LEGRAND / 2018 Registration document

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MANAGEMENT REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2018

OPERATING INCOME

R 5.3.2.3 COST OF SALES Cost of sales consists primarily of the following:

5.3.2.2.3 Disposals during the current period Where companies are disposed of during the current period, the net sales of the company sold are reflected in the consolidated statement of income for only the portion of the current period prior to the date of disposal and deconsolidation. The calculation of the change in consolidated net sales at constant scope of consolidation does not take into account the sales of the divested company during the period of the previous year corresponding to the period of the current year after disposal. 5.3.2.2.4 Disposals during a prior period Where companies were disposed of during the prior period, the net sales of the company sold are not reflected in the consolidated statement of income for the current period. The calculation of the change in consolidated net sales at constant scope of consolidation does not take into account sales of the divested company in the prior period. 5.3.2.2.5 Activity suspended during the current period Where activities are suspended during the current period, the net sales of the activity suspended are reflected in the consolidated statement of income only for the period up to suspension. The calculation of the change in consolidated net sales at constant scope of consolidation does not take into account the sales of the activity suspended during the period of the previous year corresponding to the period of the current year after suspension. 5.3.2.2.6 Activity suspended during a prior period Where activities were suspended during the prior period, the net sales of the activity suspended are not reflected in the consolidated statement of income for the current period. The calculation of the change in consolidated net sales at constant scope of consolidation does not take into account sales of the activity suspended in the prior period. 5.3.2.2.7 Using constant exchange rates Consolidated historical net sales include the effects of exchange- rate differences between the euro and other currencies. To analyze the variation of consolidated net sales excluding the effects of these exchange-rate changes, Legrand uses constant exchange rates (calculated by adjusting net sales reported for a given financial year using the exchange rates for the prior financial year).

Cost of raw materials and components . The cost of raw materials and components accounted for, on average, approximately 68% of consolidated cost of sales over the last two financial years. Likewise, on average approximately 71% of this cost relates to components and approximately 29% relates to raw materials. The breakdown between raw materials, components and semi-finished products varies according to product mix, trends in market prices and choices for industrial organization, in particular with the implementation of good practices (“Legrand Way”). Legrand purchases some of its raw materials and components locally. However, Company policy is to increase the percentage of raw materials and components purchased by the Group on world markets in order to benefit from economies of scale. The cost of raw materials and components may also fluctuate with macro- economic trends. Production costs . In general, these costs change on an aggregate basis in proportion to fluctuations in production volumes; they rise due to inflation and decline as a result of productivity initiatives and economies of scale associated with the increase in production volumes. Items included in production costs are: W payroll costs; W depreciation of fixed assets; W subcontracted added value; and W other general manufacturing expenses, such as expenses linked to energy consumption. The main factors that influence cost of sales, in particular as a percentage of net sales, include: W trends in net sales; W production volumes, insofar as the Company achieves economies of scale through higher production volumes, thereby spreading fixed production costs over a larger number of units produced; W the mix of products sold, insofar as consumption and production costs vary depending on the cost of raw materials and other components needed to manufacture a given product; W changes in the prices of raw materials, components and semi- finished goods due to local or global economic conditions and changes in customs duties;

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LEGRAND

REGISTRATION DOCUMENT 2018