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Risks and control Risk factors

RISK FACTORS 1. The Saint-Gobain Group conducts its affairs in a constantly evolving environment. It is therefore exposed to risks, the occurrence of which could have a material adverse effect on its businesses, financial position, results and outlook. This chapter presents the significant risks to which the Group believes it is exposed, as of the date of this Registration Document. However, there are other risks which may exist or arise, of which the Group is not aware as of the date of this Registration Document, or the occurrence of which has not been considered as of that date as being likely to have a material adverse effect on the Group, its businesses, financial position, results and outlook.

1.1

Risks associated with the Group and

its operations

Risks associated with economic 1.1.1 cycles Most of the Group’s markets are cyclical in nature. A significant portion of revenues depends on the level of investment in the construction market, which generally closely follows the cyclicity of economic trends. Consequently, the Group’s results are sensitive to the macroeconomic conditions of the geographic zones, both at regional and local levels, where the Group is active. Further deterioration in the global economic environment and in financial markets conditions could have a material adverse effect on the Group’s sales, results, cash flow and outlook. Risks associated with the Group’s 1.1.2 international operations The Group is active worldwide, including outside Western Europe and North America. Specifically, it is active in Eastern Europe, Asia, the Middle East and emerging countries, particularly Brazil. In certain countries located in these regions, there is greater economic and political instability, as well as greater exposure to social disruption and infrastructure malfunctions than in the more mature markets. Thus, the direct and indirect consequences of political instability, or of an unstable economic or regulatory environment in which the Group operates, in a country in which the Group is active or markets its products, could have a material adverse impact on investment levels in that country’s construction sector, and consequently on the Group’s businesses, financial position, results or outlook. Moreover, legal or regulatory changes (involving, among other things, taxation, restrictions on capital transfers, customs duties, intellectual property and import and export licenses, the employment system or health, safety or the environment) could significantly increase the Group’s costs in the various countries in which it is active, or limit its ability to freely transfer its capital, and consequently have a material adverse impact on its businesses, financial position, results and outlook.

Risks associated with innovation 1.1.3 and the digital revolution The Group has made research and innovation the focus of its strategy, in order to remain competitive and maintain a high level of financial and non-financial performance and operational excellence. The emergence of new technologies, new products and new communication and distribution channels is driving rapid change in some of the Group’s markets. The Group has to keep pace with these changes at all times and integrate these new technologies into its product offerings, in order to respond effectively to customers’ needs. This innovation policy requires significant spending on research and development, computer network infrastructure and logistics, with no guaranteed impacts. The Group’s sales, operating margins and results could be affected if it fails to invest in appropriate technologies or to rapidly bring new products to market, or if competing products are introduced or the Group’s new products do not adequately address customer needs. Intellectual property risk 1.1.4 Development of the Group’s business relies on protecting its manufacturing secrets, patents, trademarks and models and other intellectual property rights. If the Group was unable to obtain, protect and preserve its intellectual property rights, this could result in the loss of its exclusive right to use technologies and processes, with a material adverse effect on results. Since the Group’s activities are, in part, in countries where the protection of intellectual property rights is not as developed as in Western Europe or North America, the Group cannot guarantee the level of protection that will be accorded to its portfolio of patents and brands, and must address risks of counterfeiting of its products, and the appropriation or illicit use of its intellectual property rights.

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