www.se.com Schneider Electric Universal Registration Document 2021 260 Chapter 3 – How we manage risk at Schneider Electric 1. Event triggered risks 1.9 Counterparty risk Risk description The Group has a particularly wide international presence (more than 115 countries), with revenue almost equally spread across the four regions (Asia Pacific, Western Europe, North America, Rest of the World), and 43% of the revenue generated in new economies. The Group is therefore facing multiple counterparty risks, as any economic downturn could lead to local liquidity issues with consequences in terms of cash collection and delay of payments from the customers, affecting adversely the Group’s cash conversion rate. The Group is also exposed to counterparty risks coming from financial operation with financial institutions. It includes activities such as deposits and asset management and transactions implying flows in future value dates. As of December 31, 2021, 10.8% of trade receivables were overdue, of which 2.5% by more than three months (refer to Note 16 in “Notes to the consolidated financial statements”, section 5 of Chapter 5, page 373). Risk monitoring and management Financial transactions are entered into with carefully selected counterparties and adapted terms and conditions are included in contracts with customers. Banking counterparties are chosen according to the customary criteria, including the credit rating issued by an independent rating agency. Group policy consists of diversifying counterparty risks and periodic controls are performed to check compliance with the related rules. In addition, the Group takes out substantial credit insurance and uses other types of guarantees (letters of credit and bank guarantees) to limit the risk of losses on trade accounts receivable. As of December 31, 2021, the amount of the provision for receivables impairment is EUR 498 million (as described in Note 16 in “Notes to the consolidated financial statements”, section 5 of Chapter 5, page 373). 1.10 Currency exchange risk Risk description The Group’s international operations and the particularly wide international presence expose it to the risk of fluctuation of exchange rates. Fluctuations in exchange rates between the reporting currencies of the Group entities and the currencies of transactions can have an impact on the Group’s results and distort year-on-year performance comparisons. The same applies to the fluctuations between euro and the reporting currencies, in a more significant proportion. The main exposure of the Group in terms of currency exchange risks is related to the US dollar, Chinese yuan, and currencies linked to the US dollar. In 2021, revenue in foreign currencies amounted EUR 23.01 billion, including around EUR 7.4 billion in US dollars and EUR 4.4 billion in Chinese yuan. The Group estimates that in the current structure of its operations, a 10% appreciation of the euro compared to the US dollar would have a translation effect of around minus EUR 96 million on adjusted EBITA. The result of exchange gains and losses of 2021 amounts to EUR -8 million (as described in Note 7 in “Notes to the consolidated financial statements”, section 5 of Chapter 5, page 366). Risk monitoring and management The Group manages its exposure to transactional currency risk to reduce the sensitivity of earnings to changes in exchange rates. Receivables and payables of the Group’s subsidiaries denominated in currency other than their functional currency are hedged primarily by means of rebalancing assets and liabilities per currency (natural hedge). More than 20 currencies are involved, with the US dollar, the Singapore dollar, the Chinese yuan, Russian ruble, Japanese yen, Mexican peso and Canadian dollar representing the most significant sources of those risks. Depending on market conditions, risks in the main currencies may be hedged based on cash-flow forecasting using contracts that expire in 12 months or less. The financial instruments used to hedge exposure to fluctuations in exchange rates are described in Note 23 in “Notes to the consolidated financial statements”, section 5 of Chapter 5, page 383. 3.4 Key risks