Risk factors
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LISI 2014FINANCIALREPORT
Thecompanyhas carriedouta reviewof thepotential riskswhichcould
have an unfavorable effect on its business, its financial situation or its
results (or on its capacity to achieve its objectives) and considers that
therearenosignificantrisksotherthanthosedisclosed.
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Riskmanagement
1.1
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FollowingCOSOguidelines
Since 2004, the group has been mapping risks in line with COSO
guidelines.Morerecently ithasalsobeendrawingupontheprovisionsof
ArticleL-225.37of theFrenchCommercial Codeon financial securityand
the recommendations of the French financial regulatory authority, the
AMF.Having identifiedand listed risksat the levelofeach individualunit
(production or distribution sites) the Group classifies consolidated risk
withinamatrixshowingoccurrenceprobabilityandseverity rate.Thena
"topdown"approachhelpedprioritizerisks.Eachrisk identified issubject
toanactionplanwhich isupdatedquarterly.A link isautomaticallymade
to proactive initiatives for hazard prevention, insurance, accounting
servicesorthe implementationofoperationaldecisions.
1.2
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Strengtheningcooperation
withour insurers
The consistency of the relationshipwith insurers and risk classification
hashelped tostructure theGroup'spreventionapproach.Thus,allof the
insurers' recommendations regardingdamage toproperty are included
in the Environmental Safety Improvement Plans and are subject to
periodic monitoring by the Risk Monitoring Committee. Our insurers
revisitanumberof siteseachyear, lookingbothatdamage toassetsand
environmental risks, and then present their recommendations which
enhance our actionplan. Since 2002, allmajor sites have been audited
several times. This ongoing improvement initiative is improving our
preventionpolicy and enables us tooptimize our insurance premiums.
Assuch,nomajordamagehasbeenobserved foryearsandthe lossratio
hasbeen improvingsignificantlyregardingthepropertydamagepolicy.
1.3
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Drawingupactionplans
Theactionplans for safety / environment / prevention identifiedwithin
theGroupallow forasynthesisofhazard identificationon theonehand,
thepreventiveapproachon theother, and finallyassetpreservationand
control of operationswithin theGroup. Theprogram is coordinatedby
theheadcompanyoftheLISIGroup intheareasofHSE, internalcontrols,
financeandcash flowmanagement.
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Informationon issuerrisks
InanapproachmeanttoanalyzethegeneralandspecificriskstheGroup
isexposedto, the followingcategorieshavebeen identified:
-operatingrisks,
-strategicrisks,
-environmental risks,
- legal risks,
- IT-relatedrisks,
-credit, liquidity,marketandcurrencyrisks (seenote2.4),
-otherrisks.
LISIhasnoexposureriskrelatedtothesovereigndebtcrisis insomestates
thatdisplaycontrastinggrowthprospects.
2.1
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Operatingrisks
2.1.1Exposuretorisksofnaturaldisasterorindustrialaction
Incommonwithanyothercompany,theLISIGroupcouldbedisruptedby
industrial strikeactionornaturaldisasterssuchasearthquake, flooding,
or even pandemic. Such events could negatively affect Group sales
revenue or cause a substantial increase in expenses required to cover
systemmaintenanceor repair.However, due to thediversityof its sites
(41), the LISI Group cannot be exposed tomore than 10% of its overall
activity since thedispersionof the geographic footprint shows that the
destructionofthemost importantsitecannotexceed10%oftotalGroup
salesandmargin.
2.1.2Acquisitions
Inorder tomanageany risks related to the integrationof newly-acquired
companiesandtoensurethetransferralofGroupmanagementprinciples,
the LISI Group’s policy is to acquire a total or at least strong majority
controllingstake inthecapitalofanypotentialacquisitions.Anyacquisition
or sale plans are subject to approval by the Board of Directors. All the
group’s acquisitions are the subject of an in-depthaudit of the risk areas
at the target company. TheGroup generally sets upmixed teams, using
internal and external experts. With the exception of a joint venture in
India "Ankit", theGroupholdsall theseunitswithat leastaverysignificant
majorityandmostofthemat100%.
2.2
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Strategicrisks
These risks are identified as major risks likely to compromise durably
the completion of the strategic plan as described in paragraph 1.1.
All identified risks which are classified in the "HIGH RISK" category of
occurrencearethesubjectof insurancecoverage (cf.paragraph3.)orofa
correctiveactionplanandare treatedasapriorityby themanagements
ofthevariousdivisions.
