LEGRAND / 2018 Registration document

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INTERNAL CONTROL AND RISK MANAGEMENT RISK FACTORS AND CONTROL MECHANISMS IN PLACE

3.6.1 – Strategic risks

R 3.6.1.1 DISRUPTIVE TECHNOLOGYAND DIGITAL TRANSFORMATION Against the background of the digitization of the economy and the rapid development of digital solutions, the Group may: W be unable to enter new high growth markets; W be threatened in some of its traditional market segments should its products fail to meet new user expectations (connected objects, voice control, maintenance and services, solutions ensuring a constant connection with consumers, changes in utility); W be unable to deal with changes in the economic chain: new specifiers, vertical integration, e-commerce and disintermediation; W be unable to take advantage of big data processing. To address these new challenges, the following initiatives are in place: W a digital acceleration program, led by the Chief Digital Officer and steered by the executive committee, aimed at improving the customer experience, the employee experience and operational excellence through the contribution of new technology. This program has led to the launch of several initiatives that will enable the Group to limit identified risks and develop growth opportunities; W the Strategic Business Units (SBUs) analyze the Group’s products, technologies and markets on an ongoing basis; W an Innovation and Systems Department, works cross-functionally with the Group’s various Strategic Business Units (SBUs), and monitors system architectures, interoperability, technology trends, standardization and intellectual property. Using that work, Innovation and Systems Department produces Group guidance, particularly as regards innovation. The innovation program is organized around four key themes (energy efficiency, the Internet of Systems and artificial intelligence, installation trends and new technologies);

W the Eliot program is helping the Group to develop a range of connected objects; W the Group has signed multiple partnerships with major new technology players to jointly develop offerings of connected and interoperable products. For years the Group has also been a member of various technology associations and alliances; W the Group has an innovation strategy supported by research and development expenditure that represents, on average, between 4% and 5% of Group sales over the long term, while the amount spent on electronic and digital technology has been increasing for many years. R 3.6.1.2 RISKS RELATED TO PRICING POWER Legrand’s ability to adjust its selling prices to its costs could be affected by the following factors: development of new distribution channels and particularly e-commerce, rising market shares of retailer own brands, competition from inexpensive products made in low-cost countries, or competition from counterfeit products. The Group is aware of these risks and therefore engages in ongoing and sustained efforts in terms of market intelligence, brand positioning, active management of the product mix, research and development, marketing and the development of new distribution channels, in order to increase the added value of its products and the attractiveness of its offering while keeping a tight rein on costs and maintaining or growing its market share (see section 2.2.2.1 of this registration document). To monitor any deviation, the Group analyses the impact of prices on its sales and operating margin every month. Inflation figures are also produced by each country and analyzed. Pricing teams exist within regions to define multi-channel pricing strategies. Furthermore, the Group’s new business activities, developments in which are being driven by social and technological mega-trends, also limit this risk (see section 2.1.1.2).

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LEGRAND

REGISTRATION DOCUMENT 2018