DERICHEBOURG - Universal registration document 2019-2020

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Group management report Risk factors

Overview of principal risks identified anthde risk management system 3.3.2

Risks

Risk management systems

Pandemic risk

This exogenous risk cannot be controlled. There are however some shock absorbers, including: - the diversity of the business lines in which the Group operates; - State support of the economy. In the event of a serious health crisis the State can take measures to safeguard the survival of economic operators.

The emergence of a pandemic in Europe is likely to significantly reduce the Group's activities and impact its profitability.

Geopolitical risks and economic cycle-related risks

The introduction of customs barriers, financial sanctions or regulatory export bans against certain countries in which the Group delivers its products, leading to the segmentation of international trade, could have a negative impact upon the prices and/or volumes of recycled materials processed by the Group. The industries that consume the products sold by the Group’s Recycling business (steel, metallurgy) are considered to be cyclical. A slowdown in these cycles may affect the profitability of the business. The European and Turkish steel industries rely on the strength of domestic steel consumption in China. When this consumption falls, the pressure from low-cost Chinese exports increases and competes with European and Turkish steelmakers, which reduces the demand for products sold by the Group's Recycling business from its geographically close customers. The Group has indirect exposure (China for non-ferrous metals, Turkey for ferrous scrap metals) to countries outside of Western Europe where the Group carries out its principal business activity. A deterioration in the economic situation of these countries may indirectly affect (lower prices or change in trade flows) the business activity of the Group as a whole.

These exogenous risks cannot be controlled by the Group. A policy of low inventories and fixed costs, high unit margins, and customer diversification is likely to limit (but not cancel out) the impact should situations of this kind arise.

This risk cannot be completely controlled. A policy of diversifying the Group’s customer base contributes to lowering these risks.

Customer risks

The Group systematically seeks to insure its trade receivables, to include retention-of-title clauses in its contracts, and for major exports to obtain the bulk of payment before unloading the goods. A customer diversification policy is also likely to reduce this risk. The logistical framework (access to ports) needed for this diversification is in place. Regular high-level meetings are held with major customers in order to assess the level of satisfaction of customers and service providers. A customer diversification policy has been initiated. It is likely to reduce this risk in future. The Group has a policy of regularly maintaining its facilities. Intermediate products could be sold in their current condition on less favorable terms. The Group has undertaken to duplicate certain equipment: a second refinery (different technology) has been commissioned and flotation sorting is under consideration. The Group has a workplace safety policy (see section 1.4.1) in order to protect its employees. None of the Group’s sites handlesmore than 10%of volumes.Moreover, volumes may bediverted tosites that are geographically close. Finally, the Group has insurance programs designed to cover the insurable financial consequences in the event of such claims, in a context in which changes in the insurance market require the Group to take on a higher share of the risk. The aeronautical industry relies on several successive checks of operations. The implementation of Derichebourg Aeronautics Services’ quality policy is verified by its customers. Furthermore, a specific insurance policy has been taken out.

Environmental Services’ largest customer represents 11% of its revenue, and the five largest represent around 28%. The financial failure, or a reduction in commercial relations with one of these customers, could affect the Group’s profits.

Multiservices’ largest customer represents 14% of this division’s revenue. A significant reduction in services provided could affect the Group’s profits.

Operating risks

Prolonged unavailability of industrial equipment without back-up: certain sorting or refining equipment is located at only one Group site. Its prolonged unavailability could significantly affect the Group’s business.

Major accident at a recycling center (explosion, fire, physical injury, etc.) or a natural disaster (earthquake, flood, etc.) interrupting operations.

The subsidiary Derichebourg Aeronautics Services carries out the assembly or quality inspection of a large number of aircrafts. In the event of an air accident involving an aircraft on which Derichebourg Aeronautics Services has worked, it could be deemed to be liable.

DERICHEBOURG p 2019/2020 Universal Registration Document 107