LEGRAND_REGISTRATION_DOCUMENT_2017

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

conditions of the debt market, compliance with legislation, regulatory changes, etc.). The Group has an investment grade rating from Standard & Poor’s (A- with a negative outlook), a testament to the strength of the Group’s business model and of its balance sheet. Furthermore, over and above pure financial and banking performance investors could decide not to invest with Legrand if the Group does not demonstrate its commitments and performance concerning societal and environmental challenges, for example concerning the greenhouse gas reduction plan. (the reader is invited to read section 3.6.3.5 on this specific risk). The Group has defined a CSR strategy and set out its commitments in a CSR roadmap. The annual progress of this roadmap is presented in the Registration Document (see sections 4.1.1.4 and 4.1.2.2, below). The debt repayment schedule is regularlymonitored (by extending its term by re-financings and by early repayment of maturities in volatile market conditions) or by Headroom (immediately available financing). The total amount of net financial debt (€2,219.5 million as of December 31, 2017) is fully funded by credit facilities maturing at the earliest in 2018 and at the latest in 2032. The average life of gross debt is more than 6 years. At that same date, the available credit lines (€900 million), net of short-term marketable securities (€120 million), amounted to €780 million. There are no covenants associated with the credit lines. However, Legrand could be obliged to devote a significant part of its cash flow to the payment of the principal and interest on its debt, and this could consequently reduce the funds available to finance its daily operations, investments, acquisitions or the payment of dividends. However, the Group has a structurally high level of free cash flow, amounting to €695.8 million in 2017. At December 31, 2017, its cash and cash equivalents stood at €823.0 million. R 3.6.4.4 INTEREST RATE RISK The Group is exposed to the risk of interest rate rises (see note 5.1.2.1 to the consolidated financial statements in chapter 8 of this Registration Document). The Group manages this risk by using a combination of fixed and floating rate debt and through interest rate hedging arrangements, if necessary. Contracts for swaps entered into between Legrand and financial institutions could provide that the swap counterparty require

Legrand has implemented a systematic procedure for reporting fraud to the Internal Control Department so that the necessary corrective action can be taken. In the event of fraud, it is mandatory that a detailed form specifying the circumstances and amounts at stake be forwarded to the Group’s internal control management, for validation of the proposed action plans. If this occurs, the Audit Committee is informed. R 3.6.4.2 COUNTERPARTY RISK The Group’s exposure to financial counterparty risk is related to its cash surpluses, existing in the form of cash, bank deposits, short-term investments and hedging instruments set up by the Group. Cash and cash equivalents stood at €823 million at December 31, 2017. The Group seeks to place these assets with solid counterparties, regularly monitoring their external rating and objective market data, such as credit default swaps. The Group also selects leading insurance companies so as to restrict its counterparty risk (see Note 3.7 of the notes to consolidated financial statements). Additionally, the Group could find itself unable to repatriate funds blocked in countries that limit or suspend foreign exchange, or that prevent the repatriation of foreign capital. In general and except in specific situations, the Group incorporates the bank accounts of its subsidiaries in a cash poolingmechanism, allowing cash to be repatriated to the Group automatically and daily. In countries where this mechanism cannot be set up, the Group endeavors to limit cash amounts to the extent possible. In addition to centralized day-to-day cash management, cash held by subsidiaries whose bank accounts cannot be linked to the cash pooling mechanism is monitored twice a month by the Group’s Treasury Department. R 3.6.4.3 FINANCING AND LIQUIDITY RISK The banking and financial indebtedness of the Group is described in section 5.5.2 of the management report, as well as in note 4.6 to the consolidated financial statements in chapter 8 of this Registration Document. Legrand considers that the management of liquidity risk depends primarily on having access to diversified sources of financing across a wide range of maturities. This item represents the basis of the Group’s financing policy. Although the Group has, in the past, demonstrated its capacity to generate significant levels of free cash flow enabling it to finance its growth, its capacity to comply with the covenants contained in some loan agreements and to refinance or repay its borrowings in the manner provided for therein, will depend on its future operating performance and could be affected by other factors (economic environment,

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REGISTRATION DOCUMENT 2017 - LEGRAND