LISI GROUP - 2018 Financial report

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1 I Risk management
1.1 I Following COSO guidelines
Since2004,theGrouphasbeenmappingrisksinlinewithCOSOguidelines.
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
(productionor distribution sites) theGroup 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 IClose cooperation with our 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
enhanceouractionplan.Since2002,allthesignificantsiteswereaudited
several times. On some of its sites, the Group has had to carry out
construction work or install major prevention systems to limit the
potential for incidents as much as possible. This initiative of ongoing
progress improves the Group’s prevention policy, avoids major incidents
and optimizes insurance premiums.
1.3 IDrawing up action plans
The safety/environment/prevention action plans drawn up within the
Groupensureaconsistentapproachtoriskidentification,riskprevention,
assetpreservationandcontrolofoperations.Theprogramiscoordinated
by the head company of the LISI Group in the areas of HSE, internal
controls, finance and cash flowmanagement.
2 IInformation 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;
■■other risks.
LISI isnotexposedtoanyrisk linkedtothesovereigndebtcrisis incertain
countries that display contrasting growth prospects.
2.1 IOperating risks
2.1.1 IExposure 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 system
maintenanceorrepair.However,thankstothediversityofthesesites(48),
nomorethan10%oftheLISIGroup’soverallactivitycanbeexposedgiven
thatthedispersionofthegeographicfootprintshowsthatthedestruction
of the largest site could not concern more than 10% of the Group’s total
sales revenue andmargin.
2.1.2 IAcquisitions
In order tomanage any risks related to the integration of newly-acquired
companiesandtoensurethetransferalofGroupmanagementprinciples,
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.AlltheGroup’sacquisitionsarethesubjectofan in-depthaudit
of the risk areas at the target company. Generally speaking, the Group
sets up mixed teams with internal and external experts. With the
exceptionofAnkit,thejointventurecompanyinIndia,whichis51%owned,
and a temporary situationwith Termax, which is 51%owned (purchase of
the remaining 49% scheduled for 2021), the Group holds all these units
with at least a very significant majority, and fully owns most of them.
2.2 IStrategic risks
These risks are identified asmajor 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
acorrectiveactionplanandaretreatedasaprioritybythemanagements
of the various divisions. The Group updates themonitoring of these risks
every quarter.
2.3 IEnvironmental risks
Theseare identifiedandrankedbypriorityaspartoftheCorporateSocial
Responsibility approach, which is covered in detail in Chapter 6 of this
document. It is also subject to a regular monitoring action plan or
processing.