LEGRAND_REGISTRATION_DOCUMENT_2017

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INTERNAL CONTROL AND RISK MANAGEMENT Risk factors and control mechanisms in place

Risk factors

Structural risk reduction criteria and main systems in place

Financial risks

3.6.4.

W Group internal audit team W Internal control guidelines and self-assessment system W Systematic fraud reporting

Internal control and non-compliance

3.6.4.1.

Counterparty risk

W Regular monitoring of the credit rating of the main CDS (1) counterparties

3.6.4.2.

W Regular monitoring of the debt repayment schedule W Available headroom

Financing and liquidity risk

3.6.4.3.

Interest rate risk

W Debt mostly at fixed rates

3.6.4.4.

W “Natural” hedging of currency risk W Hedging of significant intragroup foreign exchange positions

Currency risk

3.6.4.5.

W Specific reports on trade receivables W Credit risk insurance scheme

Customer credit risk

3.6.4.6.

Risks relating to litigation

W Review of material litigation

3.6.4.7.

Value of brands and goodwill

W Annual impairment tests

3.6.4.8.

(1) CDS: Credit Default Swap.

3.6.1 – Strategic risks

R 3.6.1.1 POLITICAL, SOCIAL AND ECONOMIC ENVIRONMENT The Group’s business could be affected by changes in the local or wider political, social or economic climate, and in the sectors and countries where the Group operates. Legrand’s product sales mainly depend on demand from electrical and digital installers and building firms. This in turn is primarily a function of the level of activity in the renovation and new construction sectors for residential, commercial and industrial buildings in the regions where Legrand operates. The level of activity in these sectors is, to varying degrees, sensitive to fluctuations in the local and wider political, social and economic situation. Legrand’s operations are spread across the world’s major markets, which limits the impact of an 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. Furthermore, the Group’s new business activities that are driven by social and technological mega-trends, also limit these risk (see section 2.1.1.2).

Finally, 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. R 3.6.1.2 COMPETITIVE ENVIRONMENT The market for the Group’s products is competitive in terms of pricing, of product and service quality, of development and of the period required for new product launches. Some of the Group’s local competitors, including some of those mentioned in section 2.4.4 of this Registration Document, may, because of their size, have greater financial and marketing resources than the Group. The Group’s competitors may be able to launch products with superior features or at lower prices, to integrate products and systems more efficiently, to enter into long term contracts with certain of the Group’s customers, or to acquire companies targeted for acquisition by Group. The Group could lose market share if it is not able to offer a broad product range or technology and prices which are at least comparable to those offered by its competitors, or it may not be able to take advantage of new business opportunities arising from its

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REGISTRATION DOCUMENT 2017 - LEGRAND