LEGRAND / 2018 Registration document

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

YEAR-ON-YEAR COMPARISON: 2018 AND 2017

5.4.8 – Net financial expenses

Finance expenses stood at €79.1 million in 2018 compared with €92.1 million in 2017. Financial income came to €12.0 million in 2018 compared with €13.7 million in 2017. Net financial expenses decreased 14.4% in 2018 from the same period of 2017, accounting for 1.1% of net sales compared with 1.4% in 2017.

Net financial expenses principally correspond to financial expenses related to Yankee bonds; the 2011, 2012, 2015, 2017 and 2018 bond issues; the 2011 credit facility amended in July 2014; and other bank borrowings (for a description of these arrangements, see paragraph 5 of this chapter), less financial income arising from the investment of cash and cash equivalents.

5.4.9 – Exchange gains and losses

Exchange gains amounted to €2.2 million in 2018 compared with €8.3 million losses in the same period of 2017.

Exchange gains and losses correspond mainly to translation differences recognized on settlement of foreign currency transactions, as well as the translation impact at the closing exchange rate of monetary assets and liabilities denominated in foreign currencies.

5

5.4.10 –Income tax expense

In 2018 Legrand’s pre-tax income amounted to €1,074.1 million up from €938.9 million in 2017. Consolidated income tax expense amounted to €301.3 million in 2018 compared with €224.2 million and €309.7 million in 2017

once adjusted for the net favorable effect of non-recurring gains and expenses (1) . These net favorable effects were adjusted as they did not reflect an underlying performance.

In 2017, the net favorable effect of non-recurring gains and expenses amounting to €85.5 million was detailed as follows:

12 months ended

December 31, 2018

December 31, 2017

(in € millions)

Tax income linked to mechanical revaluation of deferred tax liabilities on trademarks resulting from the announcement of reductions in corporate income tax rates, primarily in France Tax income resulting from refund of tax on dividends paid since 2013, net of the exceptional corporate income tax paid by companies in France in 2017 Net tax income linked to changes in corporate taxation in the United States, mainly accounting impacts due to mechanical revaluation of deferred tax assets and liabilities

0.0

26.4

0.0

18.3

0.0

40.8

TOTAL ADJUSTMENTS

0.0

85.5

2018 representing a five-point decrease linked for around three points linked to the announced (2) effect of the reduction in corporate tax in the United States, and around two points due to favorable one-off factors.

2018 income tax expense decreased by €8.4 million compared with 2017 income tax expenses once adjusted for the net favorable effect of non-recurring and significant 2017 gains and expenses. This reflects a rise in the Group’s pre-tax income and a decrease in its effective tax rate from 33% in 2017, once adjusted, to 28% in

(1) For more details on 2017 significant non-recurring corporate taxation gains and expenses, readers are invited to consult pages 14, 15 and 20 of the press release issued February 8, 2018. (2) For more information on tax reductions in the United States announced in 2017, and their expected impacts on Legrand’s accounts, readers are invited to refer to pages 14 and 15 of the press release announcing full-year 2017 results, published February 8, 2018

169

LEGRAND

REGISTRATION DOCUMENT 2018