment also arranged a new private securitization program to refinance the residual value of finance leases in France. This program is currently only used for a symbolic amount, but that amount can be increased, offering a potential new source of secure financing for the Group. During the second half of 2021, a new public securitization vehicle was set up in the United Kingdom. The £750 million of self-subscribed senior instruments should be eligible for the Bank of England’s long-term monetary policy and entitle RCI Bank UK to access the TFSME (Term Funding Scheme for Small and Medium-sized Enterprises), announced by the Bank of England in March 2020, and this diversify its liquidity reserve. Finally, RCI Banque placed a public automotive loan-backed securitization in Germany, and issued €900 million of senior instruments (of which €200 million were self-subscribed). With these resources, as well as €4.3 billion of undrawn confirmed credit lines with banks, €3.3 billion of collateral eligible for the Central Banks’ monetary policy operations, €6.6 billion of highly liquid assets (HQLA), RCI Banque is able to maintain its customer financing for more than 12 months without access to external liquidities. At December 31, 2021, RCI Banque’s liquidity reserve (for the Europe scope) amounts to €14.4 billion (€16.6 billion at December 31, 2020). The controlled reduction of €(2.2) billion compared to December 31, 2020 lowered the cost of carrying surplus cash. However, the liquidity reserve was still well above internal targets. The RCI Banque group’s issues and programs are credit-rated by several agencies. In 2021, S&P downgraded RCI Banque’s rating to BBB- with a stable outlook, while Moody’s confirmed its rating of Baa2 with a negative outlook on August 12, 2021. 25-B2. Foreign exchange risk The Group made no major changes to its foreign exchange risk management policy in 2021. The Group’s exposure to foreign exchange risk principally concerns the Automotive segments. Foreign exchange risks - Automotive segments In the Automotive segments, fluctuations in exchange rates can affect the following financial aggregates: operating income (loss), financial income (expenses), share in net income (loss) of associates and joint ventures, shareholders’ equity and net cash position. The Performance and Control Department and the Financing and Treasury Department are in charge of rolling out and monitoring the Automotive segments’ foreign exchange risk management policy. Operating income The Group sometimes hedges certain positions. Foreign exchange hedges on operating income and expenses must first be analysed by the Performance and Control Department and the Financing and Treasury Department, and then require formal authorization by Chief Financial Officer or Chief Executive Officer, with monthly reporting of results to the Chief Finance Officer. Wherever possible, foreign exchange operations are mainly undertaken by the Group’s trading room (Renault Finance) for currencies that are negotiable on the international markets. The principal exposure to foreign exchange risks lies in the operating income (loss). At December 31, 2021 based on the 2021 structure of operating results and cash flows, a 1% rise by the euro against all other currencies would have an unfavourable impact of €20 million on the Automotive segments’ annual operating income (loss) after any hedging. In 2021, to limit the foreign exchange risk exposure of its operating margin, the Automotive segments set up foreign exchange hedges of the pound sterling, Argentinian peso, Russian rouble, Chinese yuan and Turkish lira. The principal exposure in 2021 concerned the Russian rouble, with unfavourable impact of approximately € (16) million in the event of a 1% rise by the euro against the rouble. The 10 largest exposures in absolute value and their sensitivities are presented below in millions of euros:
Financial income (expenses) To avoid any exchange-related distortion of the net financial income, it is the Automotive segments’ policy to minimize the foreign exchange risk affecting financing and investment items in foreign currencies. All the Automotive segments’ exposures to foreign exchange risks on financial income and expense items are aggregated and monitored by the Financing and Treasury Department, with monthly reporting to the Chief Financial Officer. Intra-group financing flows in foreign currency are hedged in the same currency. If a subsidiary needs external financing in a currency other than the local currency, the parent company monitors the operations closely. Cash surpluses in countries that are not part of the parent company’s centralized cash management are generally invested in local currency, under the supervision of the Group’s Financing and Treasury Department. The subsidiary Renault Finance can undertake foreign exchange operations on its own behalf, within strictly defined risk limits. Its foreign exchange positions are monitored and valued in real time. This activity is chiefly intended to maintain the Group’s expertise on the financial markets. It generates very short exposures and does not exceed some tens of millions of euros, so that it cannot have a significant impact on Renault Group’s consolidated results. Share in the net income of associates and joint ventures The share in the net income of associates and joint ventures is exposed to foreign exchange risks. On the basis of its contribution to 2021 net income, a 1% rise in the euro against the Japanese yen would have increased Nissan’s contribution by €4 million. This impact corresponds only to the impact of the euro on the translation of Nissan’s contribution to the Renault Group’s consolidated statements. It does not reflect the inherent impact of euro fluctuations on Nissan’s own accounts, given that Nissan does varying levels of business in the Euro zone and Renault Group has no control over this. Equity investments The foreign exchange risk exposure of equity investments (in currencies