LEGRAND / 2018 Registration document

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

R 3.6.4.2 RELIABILITY OF ACCOUNTS AND INTERNAL CONTROLWEAKNESSES Legrand’s international presence, its ongoing expansion and the diversity of its businesses result in many complex administrative, financial and operational processes. Its entities have varying levels of maturity in terms of internal control, operate in a variety of legal environments, and use different information systems. In this context, a flaw in the internal control system could make internal or external fraud (theft, embezzlement, etc.) possible and/or result in the recording of inaccurate and/or inappropriate transactions or operations. Weakness in internal controls could also mean that corruption is not detected or prevented. More generally, the Group’s performance may be limited by inefficient processes. In a bid to prevent a major failure in internal control, Legrand has defined a corpus of mandatory charters, rules, procedures and key controls that apply to all its subsidiaries. These rules and procedures are regularly updated to keep pace with changes in Legrand’s business, organization, processes and tools. The Company’s fundamental principles also include an ethics component, the requirements of which are impressed on all members of staff. The correct operation of the internal control system is assessed each year using a self-assessment process (see section 3.2.1 of this registration document), as well as through regular reviews and audits. Legrand makes every effort to include automated controls and audit tools in IT systems to optimize internal control within processes. The correct use of these tools is checked regularly by general or specialist internal auditors. Legrand has implemented a systematic procedure for reporting fraud to the Internal Control Department so that the necessary remedial action can be taken. In the event of fraud, a detailed form specifying the circumstances and amounts at stake must be forwarded to the Group’s internal control management, which is in charge of validating the proposed action plans. All instances of fraud are reported to the Audit Committee. R 3.6.4.3 FOREIGN CURRENCY RISKS The Group operates internationally and is therefore exposed to currency risk arising from the use of several currencies. The Group therefore has certain assets, liabilities, revenues and costs denominated in currencies other than the euro. Those other currencies include the US dollar, Indian rupee, Chinese yuan, Brazilian real, Russian ruble, Australian dollar, British pound, Mexican peso, Turkish lira and Polish zloty. The preparation of the Group’s consolidated financial statements, which are denominated in euros, requires the conversion of these assets, liabilities, revenues and costs into euros at the applicable exchange rate. Consequently, fluctuations in the euro’s exchange rate against these other currencies could affect the amount of these items in

the Group’s consolidated financial statements, even if their value remains unchanged in their original currency. These translations have resulted in the past, and could result in the future, in material changes in the Group’s results, the value of the assets and liabilities on its balance sheet and its cash flows, from one period to another. Moreover, to the extent that the Group may incur expenses that are not denominated in the same currency as that in which the corresponding sales are made, exchange-rate fluctuations could cause the Group’s expenses to increase as a percentage of sales, thus affecting its profitability and cash flows. However, where possible and when justified economically, the Group seeks to balance its revenues and costs in each currency, which gives a certain degree of protection. With regard to the balance sheet, natural hedges are preferred, for example by seeking a balance, when justified, between the proportion of net debt or debt servicing costs in a given currency, and operating income or cash generation in the same currency. Only sufficiently large intragroup balance-sheet positions are hedged. Details regarding exchange-rate risk are discussed in note 5.1.2.2 to the consolidated financial statements in Chapter 8 of this registration document. R 3.6.4.4 COUNTRY RISK Legrand operates in almost 90 countries. Changes in the local or wider political, social or economic climate, and in the sectors and countries where the Group operates, could affect the Group’s business activity or resources. Country risk could affect the Group in several ways, causing a significant fall in business levels in a given country, making it impossible to repatriate business revenue and, in the most serious cases of political, social or economic crisis, creating risks for employees and the Group’s physical assets. Firstly, Legrand’s operations are spread across the world’s major markets, which limits the impact of any economic downturn in specific geographic regions. The overall balanced distribution of business between the commercial, residential and industrial construction sectors, and between new construction and renovation, limits these risks. In order to adapt to these risks as swiftly as possible, the Group continuously monitors changes in the overall situation of the regions concerned. Each month, it performs an in-depth review of the sales and profitability of all its businesses, in consultation with local managers, so that it can react immediately if a risk occurs. Finally, the Group’s assets are covered by a variety of insurance arrangements, including credit, property/casualty and business interruption insurance. Medical assistance and security arrangements also ensure a rapid response to protect and assist Group employees.

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REGISTRATION DOCUMENT 2018