LISI GROUP - 2015 Financial report

RISK FACTORS

LISI 2015 FINANCIAL REPORT

The Company has carried out a review of the potential risks

which could have an unfavorable effect on its business, its

financial situation or its results (or on its capacity to achieve

its objectives) and considers that there are no significant risks

other than those disclosed.

RISK MANAGEMENT

1.1

FOLLOWING COSO GUIDELINES

Since 2004, the Group has beenmapping risks in line with COSO

guidelines. More recently it has also been drawing upon the

provisions of Article L. 225-37 of the French Commercial Code

on financial security and the recommendations of the French

financial regulatory authority, the AMF. Having identified

and listed risks at the level of each individual unit (production

or distribution sites) the Group classifies consolidated risk

within a matrix showing occurrence probability and severity

rate. Then a "top down" approach helped prioritize risks. Each

risk identified is subject to an action plan which is updated

quarterly. A link is automatically made to proactive initiatives

for hazard prevention, insurance, accounting services or the

implementation of operational decisions.

1.2

CLOSE COOPERATION WITH INSURERS

The consistency of the relationship with insurers and risk

classification has helped to structure the Group's prevention

approach. Thus, all of the insurers' recommendations regarding

damage to property are included in the Environmental Safety

Improvement Plans and are subject to periodic monitoring

by the Risk Monitoring Committee. Our insurers revisit a

number of sites each year, looking both at damage to assets and

environmental risks, and then present their recommendations

which enhance our action plan. Since 2002, all major sites,

as well as new sites, have been audited several times. This

ongoing improvement initiative is improving our prevention

policy and enables us to optimize our insurance premiums. As

such, nomajor damage has been observed for years and the loss

ratio has been improving significantly regarding the property

damage policy.

All relations with insurers are centralized at Group level,

thereby providing a satisfactory coverage level.

1.3

DRAWING UP ACTION PLANS

The action plans for safety/environment/prevention identified

within the Group allow for a synthesis of hazard identification

on the one hand, the preventive approach on the other, and

finally asset preservation and control of operations within the

Group. The program is coordinated by the head company of the

LISI Group in the areas of HSE, internal controls, finance and

cash flow management.

INFORMATION ON ISSUER RISKS

In an approach meant to analyze the general and specific risks

the Group is exposed to, the following categories have been

identified:

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operating risks;

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strategic risks;

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environmental risks;

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legal risks;

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IT-related risks;

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credit, liquidity, market and currency risks (see note 2.4);

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other risks.

LISI is not exposed to any liquidity risk, including in countries

that display contrasting growth prospects.

2.1

OPERATING RISKS

2.1.1 Exposure to risks of natural disaster or industrial

action

In common with any other manufacturing company, the

LISI Group could be disrupted by industrial strike action or

natural disasters such as earthquakes, flooding, or even

pandemics. Such events could negatively affect Group sales

revenue or cause a substantial increase in expenses required

to cover system maintenance or repair. The LISI Group cannot

be exposed to more than 10% of its overall activity since

the dispersion of the geographic footprint shows that the

destruction of the most important site cannot exceed 10% of

total Group sales and margin.

2.1.2 Acquisitions

In order to manage any risks related to the integration of

newly-acquired companies and to ensure the transferal of

Group management principles, the LISI Group’s policy is to

acquire a total or at least strong majority controlling stake in

the capital of any potential acquisitions. Any acquisition or sale

plans are subject to approval by the Board of Directors. All the

Group’s acquisitions are the subject of an in-depth audit of the

risk areas at the target company. The Group generally sets up

mixed teams, using internal and external experts. With the

exception of the "Ankit" joint venture in India, which should

become majority-owned in 2016, the Group holds all these

units with at least a very significant majority and most of them

at 100%.

Note that the joint ventures with Poly-Shape and with SNECMA

in Poland are majority-owned by the LISI Group.