other than the euro) is not generally hedged. However, due to its importance, the investment in Nissan is subject to a partial foreign exchange hedge amounting to ¥18,3 billion at December 31, 2021 (Note 12-G). To limit liquidity risks in yen, the Group has set itself the rule of not hedging this net investment above an amount equal to its best estimate of the next three years’ dividends in yen to be received from Nissan. Net cash position For the purposes of the partial hedge of the investment in Nissan, some of Renault Group’s net financial indebtedness is denominated in yen. At December 31, 2021 a 1% rise in the euro against the yen would increase the net cash position of the Automotive segments by €1.4 million. This net cash position may also be impacted by changes in exchange rates concerning subsidiaries’ financial assets and liabilities in their local currency. Analysis of financial instruments’ sensitivity to foreign exchange risks This analysis concerns the sensitivity to foreign exchange risks of monetary assets and liabilities (including intra-Group balances) and derivatives denominated in a currency other than the currency of the entity that holds them. However, it does not cover items (hedged assets or liabilities and derivatives) concerned by fair value hedging, for which changes in fair value of the hedged item and the hedging instrument totally offset each other in the income statement. The impact on shareholders’ equity (before tax) of a 1% rise in the euro against other currencies is assessed by converting financial assets, cash flow hedges and the partial hedge of the investment in Nissan. For the Automotive segments, this impact would be a favourable €1 million at December 31, 2021 (€6 million at December 31, 2020), explained by the yen bond issues that make up the partial hedge of the investment in Nissan (see Note 12-G). The impact on net income of a 1% rise in the euro against other currencies would be an unfavourable impact of €2 million at December 31, 2021 (€14 million at December 31, 2020), mainly attributable to unhedged operating assets and liabilities denominated in a currency that is not the functional currency of the entity that holds them. Foreign exchange risk - Sales Financing segment The Sales Financing segment has low exposure to foreign exchange risks due to the management principles applied. No position can be taken under the central management framework for refinancing; the trading room hedges all flows concerned. Residual, temporal positions in foreign currencies related to the time differences in cash flows inherent to multi-currency cash management may still remain. They are monitored daily and the same hedging policy applies. The Sales Financing subsidiaries are obliged to obtain refinancing in their own currency and as a result are not exposed. In exceptional circumstances, limits are assigned to subsidiaries where sales financing activities or refinancing take place in several different currencies, and to subsidiaries authorized to invest some of their cash surpluses in a currency other than their local currency. At December 31, 2021 RCI Banque group’s consolidated foreign exchange position reached €4.2 million. 25-B3. Interest rate risks The Group made no major changes to its interest rate risk management policy in 2021. The Group’s exposure to interest rate risk principally concerns the Sales Financing segment. Interest rate risk - Automotive segments The Automotive segments’ 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:
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 Group assigns to 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 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. 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:
Analysis of Group financial instruments’ sensitivity to interest rate risks The Automotive and Sales Financing segments are exposed to the following interest rate risks:
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. The impact on shareholders’ equity corresponds to the change in fair value of fixed-rate debt instruments classified as financial assets at fair value through other components of comprehensive income for the Sales Financing segment and cash flow hedges before reclassification in profit or loss (section 2) 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. For the Automotive segments, the impact on net income of a 100 base point rise in interest rates applied to financial instruments exposed to interest rate risks would be a favorable €109.8 million. Shareholders’ equity would be unaffected. For the Sales Financing segment, the overall sensitivity to interest rate risks in 2021 remained below the limit set by the RCI Banque group (€70 million at December 31, 2021). At December 31, 2021, a 100 base point rise in interest rates would have the following impacts on net income and shareholders’ equity (before taxes):
The sum of the absolute sensitivities in each currency amounts to €8.6 million. Fixed rate/floating rate breakdown of the Group’s financial assets, after the effect of derivatives
Fixed rate/floating rate breakdown of the Group’s financial liabilities, after the effect of derivatives
