2007 reference document - Legrand

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3 20 RISK FACTORS Readers should consider carefully the risk factors described in this chapter and all other information in this reference document. At the date of this reference document, the risks described below are those identifi ed by the Company which could have an adverse effect on the Group’s situation. Additional risks, which are not currently known or which are not potentially deemed, as of the date of this reference document, to materially adversely affect the Group’s business, fi nancial condition or results of operations, may exist. The price of shares could decline due to any of these risks, and, as a result, investors could lose part or all of their investment. Adverse economic conditions affecting the building sector might adversely affect Legrand. The Group’s business could be affected by the impact that changes in general and local economic conditions have on the building sector. The sale of the Group’s products is determined principally by the demand for such products from electrical professionals and building contractors, which in turn is primarily a function of the level of activity in the renovation and new construction sectors for residential, commercial and industrial buildings. To differing degrees, the level of activity in these sectors is sensitive to changes in general and local economic conditions. The impact of these changes may vary in time and signifi cance across the markets and geographic zones in which Legrand operates. The Group’s profi tability is sensitive to downturns in sales volumes due to its fi xed cost base (even though the variable portion of overall costs has continuously increased). As is customary in its sector, Legrand does not have a backlog of customer orders which would help it accurately predict future demand for the Group’s products. Consequently, generalized or localized economic downturns in the countries in which Legrand markets its products could have an adverse effect on its business, fi nancial condition, results of operations or cash fl ows. Unfavorable foreign currency exchange rate fl uctuations and interest rate fl uctuations could adversely affect Legrand. Exchange rates The Group has foreign currency denominated assets, liabilities, revenues and costs. The preparation of the Group’s consolidated fi nancial statements, which are denominated in euros, requires the conversion of those assets, liabilities, revenues and costs into euros at the then applicable exchange rates. Consequently, variations in the exchange rate of the euro versus these other currencies could affect the amount of these items in the Group’s consolidated fi nancial statements, even if their value remains unchanged in their original currency. These translations in the past have resulted and in the future could result in signifi cant changes to the Group’s results of operations from period to period. In addition, to the extent that the Group incurs expenses that are not denominated in the same currency as that in which REFERENCE DOCUMENT 2007 - legrand < Contents > corresponding sales are made, exchange rate fl uctuations could cause the Group’s expenses to increase as a percentage of net sales, affecting its profi tability and cash fl ows. Whenever the Group believes it appropriate, it seeks to achieve natural hedges by matching costs to operating revenues in each of the major currencies in which it operates. The Group believes that such hedging is facilitated by the selling of products in the country where they are manufactured. However, these measures may not be suffi cient to systematically protect the Group against the consequences of a signifi cant fl uctuation in exchange rates on the Group’s results of operations and cash fl ows. The most signifi cant currency used by the Group other than the euro is the US dollar. As of December 31, 2007, the Group’s noncurrent debt denominated in US dollar amounts to €505.5 million (see note 15 to the consolidated fi nancial statements). The Group estimates that, all other things being equal, a further 10% increase in the exchange rate of the euro against all other currencies in 2007 (see section 7.10.1.1 of this reference document) would have resulted in a decrease in the Group’s net sales of approximately €148 million and a decrease in the Group’s operating income of approximately €20 million for the year ended December 31, 2007. This sensitivity analysis was conducted based on the fl ows during the year ended December 31, 2007. Interest rates The Group is exposed to risks associated with the effect of variations in interest rates (see section 7.10.1.2 of this reference document). The Group manages this risk by using a combination of fi xed and variable rate debt and through interest rate hedging arrangements. At December 31, 2007, the Group’s gross fi nancial debt was comprised of approximately €263.8 million of fi xed rate debt and €1,755.3 million of fl oating rate debt, of which €1,475.2 million was subject to hedges capping interest rates (see note 24 b to the fi nancial statements). The use of derivative instruments includes the risk that counterparties will default on their obligations and terminate hedging agreements. In addition, the Group might be required to post cash-collateral in a restricted or pledged account equal to the level of the Group’s commitments in order to cover liabilities arising from interest rate or to pay costs, such as transaction fees or brokerage commissions, in the event the hedging arrangements are terminated. The swap agreements entered into between Legrand France and credit institutions provide that the swap counterparty may require Legrand France to post collateral into a pledged or restricted account equal to its net liability determined on a marked-tomarket basis pursuant to the provisions of the relevant hedging agreement. Based on the Group’s total debt outstanding as of December 31, 2007, the Group estimates that a 100 bp increase in interest rates (with regard to the Group’s fl oating rate debt) should not result in a decrease in annual net income (before taxes) of more than €13 million (see section 7.10.1.2 of this reference document). 1 2 3 4 5 6 7 8 9 10 11 12 13 CT A
