SAINT_GOBAIN_REGISTRATION_DOCUMENT_2017

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Risks and control Risk factors

The subsidiaries set up contracts generally through the Group’s parent company, Compagnie de Saint-Gobain, which then carries out the corresponding forex hedging transaction, or through the National Delegations’ cash pools. Failing this, contracts are taken out with one of the subsidiary’s banks. Most forward contracts have short maturities of around three months. However, forward contracts taken out to hedge firm orders may have longer terms. The Group monitors its exposure to foreign exchange risk using a monthly reporting system that captures the foreign exchange positions taken by its subsidiaries. At December 31, 2017, 98% of the Group’s foreign exchange exposure eligible for hedging was hedged. The residual net foreign exchange exposure of subsidiaries for the currencies presented below was as follows at December 31, 2017: (in million of euro equivalent) Long Short EUR 1 5 USD 13 7 Other currencies 0 4 TOTAL 14 16 The table below shows the sensitivity at December 31, 2017 of the Group’s pre-tax income to a 10% increase in the exchange rates of the following currencies to which the subsidiaries are exposed after hedging: Currency of exposure (in million of euro equivalent) Impact on pre-tax income EUR (0.4) USD 0.7 Other currencies (0.4) TOTAL (0.1) Assuming that all other variables remained unchanged, a 10% fall in the exchange rates for these currencies at December 31, 2017 would have the opposite impact. Note 8.4 to the Consolidated Financial Statements (see Chapter 9, Section 1) provides a breakdown of foreign exchange risk hedging instruments. c. Energy and commodity risk The Group is exposed to changes in the price of the energy it consumes and the raw materials used in its activities. Its energy and commodity hedging programs may be insufficient to protect the Group against significant or unforeseen price swings that could result from the prevailing financial and economic environment. The Group may limit its exposure to energy price fluctuations by using swaps and options to hedge part of its fuel oil, natural gas and electricity purchases. The swaps and options

are mainly contracted in the functional currency of the entities concerned. Hedges of fuel oil, gas and electricity purchases are managed by a steering committee comprising members of the Group Finance Department, the Group Purchasing Department and the relevant Delegations. Hedges of energy purchases (excluding fixed-price purchases negotiated directly with suppliers by the Purchasing Department) are generally arranged by the Group Treasury and Financing Department (or with the Delegations’ treasury departments) in accordance with instructions received from the Purchasing Department. From time to time, the Group may enter into contracts to hedge purchases of certain commodities, in accordance with the same principles as those outlined above for energy purchases. Note 8.4 to the Consolidated Financial Statements (see Chapter 9, Section 1) provides a breakdown of instruments used to hedge energy and commodity risks. Saint-Gobain share price risk 1.3.3 The Group is exposed to changes in the Saint-Gobain share price as a result of its performance unit plans. To reduce its exposure to fluctuations in the share price, the Group uses hedging instruments such as equity swaps. As a result, if the price of the Saint-Gobain share changes, any changes in the expense recorded in the income statement will be fully offset by the hedges in place. Note 8.4 to the Consolidated Financial Statements (see Chapter 9, Section 1) provides a breakdown of these share price risk hedging instruments. Financial counterparty credit risk 1.3.4 The Group is exposed to the risk of default by the financial institutions that manage its cash or other financial instruments, since such default could lead to losses for the Group. The Group limits its exposure to risk of default by its counterparties by dealing solely with reputable financial institutions and regularly monitoring their credit ratings. However, the credit quality of a financial counterparty can change rapidly, and a high credit rating cannot eliminate the risk of a rapid deterioration of its financial position. As a result, the Group’s policy in relation to the selection and monitoring of its counterparties is unable to entirely eliminate exposure to a risk of default. To limit the Group’s exposure to credit risk, the Treasury and Financing Department deals primarily with counterparties with a long-term rating of A- or above from Standard & Poor’s or A3 or above from Moody’s. Concentrations of credit risk are also closely monitored to ensure that they remain at reasonable levels, taking into account the relative CDS (Credit Default Swap) level of each counterparty.

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