25-B4. Equity risk In March 2021, the Group sold all its shares in Daimler. Consequently its exposure to equity risks has been marginal since that date. 25-B5. Commodity risk Management of commodity risk Commodity purchase prices can change suddenly and significantly, and cannot necessarily be passed on through vehicle sale prices. This may lead Renault Group’s Purchases department to hedge part of its commodity risks using financial instruments. These hedges are subject to volume, duration and price limits. In 2021 Renault Group undertook hedging operations on base metals and precious metals, within the limits validated by of Renault SA. The operations in progress at December 31, 2021 are classified for accounting purposes as cash flow hedges, and accordingly changes in their fair value are included in other components of comprehensive income to the extent of the effective portion of the hedges. Analysis of financial instruments’ sensitivity to commodity risks Financial instruments’ accounting sensitivity to commodity risks results from derivatives used to hedge the Group’s economic exposure to these risks. A 10% increase in commodity prices for derivatives designated as hedging derivatives would have a positive impact of €59 million on other components of comprehensive income at December 31, 2021. 25-B6. Bank counterparty risk and credit risk on customer and dealer financing Customer credit risk on Automotive receivables The Automotive (excluding ATOVAZ) segment’s exposure to credit risk is limited because of the assignment of many receivables leading to their deconsolidation, and systematic hedging of risks on export receivables. Non-assigned sales receivables and receivables covered by guarantee are regularly monitored. AVTOVAZ trades only with recognized, creditworthy third parties. All future customers requiring credit facilities are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis, and as a result, the AVTOVAZ Group‘s exposure to bad debts is not significant. The maximum exposure is the carrying amount. There are no significant concentrations of credit risk within the AVTOVAZ Group. Credit risk on customers, dealers and commitments given by the Sales Financing segment The Sales Financing segment is exposed to customer and dealer credit risk when risk management techniques are insufficient for protection against default on payment by its counterparties. Credit risk is the risk of losses due to the incapacity of RCI Banque customers to fulfill the terms of a contract signed with the bank. Credit risk is closely linked to macro-economic factors including the unemployment rate, corporate bankruptcies, debt servicing costs, revenue growth, disposable household income, dealership profitability and the price of used vehicles. It has a significant impact on the Sales Financing segment’s business. The level of credit risk on the dealership network is influenced by the dealers’ financial health, the quality of guarantees, and the general demand for vehicles. RCI Banque uses advanced scoring systems and external databases to evaluate the quality of loans made to retail and business customers. It also uses an internal rating system to evaluate lending to dealers. Although RCI Banque is constantly adjusting its acceptance policy in response to market conditions, any increase in the credit risk would increase its cost of risk and its provisions for bad debt. RCI Banque has detailed procedures to recover receivables that are compromised or in default, arranging repossessions and sales of unpaid vehicles. However, there can be no guarantee that the policies of issuing credit, monitoring credit risk, payment recovery action, and repossession of vehicles are, or will be, sufficient to avoid an unfavourable impact on its financial results and position. An increase in the credit risk would increase the cost of risk and provisions for bad debt, with a direct impact on RCI’s financial results and potentially on its internal capital. Bank counterparty risk Due to its operations on the financial markets to invest cash surpluses, manage foreign exchange risks and interest risks, and manage payment flows, the Group is exposed to a bank counterparty risk. This bank counterparty risk affecting Group entities is managed by both the Automotive and Sales Financing segment in a fully-coordinated approach. It is founded on an internal rating system based mainly on counterparties’ long-term credit ratings and equity. This system is used by all Renault Group companies exposed to a bank counterparty risk. Group companies which, due to the nature of their business, are significantly exposed to a bank counterparty risk are monitored daily to ensure that they comply with authorized counterparty limits, in accordance with specific procedures. The Group produces a consolidated monthly report covering all its bank counterparties, organized by credit rating. This report provides a detailed analysis of compliance with limits in terms of amount, maturity and type, as well as a list of the main exposures. To reduce the bank counterparty risk, most deposits are contracted with large network banks and generally have terms shorter than 90 days, as this allows a good spread of the risk. In the event of volatile macroeconomic situations that may arise in emergent countries and potentially affect their banking systems, the Group introduces an action plan to step up counterparty risk monitoring, and makes adjustments to the counterparty limits if necessary. The exposure on each banking group is assessed monthly on a consolidated basis, with the Automotive and Sales Financing entities. The Group is not subject to any significant risk concentration for its operations on the financial and banking markets. No losses due to default by a bank counterparty were recorded in 2021. The bank counterparty risk borne by the Group through its shares in investment funds (UCITS) is incorporated into the risk of changes in value for those products, and monitored using specific rules. Impairment and provisions established to cover counterparty risks
5.2.2.6.6. Cash flows and other information Note 26 Cash flows 26-A. Other income and expenses with no impact on cash before interest and tax
26-B. Change in working capital before tax
26-C. Capital expenditure
(1)
Excluding capitalized leased assets and right-of-use assets. Note 27 Related parties 27-A. Remuneration of directors and executives and Board of Management members The table below reports the remuneration paid to the Chairman and CEO, the Chairman of the Board of Directors and the interim CEO (2020), Directors and Executives and members of the Group Executive Committee, which became the Management Board on January 1, 2021. Amounts are allocated pro rata to expenses of the periods in which the functions were occupied.