RISK FACTORS The table below presents the frequency of revision of the rates applicable to the Company’s fi nancial assets and liabilities. (in € millions) < 1 year 1 to 5 years > 5 years Gross debt 1,781.5 – 237.6 Cash and marketable securities (221.3) – – Net debt 1,560.2 – 237.6 Hedging 1,475.2 – 0.0 Net position after hedging 85.0 – 237.6 Existing or future regulations and standards in the markets where the Group operates could adversely affect Legrand. The Group’s products, which are sold in almost 180 countries, are subject to numerous regulations, including trade, customs and tax regulations applicable in each of these countries and on the international level. Changes to any of these regulations and their applicability to the Group’s business could lead to lower sales or increased operating costs, and result in a decrease in its profi tability and income. For example, the application of new trade restrictions or tariffs or the modifi cation of current regulations could lead to a decline in the Group’s export sales and a resulting decrease in its net sales. In addition, the Group’s products are subject to quality and safety controls and regulations arising from national and international standards, such as European Union directives, and product norms and standards adopted by international organizations such as the European Committee for Electrotechnical Standardization and the International Electrotechnical Commission. These quality and safety standards may change or may be applied more stringently, and could therefore require the Group to make capital expenditures or implement other measures to ensure compliance with any such new or more stringent standards. The Group cannot reliably estimate the timing and amount of potential future expenditures related to complying with any of these regulations or standards, in particular because of the diffi culty in anticipating future regulations in countries where Legrand currently has a signifi cant presence and in assessing the impact of regulations in countries in which it presently does not yet have material operations. The Group cannot, however, give assurance that it has been or will be at all times in compliance with such standards and regulations, that it will not incur material costs or liabilities in order to ensure compliance with such regulations in the future or that it will be able to fund any such potential future liabilities. In order to follow regulatory developments, the Group has established a compliance department which is in charge of managing related risks. < Contents > The Group may not be able to protect its intellectual property rights against competitors, which could adversely affect the development and success of its products. The Group’s future success depends to an extent on the development and protection of its intellectual property rights, particularly its Legrand and Bticino brands. Third parties have infringed the Group’s intellectual property rights in the past and may infringe them in the future. The Group may expend signifi cant resources monitoring, protecting and enforcing its rights. If the Group fails to adequately protect or enforce the Group’s intellectual property rights, its competitive position could suffer, which could have an adverse effect on its business, fi nancial condition, results of operations or cash fl ows. Furthermore, the Group cannot guarantee that its activities will not infringe on the proprietary rights of third parties. If the Group were to do so, it could be subject to claims for damages and could be prevented from using the contested intellectual property rights. The Group’s products could contain defects or be the cause of harm to persons and property, which could have an adverse effect on Legrand. Between 2004 and 2007, the average annual rate of returns under warranty for the Group’s products was less than 1% of products. However, regardless of product testing, the Group’s products might not operate properly or might contain errors and defects, particularly upon the launch of a new range of products or enhanced products. Such errors and defects could cause injury to persons and/or damage to property and equipment. These accidents have in the past and could in the future result in product liability claims, loss of revenues, warranty claims, costs associated with product recalls, litigation, delay in market acceptance or harm to the Group’s reputation for safety and quality. In particular, an action was fi led against Pass & Seymour, one of the Group’s United States subsidiaries, claiming that one of the Group’s products, a quick release receptacle, is not fi t for use and should be withdrawn from the market (see section 11.5 of this reference document). The Group cannot guarantee that it will not face material product liability claims or product recalls in the future, or that it will be able to successfully dispose of any such claims or effect any such product recalls within acceptable costs. Moreover, a product liability claim or product recall, even if 3 REFERENCE DOCUMENT 2007 - legrand 21 1 2 3 4 5 6 7 8 9 10 11 12 13 CT A
Page 1 and 2: REFERENCE DOCUMENT 2007
Page 3 and 4: Pursuant to article 212-13 of its g
Page 5 and 6: 1 < Contents > RESPONSIBILITY FOR T
Page 7 and 8: 1.2 - STATUTORY AUDITORS 1.2.1 - Pr
Page 9 and 10: Date Title October 2007 Legrand pur
Page 11 and 12: 2 GENERAL INFORMATION ON THE GROUP
Page 13 and 14: 2.2.3 - Attractive market GENERAL I
Page 15 and 16: ■ 2.3.3.3 - RIGOROUS TARGET SELEC
Page 17 and 18: Contents > GENERAL INFORMATION ON T
Page 19 and 20: GENERAL INFORMATION ON THE GROUP Su
Page 21: 3 RISK FACTORS < Contents > REFEREN
Page 25 and 26: knowledge of their national markets
Page 27 and 28: The Group is subject to stringent l
Page 29 and 30: 4 INFORMATION ABOUT THE GROUP < Con
Page 31 and 32: 4.1.6 - Important events in the dev
Page 33 and 34: 4.3 - ORGANIZATIONAL STRUCTURE The
Page 35 and 36: ■ ORTRONICS INC. (UNITED STATES)
Page 37 and 38: 5 THE GROUP’S BUSINESS < Contents
Page 39 and 40: Initial public offering In April 20
Page 41 and 42: 5.1.3 - Competitors Legrand has est
Page 43 and 44: Group’s share capital, and, as a
Page 45 and 46: past fi ve years. Legrand believes
Page 47 and 48: in which it operates) are equipped
Page 49 and 50: them to access comfort, security an
Page 51 and 52: 5.2.4 - Distribution, customers and
Page 53 and 54: In addition to pulling its products
