LEGRAND_REGISTRATION_DOCUMENT_2017

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

Therefore,Legrandmayhaveasignificantopenbalanceonitstrade receivables, which exposes it to the risk of customer insolvency or bankruptcy. Trade receivables stood at €624.9 million at end December 2017. (Note 3.5 to the consolidated financial statements gives detailed information about this). Furthermore, Legrand’s global presence means that the Group operates in regions where credit risk is higher than in the Group’s historical markets. Consequently, Legrand imposes strict monitoring of its trade accounts receivable. Credit limits are set for each customer, debt collection is closely monitored, with systematic reminders when payment deadlines are missed, and the balance of outstanding trade receivables is monitored carefully at each of Legrand’s product distribution subsidiaries. The Group’s Finance Department reviews specific indicators monthly using reporting and analysis tools. These indicators are part of the elements considered to be key to assessing the commercial performance of Legrand’s subsidiaries and the individual performance of their respective management teams. When the situation warrants, the Group is organized to use credit risk insurance (insurance program with a world-class player) or factoring. R 3.6.4.7 LITIGATION RISK The Group could be faced with legal proceedings related to specific laws or regulations, or to non-compliance with contractual commitments, which could have a significant impact on its reputation, financial position or cash flow. W The major risks related to laws and regulations are dealt with in section 3.6.3 “Reputational and compliance risks”. W Risks related to non-fulfilment of contractual commitments could generate legal expenses and penalties. To ensure that material legal proceedings are dealt with at the highest level, a joint review procedure exists between the Legal Department and Group Management Control for major litigation. The Group considers that no litigation currently in process, either individually or in aggregate, should have a material adverse impact on its business, results or financial position (see section 8.5 “Legal Proceedings and Arbitration” of this Registration Document). There are no other governmental, legal or arbitration proceedings, or pending or threatened litigation of which the Company is aware, that could have or have had a material impact on the financial position of the Company and/or Group in the past 12 months.

Legrand to deposit, into a pledged or blocked account, a sum in collateral equal to its net liability determined on a market basis, pursuant to the provisions of the relevant financial hedging contract. At the date of filing of this Registration Document, Legrand has no outstanding interest rate swaps. R 3.6.4.5 FOREIGN CURRENCY RISK The Group operates internationally and is therefore exposed to currency risk arising from the use of several different currencies. The Group therefore has certain assets, liabilities, revenues and costs denominated in currencies other than the euro. (mainly the US dollar, Indian rupee, Chinese yuan, Brazilian real, Russian ruble, Australian dollar, British pound, Mexican peso, Turkish lira, and Polish zloty). The preparation of the Group’s consolidated financial statements, which are denominated in euros, requires the conversion of these assets, liabilities, revenues and costs into euros at the applicable exchange rate. Consequently, fluctuations in the exchange rate for the euro versus these other currencies could affect the amount of these items in the Group’s consolidated financial statements, even if their value remains unchanged in their original currency. These translations have resulted in the past, and could result in the future, in material changes in the Group’s results, in the value of the assets and liabilities on its balance sheet and of its cash flows, from one period to another. Moreover, to the extent that the Group may incur expenses that are not denominated in the same currency as that in which corresponding sales are made, exchange rate fluctuations could cause the Group’s expenses to increase as a percentage of net sales, thus affecting its profitability and cash flows. However, where possible and when justified economically, the Group seeks to balance its revenues and costs by geographic region, which gives a certain degree of protection. With regard to the balance sheet, natural hedges are preferred, for example by seeking a balance, when justified, between the allocation of net debt or debt servicing by currency, and of operating income or cash generation by currency. The details regarding the exchange rate risk are discussed in Note 5.1.2.2 to the consolidated financial statements in chapter 8 of this Registration Document. R 3.6.4.6 CUSTOMER CREDIT RISK Credit risk is the risk linked to Legrand’s outstanding trade receivables. As stated at chapter 8 in notes 2.1 and 5.1.2.4, a significant portion of Legrand’s income is from sales to its two electrical equipment distributors, which represent almost 20% of consolidated net sales. The Group considers that no other distributor accounted for more than 5% of consolidated net sales.

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REGISTRATION DOCUMENT 2017 - LEGRAND