The maximum possible amount of Directors’ fees was €1.5 million in 2021 (€1.5 million in 2020). 27-B. Renault Group’s investments in associates Details of Renault Group’s investments in Nissan and in other companies accounted for under the equity method are provided in Notes 12 and 13-A. 27-C. Transactions with the French State and public companies In the course of its business Renault Group undertakes transactions with the French State and public companies such as UGAP, EDF, and La Poste. These transactions, which take place under normal market conditions, represent sales of €280 million in 2021 (€259 million in 2020), an automotive receivable of €58 million, a sales financing receivable of €272 million and a financing commitment of €14 million at December 31, 2021 (respectively €72 million, €282 million and €40 million at December 31, 2020). In 2020 Renault Group benefited from a State-guaranteed credit facility, issued by a pool of banks as described in Note 23-C. 27-D. Transactions with unconsolidated controlled entities A certain number of controlled entities are not consolidated, as explained in Note 2-C, because their contribution to the consolidated financial statements is considered non-significant (Note 17). The only company with sales of more than €100 million and/or a balance sheet value of more than €100 million is Renault Nissan Global Management, which manages Renault Group and Nissan expatriates. In 2021, the Renault Group’s expenses with this company amounted to approximately €120 million (€185 million in 2020). In Renault Group’s financial position at December 31, 2021, the balances of transactions between Renault Nissan Global Management and Renault Group consist mainly of operating receivables amounting to €80 million (€116 million at December 31, 2020) and operating payables amounting to €45 million (€61 million at December 31, 2020). Note 28 Off-balance sheet commitments, contingent assets and liabilities, assets pledged and received as collateral In the course of its business, Renault enters into a certain number of commitments, and is involved in litigations or subject to investigations by competition and automobile regulation authorities. Any liabilities resulting from these situations (e.g. pensions and other employee benefits, litigation costs, etc.) are covered by provisions. Details of other commitments that constitute off-balance sheet commitments and contingent liabilities are provided below (Note 28-A). Renault also receives commitments from customers (deposits, mortgages, etc.) and may benefit from credit lines with credit institutions (Note 28-B). 28-A. Off-balance sheet commitments given and contingent liabilities, assets pledged as collateral 28-A1. Ordinary operations The Group is committed for the following amounts:
(4)
Other financial guarantees given mainly concern administrations.
