LEGRAND_REGISTRATION_DOCUMENT_2017

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

continue the development of its products, or implement its strategy. The Group’s internal and external development is also partly dependant on its ability to hire, train, motivate, promote and retain new talent in all regions in which it operates. Legrand has developed a Human Resources policy to attract, retain and develop the expertise, talents and skills required for the conduct of its business worldwide. The human resources function is present in all countries with a subsidiary or an office, depending on the size; it is present on site, or if not, then at regional level. In particular, Legrand has rolled out programs to motivate and retain its key staff (see section 2.2.3.3. of this Registration Document), and makes skills and talent management one of the priorities of the Group’s CSR roadmap. Detailed information can be found in section 4.4.3.1. of this Registration Document. The main mechanisms are training, annual performance reviews (the CAPP - Competency Appraisal Performance & Perspective - process), the talent management process (identification, succession plan, mobility committees) and manager retention schemes. Moreover, the Group carried out several major initiatives in 2017, including a highly selective corporate training program, a mobility platform to encourage international transfers, and strong local development policies (Mexico, USA) to strengthen the employer brand and retain key talent. To anticipate and control potential risks, the Group has introduced monthly reports which enable the preparation of consolidated quantitative and qualitative data with a broad scope (almost 90% of the workforce). The results are presented to the Group’s Human Resources Department on a regular basis. It includes labor risks and the related trend analysis, as well as the results of the employee retention strategy. The employee-related indicators summarized in section 4.6.2 of this Registration Document are consolidated in an annual HR report. Notification systems are also in place to alert the Group if key talent leaves. Internal communication, too, is important in motivating staff and creating a sense of belonging, by providing regular information on the Group’s strategy and objectives. A range of media are used, all conveying the Group’s core values embodied in the Charter of Fundamental Principles: W onboarding seminars (“Welcome Days” for new hires) to share the Group’s vision, strategy, culture and values; W information resources, such as the Group intranet “Dialeg” and local Dialeg intranets, or the online magazine.

Finally, to ensure that suppliers observe the Group’s commitments in terms of CSR,theGroupPurchasingDepartment has established a supplier audit methodology for categories of purchases that are at risk or in sensitive regions. In 2017 and to calibrate its CSR audit methodology, Legrand commissioned seven benchmarking audits from an external organization. Details can be found in section 4.3.2 of this Registration Document, “Ensuring responsible purchasing”. Finally, Legrand has “Responsible Supplier Relations” accreditation, awarded to French companies demonstrating sustainable and balanced relations with their suppliers. This accreditation is granted for a three year period and is part of the ongoing application of the Responsible Supplier Relations Charter. Legrand’s accreditation was renewed in 2015 following an audit by an accreditation-approved firm, ASEA. R 3.6.2.2 COST OF RAWMATERIALS AND COMPONENTS Legrand is exposed to the risk of an increase in the price of raw materials, primarily metals, plastics, packaging materials and components. Legrand may not immediately or in the long term be able to pass on increases in costs of raw materials and components through price increases on its products. The Group’s costs could therefore increase without an equivalent growth in sales, directly impacting the Group’s operating margin. The price of components and raw materials are analyzed on an ongoing basis, with a job function dedicated to analyzing the centralized purchasing performance. This performance is tracked by special committees. Purchase price effects are reported monthly by producing entities and shared with sales entities so that selling prices may be adjusted if necessary. The sensitivity analysis on the price of raw materials, carried out regularly, is discussed in chapter 8, Note 5.1.2.3. NB: no specific financial hedging instrument for raw materials risk was used in 2017. R 3.6.2.3 TALENT AND SKILLS In general, Legrand’s key employees are long-standing employees of the Group. They have built up excellent knowledge of Legrand and its activities and of the entire sector in general. The loss of any one of these key employees could constitute a loss of know-how, or product or market expertise, and could result in Legrand’s competitors possibly being able to obtain sensitive information. The loss of key employees could also adversely affect the Group’s ability to retain its most important distributors,

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REGISTRATION DOCUMENT 2017 - LEGRAND