LISI GROUP - 2017 Financial report

LISI 2017 FINANCIAL REPORT

RISK FACTORS

RISK MANAGEMENT

1.1

FOLLOWING COSO GUIDELINES

Since 2004, the Group has been mapping 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 market authority,

the AMF. Having identified and listed risks at the level of each individual

unit (production or distribution sites) the Group consolidated all of the

risks to which it is exposed in a matrix showing occurrence probability

and severity rate. A “top down” approach is then used to prioritize risks.

A periodically reviewed action plan is set up for each substantial risk

identified and, where needed or at the same time, a proactive preventive

approach, insurance, accounting provision or an operating decision.

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 the significant sites

were audited several times. This ongoing improvement initiative

is improving our prevention policy and enables us to optimize our

insurance premiums. As such, no major damage has been observed for

years and the loss ratio has been improving significantly regarding the

property damage policy.

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 flowmanagement.

INFORMATION ON ISSUER RISKS

In an approachmeant to analyze the general and specific risks the Group

is exposed to, the following categories have been identified:

■■

operating risks;

■■

strategic risks;

■■

environmental risks;

■■

legal risks;

■■

IT-related risks;

■■

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

■■

other risks.

LISI is not exposed to any risk linked to the sovereign debt crisis in

certain countries that display contrasting growth prospects.

2.1

OPERATING RISKS

2.1.1 Exposure to risks of natural disaster or industrial action

Like any other 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

systemmaintenance or repair. However, thanks to the diversity of these

sites (47), no more than 10% of the LISI Group’s overall activity can be

exposed given that the dispersion of the geographic footprint shows

that the destruction of the largest site could not concernmore than 10%

of the Group’s total sales revenue 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

substantial acquisition or sale plan is 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. Generally speaking, the

Group sets up mixed teams with internal and external experts. With the

exception of “Ankit”, a joint venture partner in India, the Group has a very

large majority holding in all these units and 100% in the majority.

2.2

STRATEGIC RISKS

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

occurrence are the subject of insurance coverage (cf. paragraph 3)

or of a corrective action plan and are treated as a priority by the

managements of the various divisions.