(7)
Notably stock options granted. 28-A2. Contingent liabilities Group companies are periodically subject to tax inspections in the countries in which they operate. Accepted tax adjustments are recorded as provisions in the financial statements. Contested tax adjustments are recognized on a case-by-case basis, taking into account the risk that the proceedings or appeals undertaken may be unsuccessful. Tax liabilities are recognized via provisions when there are uncertainties over the determination of taxes. On December 19, 2019 Renault s.a.s.. received provisional notification of a tax reassessment on transfer prices in 2016, and an additional notification was received on June 24, 2021 concerning the years 2017 and 2018. Renault Group is challenging the most significant amounts of these provisional notifications, and no provision has been recognised in the financial statements at December 31, 2021 in connection with this matter. RESA (Renault España SA) was notified of a €213 million tax reassessment for transfer prices at December 31, 2020, which Renault Group is contesting. A procedure for amicable settlement between France and Spain was begun in 2021. No provision has been recognized in connection with this notification, since Renault Group considers that it has good chances of winning its case. A deposit of €135 million was paid to the Spanish tax authorities in December 2020, recognized in non-current financial assets and presented in cash flows from investing activities (under Decrease (Increase) in loans of the Automotive segments) in the consolidated cash flow statement. Another payment of €78 million was made in 2021 and recognized in the same way. Renault Samsung Motors, based in South Korea, was subject to a tax reassessment for the period 2007-2011 concerning the amount of royalties paid to Renault s.a.s.. This reassessment was challenged, and paid after a settlement was reached in 2017, but there is still a risk of reassessments for 2012 and later years. In 2016, Renault Group applied for an APA (“Advance Pricing Agreement”) which is still in discussion between the Korean and French tax authorities. No provision has been recognizedin connection with this matter between 2012 and December 31, 2021, since the amount of the potential reassessments cannot be reliably estimated. Disposals of subsidiaries or businesses by the Group generally include representations and warranties in the buyer‘s favour. At December 31, 2021, the Group has not identified any significant risk in connection with these operations. Group companies are periodically subject to investigations by the authorities in the countries in which they operate. When the resulting financial consequences are accepted, they are recognized in the financial statements via provisions. When they are contested, they are recognized on a case-by-case basis, based on estimates that take into account the risk that the proceedings or appeals undertaken may be unsuccessful. The main investigations by the competition and automotive regulations authorities in progress at December 31, 2021 concern illegal agreements and the level of vehicle emissions in Europe. On January 9, 2019 the Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato” - AGCM) fined RCI Banque €125 million, with Renault SA jointly liable for payment of the fine. The Group is contesting the grounds for this fine and has appealed against the decision. Renault considers that the probability of the decision being cancelled or fundamentally amended by a court order is high. Due to the large number of variables affecting the amount of the fine, if upheld, it is impossible to reliably estimate the amount that could be payable at the end of the proceedings. On April 3, 2019 the Group’s application for suspension of the payment was accepted, with arrangement of a bank guarantee. On October 21, 2020 the court cancelled the AGCM’s decision in its entirety, and the AGCM filed an appeal against that ruling on December 23, 2020. The bank guarantee arranged in 2019 has been cancelled. No provision was recognized in connection with this matter in 2021 or 2020. On 3 February 2022, the Italian Council of State rejected the appeal by the AGCM and upheld the administrative court ruling that had cancelled the AGCM’s decision. This decision by the Council of State is final. In the ongoing “emissions” affair in France, in which a formal legal investigation was opened on January 12, 2017 at the request of the Paris public prosecution office, Renault s.a.s. was officially placed under investigation for deceit on June 8, 2021. In July 2021 Renault Group paid bail of €20 million (included in the balance sheet) to guarantee its representation throughout the proceedings and to cover payment of any damages and fines. It also issued a €60 million bank guarantee on October 8, 2021 to cover compensation for any prejudice identified. Renault Group denies having committed any offence. All Renault Group vehicles are, and always have been, type-approved in accordance with applicable laws and regulations. The potential consequences of the next steps in these ongoing proceedings cannot be reliably estimated at this stage, and no provision was recognized in connection with this matter at December 31, 2021 (or at December 31, 2020). Approximately 70% of the Group’s sales are subject to CO2 emission regulations, principally in the European Union but also especially in China, Switzerland, the United Kingdom and South Korea. In 2020 and 2021, the three members of the Alliance - Renault, Nissan and Mitsubishi Motors Corp. - signed agreements to pool their CAFE (Corporate Average Fuel Economy) targets for the European Union and the United Kingdom. The potential noncompliance penalties payable to the authorities concerned are determined at the level of the group formed by the Alliance’s three automakers. Renault did not recognize any provision in connection with