Page 55 and 56: Site or Subsidiary Spain Legrand Es
Page 57 and 58: 6 < Contents > SUSTAINABLE DEVELOPM
Page 59 and 60: 6.2 - 2007 RESULTS AND COMMITMENTS
Page 61 and 62: ■ use (maintenance and energy con
Page 63 and 64: Worldwide - by professional categor
Page 65 and 66: 7 < Contents > MANAGEMENT REPORT ON
Page 67 and 68: 7.3 - OPERATING PROFITS 7.3.1 - Int
Page 69 and 70: ■ 7.3.2.3 - ADMINISTRATIVE AND SE
Page 71 and 72: ■ MANAGEMENT REPORT ON THE CONSOL
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MANAGEMENT REPORT ON THE CONSOLIDAT
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It was partially offset by: ■ ■
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■ 7.4.2.9 - FOREIGN EXCHANGE GAIN
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Net cash used in fi nancing activit
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7.9 - VARIATIONS IN EXCHANGE RATES
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■ 7.10.1.2 - INTEREST-RATE RISK I
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8 CORPORATE GOVERNANCE < Contents >
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CORPORATE GOVERNANCE Administration
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Edward A. Gilhuly Age 48 250 Univer
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Thierry de La Tour d’Artaise Age
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8.2 - REMUNERATION AND BENEFITS 8.2
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The table below shows a breakdown o
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■ ■ ■ supervision of the qual
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The Chairman of each committee esta
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■ ■ ■ Directors have a duty o
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At Board meetings, these committees
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December 2007, more than 90% of the
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CORPORATE GOVERNANCE Report of the
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9 EMPLOYEES < Contents > EMPLOYEES
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EMPLOYEES Options for subscription
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For details relating to Legrand Fra
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EMPLOYEES Profi t sharing, employee
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10 SHAREHOLDERS < Contents > SHAREH
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company of Legrand France since the
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10.2.2 - Corporate Governance The m
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11 < Contents > FINANCIAL INFORMATI
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■ FINANCIAL INFORMATION CONCERNIN
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FINANCIAL INFORMATION CONCERNING TH
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) Interest rate risk FINANCIAL INFO
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12 months ended December 31, 2006 (
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Contents > FINANCIAL INFORMATION CO
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■ II - JUSTIFICATION OF OUR ASSES
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Dividends distributed for the 2004,
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12 ADDITIONAL INFORMATION < Content
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12.1.2 - Acquisition by the Company
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ADDITIONAL INFORMATION Articles of
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■ 12.2.2.3 - COMMITTEES The Board
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ADDITIONAL INFORMATION Articles of
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13 MATERIAL AGREEMENTS < Contents >
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CONCORDANCE TABLES < Contents > CON
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CONCORDANCE TABLE S Concordance tab
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CONCORDANCE TABLE S Concordance tab
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A APPENDIX < Contents > APPENDIX 1
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Assets - Net APPENDIX 1 (in € tho
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Subsequent events None. Summary of
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a) Shares in subsidiaries and affi
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) Additional paid-in capital, reser
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2.7 Provisions (in € thousands) A
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Other information 4.1 Income tax a)
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APPENDIX 2 APPENDIX 2 Management Re
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Sales growth at constant scope and
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to €5.60 for those granted in 200
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Post-restricted period If at any ti
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Appendix 2 to the Management Report
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APPENDIX 2 Company Position ROCOM E
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Mandates held by Edward Gilhuly, Di
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Appendix 4 to the Management Report
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Use of this authorization was subje
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■ ■ company in which it has a d
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subject to the conditions that the
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until the termination of their mand
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APPENDIX 3 < Contents > Report of t
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APPENDIX 4 APPENDIX 4 Text of resol
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and chapter II of the European Comm
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Headquarter 128, avenue de Lattre d
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2007 reference document - Legrand

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