LEGRAND_REGISTRATION_DOCUMENT_2017

MANAGEMENT REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2017

Year-on-year comparison: 2017 and 2016

5.4.4 – Research and development costs

12 months ended

December 31, 2017

December 31, 2016

(in € millions)

Research and development costs

(252.1)

(237.7)

Acquisition-related amortization and R&D tax credit

(7.6)

(2.8)

Amortization of capitalized development costs

29.4

27.1

R&D costs before capitalized development costs

(230.3)

(213.4)

Capitalized development costs

(33.6)

(34.6)

Research and development expenditure for the period

(263.9)

(248.0)

As shown in the table above, research and development costs totaled €252.1 million in 2017 compared with €237.7 million in 2016. Excluding the impact of the capitalization of development costs and purchase accounting charges relating to acquisitions, as well as the tax credit for research and development activities, R&D expenditure stood at €263.9 million in 2017 (4.8% of net sales), compared with €248.0 million in 2016 (4.9% of net sales). In 2017, research and development operations had close to 2,300 employees in more than 20 countries.

In accordance with IAS 38 “Intangible Assets”, the Group has implemented an internal measurement and accounting system for development costs to be recognized as intangible assets. On this basis, €33.6 million in development costs were capitalized in 2017 compared with €34.6 million in 2016. Amortization charges for capitalized development costs amounted to €29.4 million in 2017, compared to €27.1 million in 2016.

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5.4.5 – Other operating income and expenses

In 2017, other operating income and expenses totaled €104.5 million compared with €101.5 million in the same period of 2016.

5.4.6 – Operating profit

The Group consolidated operating profit edged up 9.8% to €1,025.6 million in 2017 compared with €934.0 million in 2016.

W a10.1%rise inadministrative,sellingand research&development costs; and W a €3.0 million rise in other income and operating expenses. As a percentage of net sales, operating profit stood at 18.6% both years.

This increase resulted from: W a 10.0% rise in net sales; W a 10.3% rise in cost of sales;

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REGISTRATION DOCUMENT 2017 - LEGRAND