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1 Overview of the Group’s strategy, markets and businesses Organizational simplicity and efficiency

Management of risks in relation to climate change

7.3

The Sustainable Development Department is in charge of implementing the Group’s strategy in relation to all the components of sustainable development. Climate change represents altogether a risk and an opportunity for Schneider Electric’s business. The

processes aiming at identifying and assessing the risks related to climate change, as well as the diagnosis and the action plan towards reduction of emissions are described in section 3.3 of chapter 2 (page 98).

7.4 Information systems risks The Group operates, either directly or through service providers, a wide range of highly complex information systems, including servers, networks, applications and databases, on premise and in the cloud, that are essential to the efficiency of our sales and manufacturing processes as well as platforms to enable Digital Offers such as EcoStruxure™. Failure of any of these hardware or software systems, a fulfilment failure by a service provider, human error or computer viruses could adversely affect the quality of service offered by the Group. The Group regularly examines alternative solutions to protect against this type of risk and has developed contingency plans, and incident response capabilities to mitigate the effects of any information system failure. Dedicated governance structures have been set up to manage relations with service providers responsible for outsourced IT systems operations. Problems may also be encountered during the deployment of new applications or software. In the last few years, the Group has developed ERPs systems under SAP, which it started to roll out in 2008. This roll-out process has been carried out fully or partially in several countries since 2008, and was deployed in France during 2017, with the United States planned to conclude in 2019. Interest rate risk The Group is exposed to risks associated with the effect of changing interest rates in different countries. Interest rate risk on borrowings is managed at the Group level, based on consolidated debt and taking into consideration market conditions in order to optimize overall borrowing costs. Most bond debt is fixed rate. At December 31, 2017, 88% of the Group’s gross debt was fixed rate. Maturities of financial liabilities are presented in note 24.1 to the consolidated financial statements. A 1% increase in interest rates would have a positive impact of around EUR21 million on the Group’s net financial expense. The financial instruments used to hedge the exposure of the Group to fluctuations in interest rates are described in note 26 to the consolidated financial statements for the year ended December 31, 2017. 7.5 Market risks

In addition to the deployment of ERP systems, the Group is deploying various applications aimed at enhancing commercial experience, employee effectiveness and supply chain efficiency as well as enabling digital commercial offers such as EcoStruxure™. All applications are subject to certification testing attempting to remove system vulnerabilities. These systems are housed either in on-premise data centers managed by our service providers or are cloud-based applications. In view of these projects’ complexity, extensive functionalities and their worldwide deployment, the Group has set up dedicated governance and cost control structures to manage these issues and limit the related risks. Risk mitigation strategies are continuously improved including monitoring of legislative changes across country borders to maintain compliance with digital asset requirements. However, despite the Group’s policy of establishing governance structures and contingency plans, there can be no assurance that information systems projects will not be subject to technical problems and/or execution delays. While it is difficult to accurately quantify the impact of any such problems or delays, they could have an adverse effect on inventory levels, service quality and, consequently, on our financial results. Exposure to currency exchange risk The Group’s international operations expose it to the risk of fluctuation of exchange rates. If the Group is not able to hedge these risks, fluctuations in exchange rates between the euro and these currencies can have a significant impact on our results and distort year-on-year performance comparisons. We manage our exposure to currency risk to reduce the sensitivity of earnings to changes in exchange rates through hedging programs relating to receivables, payables and cash flows, which are primarily hedged by means of forward purchases and sales.

2017 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC

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