LEGRAND_REGISTRATION_DOCUMENT_2017

03

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

third parties. If this were to happen, Legrand could be subject to claims for damages and might be prevented from using the disputed intellectual property rights. To minimize this risk, Legrand pays particular attention to managing its intellectual property, and relies on a dedicated team at its Innovation and Systems Division. This team is in charge of monitoring patents, designs, trademarks and domain names, and for tackling counterfeiting. It also takes joint action with other major market players within professional organizations such as Gimélec, IGNES, and ASEC. It draws on input from intellectual property representatives in each of the Group’s SBUs in France and in key foreign subsidiaries. The primary role of these representatives is to bring to the Group’s attention the position of the SBUs in all strategic decisions relating to intellectual property, such as filing and extending rights and waiver of title. Finally, Legrand also uses external consulting firms to assist it in drafting its patents or to deal with certain in defense of its rights, working in close collaboration with the Group’s Legal Department and its legal team. A net total of €1,892.0 million in trademarks and patents was recognized in assets at December 31, 2017, compared with €1,722.6 million at December 31, 2016. The Group’s strategy for tackling counterfeiting is described at section 4.2.1.2 in the Chapter concerning the CSR roadmap.

to confirm its advantages and to set the terms and conditions for its completion. The acquired company is then integrated into the Group’s financial reporting system, and, in broader terms, anchored in the Group in accordance with dedicated processes overseen by a multidisciplinary steering committee chaired by senior management. An initial internal audit is conducted as part of this integration process within around 12 months of the acquisition to establish the action plans required to ensure that the acquiree’s processes comply with Group standards. The first consolidation of these acquisitions may result in booking significant goodwill and brands values in the assets. This could lead to a risk of impairment in the event of a significant decline in performance of these companies. This financial risk is described in section 4.6.4.8 of this chapter. R 3.6.1.5 INTELLECTUAL PROPERTY The Group’s future success depends in part on the development and protection of its intellectual property rights, particularly the Legrand and Bticino brands. Legrand could also incur significant expenses for monitoring, protecting and enforcing its rights. If Legrand were to fail to adequately protect or enforce its intellectual property rights, its competitive position could suffer, which could have an adverse effect on its business, results and financial position. Furthermore, in spite of the precautions taken, Legrand cannot fully guarantee that its activities will not infringe the rights of R 3.6.2.1 SUPPLIER DEFAULT AND SUSTAINABLE PRACTICES The Group’s suppliers and subcontractors are a vital link the value chain and, as such, represent a significant risk factor: W the financial or operational failure of one or more suppliers, without an alternative solution, could pose a major risk to business continuity. W Moreover, the Group’s reputation could also be tarnished through a supplier’s poor practices in terms of environmental safeguarding, business ethics, compliance with labor laws or human rights and fundamental freedoms. Globally, the geographic spread of supplies (by origin: France 14.1%, Italy 14.6%, Rest of Europe 14.1%, North and Central America 22.5%, Rest of the World 34.7%) is not seen as a major risk factor (country or geopolitical risk) for the Group. 3.6.2 – Operational risks

An analysis of purchases shows that the risk of dependence on suppliers is limited; indeed, purchases from Legrand’s ten largest suppliers accounted for about 6% of the total value of purchases in 2017 (virtually unchanged from 2015), with no single supplier reaching the 1% threshold. The Purchasing Department has introduced a systematic policy for supplier certification and approval that includes operational risk and CSR (corporate social responsibility) risk. In addition, to reassess the risks regularly, an annual supplier risk analysis is carried out covering, among other things, the risks of interdependence, suppliers’ financial strength, and CSR-related criteria. Suppliers presenting significant risks for the Group are identified, and are the subject of dedicated action plans (more stringent contracts, back-up inventories, alternative suppliers, CSR improvement plan, etc.).

50

REGISTRATION DOCUMENT 2017 - LEGRAND