this matter at December 31, 2021 or 2020. Renault Group confirmed in a press release of January 4, 2021 that it had achieved its CAFE targets for passenger vehicles and light commercial vehicles in 2020, subject to validation by the European Commission in the following months. The validation process was still ongoing at the date of publication of these financial statements. Renault also confirmed in a press release of January 17, 2022 that it had achieved its CAFE targets for passenger vehicles and light commercial vehicles in 2021 (these results are due to be consolidated and officialized by the European Commission in the next few months). A provision of €11 million was recognized for CAFE penalties payable for 2021 in South Korea, raising the total provision for the years 2019 to 2021 to €35 million. Group companies are also subject to the applicable regulations regarding pollution, notably of soil and ground water. These regulations vary depending on the country of location. Some of the associated environmental liabilities are potential and will only be recognized in the accounts if the activity is discontinued or the site closed. It is also sometimes difficult to determine the amount of the obligation reliably. Provisions are only established for liabilities that correspond to a legal or constructive obligation at the closing date, and can be estimated with reasonable reliability. 28-A3. Share purchase commitments given When the Group grants put options to minority shareholders to sell their investments in fully consolidated companies, a liability corresponding to the option is recognized, with a reduction in shareholders’ equity - non-controlling interests’ share. At December 31, 2021, put options granted by the Group to minority shareholders concern Banco RCI Brasil, Rombo Compania Financiera, and RCI Colombia S.A. The consequences for the financial statements are explained in Note 18-H. Partnership agreements were signed in 2018 with Oyak in Turkey, including perfectly symmetrical put and call options for non-controlling investments, entitling Renault s.a.s., subject to certain conditions, to purchase Oyak’s shares in Oyak Renault (call) and to sell its shares in MAIS (put), and entitling Oyak to sell its shares in Oyak Renault (put) and purchase Renault s.a.s.’s shares in MAIS (call). The exercise price for the put option, if exercised, will be determined by three independent experts who would be appointed at the exercise date. Analysis of the contracts did not identify any circumstances beyond the control of Renault Group that could lead to Oyak’s put option exercised without Renault Group being able to object. Consequently, no liability is recognized at December 31, 2021 in connection with these options. 28-A4. Assets pledged as guarantees for management of the liquidity reserve For management of its liquidity reserve, the Sales Financing segment has provided guarantees to the Banque de France (under France’s central collateral management system 3G - Gestion Globale des Garanties) in the form of assets with book value of €7,111 million at December 31, 2021 (€7,465 million at December 31, 2020). These assets comprise €6,628 million of shares in securitization vehicles, €3 million of Eurobonds and €480 million of sales financing receivables (€6,675 million of shares in securitization vehicles, €104 million of euro bonds and €686 million of sales financing receivables at December 31, 2020). The financing provided by the Banque de France against these guarantees amounts to €3,738 million at December 31, 2021 (€2,250 million at December 31, 2020). All assets provided as guarantees to the Banque de France remain in the balance sheet. 28-B. Off-balance sheet commitments received, contingent assets and assets received as collateral
Off-balance sheet commitments received concerning confirmed opened credit lines are presented in Note 25-B1. Commitments received - share purchase options The Group has a call option to increase its investment in Whylot to 70% and take control of the company by 2023 (Note 3). This option is conditional on Whylot achieving certain objectives, and was not exercisable at December 31, 2021. No liability is recognized in connection with this commitment. The Group holds derivative instruments to subscribe to future capital increases by Verkor, without taking control of the company (Note 3). No liability is recognized in connection with this commitment. The Group has a call option to purchase 10% of the capital of Alpine Racing Ltd for the contractual value of €18 million and thus increase its investment to 100%. No liability is recognized in connection with this commitment. Note 29 Fees paid to statutory auditors and their network The fees paid to the Group’s statutory auditors and their networks are reported in section 8.3.1. of the 2021 Universal Registration Document. Note 30 Subsequent events No significant events have occurred since December 31, 2021. Note 31 Consolidated companies 31-A. Fully consolidated companies (subsidiaries)
(1)
First consolidated in 2021 (Note 3-A)
(2)
Sold or merged and deconsolidated in 2021 31-B. Companies consolidated based on the percentage interest in each balance sheet and income statement item (joint operations)
(1)
The Group holds 50% of the voting rights of the Indian company RNTBCI. 31-C. Companies accounted for under the equity method (associates and joint ventures)
(1)
First consolidated in 2021 (Note 3-A)
(2)
Sold and deconsolidated in 2021 In application of regulation 2016-09 of December 2, 2016 issued by the French Accounting Standards Authority (Autorité des Normes Comptables), the Group makes the following information available to third parties on its website group.renault.com, in the “Documents & Presentations” section of the “Finance” pages from the date of publication of the 2021 Universal Registration Document:
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