LEGRAND / 2018 Registration document

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

R 3.6.4.8 VALUE OF BRANDS AND GOODWILL As at December 31, 2018, the Group’s intangible assets mainly included brands with an indefinite useful life (€1,820 million) and goodwill in its various geographic regions (€4,322 million). These assets may pose an impairment risk due to internal or external factors, which could have a material impact on Legrand’s financial situation and results. An annual review of the value of these intangible assets is carried out and verified by the Statutory Auditors. W As regards goodwill, the calculation assumptions used in impairment tests take into account both known and anticipated trends in sales and results for each cash generating unit (CGU) at the calculation date. Discount rates can vary from one year to another depending on market conditions (risk premiums, interest rates, etc.). W As regards brands, impairment tests are carried out on the Group’s three brands with an indefinite useful life (Legrand, Bticino and Cablofil) to compare their value in use against their carrying amount. As in previous years, Legrand recorded no impairment losses for goodwill or brands in 2018. The criteria for goodwill impairment tests are described in note 3.2 to the consolidated financial statements in chapter 8 of this registration document, which also contains a sensitivity analysis of the main criteria. Furthermore, the Statutory Auditors, in their report on the consolidated financial statements for the year ended December 31, 2018 deal, with this subject through the Key Audit Matters (KAM).

However, Legrand could be obliged to devote a significant part of its cash flow to the payment of principal and interest on its debt, and this could consequently reduce the funds available to finance its day-to-day operations, investments, acquisitions or dividend payments. However, the Group has a structurally high level of free cash flow, amounting to €746.3 million in 2018. Aside from its financial and banking performance, banks or equity investors could decide not to finance Legrand if the Group failed to demonstrate its commitments and performance concerning social and environmental issues, for example concerning the greenhouse gas reduction plan. The Group has defined a CSR strategy and set out its commitments in a CSR roadmap. Annual progress with respect to this roadmap is presented in the registration document. The Group has an investment grade credit rating from Standard & Poor’s (A- with negative outlook at the time this registration document was filed), a testament to the strength of the Group’s business model and its balance sheet. The debt repayment schedule and the Group’s financial headroom (immediately available financing) is regularly monitored, with refinancing spread out over time and debt repaid early in volatile market conditions. Net debt (€2,296 million as of December 31, 2018) consists mostly of long-term financing facilities. The average maturity of gross debt is more than six years. At December 31, 2018, there were no drawings on available credit facilities (€900 million). There are no covenants associated with those facilities. At December 31, 2018, cash and cash equivalents stood at €1,022.5 million.

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LEGRAND

REGISTRATION DOCUMENT 2018