The Group is subject to a large number of regulations at the local, European and international levels in relation to its purchasing activities.
Non-compliance with these requirements would entail legal and fi nancial risks and in some cases restrictions on access to public sector contracts. Saft therefore takes particular care in ensuring it complies with these regulations.
Risk management
In order to mitigate these risks, the Group’s buyers are regularly informed of changes in the legal and regulatory framework in which they operate. Moreover, compliance with certain legislation is subject to specifi c monitoring, for example, the European regulation on chemical substances, “REACH” programme (Registration, Evaluation, Authorisation and Restriction of Chemicals).
Supplier risks
Types of risks
As with any manufacturing company, Saft is exposed to a risk related to the quality and durability of its raw materials and components supplies. Like any company that manufactures high technology products, Saft regularly uses a number of suppliers of specialised products. If one or more of these suppliers were to fail, it could have a signifi cant impact on the Group’s business and fi nancial performance.
Risk management
In order to limit these risks, each unit has supplier risk evaluation procedures in place, at least annually, as does the management of the Group’s Purchasing Department. In addition, progress plans and specifi c action plans are regularly drawn up and implemented according to the risk levels identifi ed.
2.2.5
RISKS OF INTERNAL CONTROL
FAILURE AND RISKS OF FRAUD
Types of risksSaft’s international profi le means that its administrative, fi nancial and operational processes are managed in various legal and regulatory environments, with varying degrees of Internal Control and risk management sensitivity from one entity to another. Moreover, they may be managed with diff erent information systems.
In this context, Saft cannot rule out a failure of Internal Control or an instance of fraud that could have a signifi cant fi nancial impact and/or harm the Group’s reputation.
Risk management
In order to mitigate these risks, Saft has set up a review process of its Internal Control, based on a set of rules and procedures that it has circulated to all its subsidiaries. In addition, regular audits of diff erent Group sites or audits of processes are carried out according to a programme established and approved annually by General Management and the Audit Committee. Lastly, Saft has implemented a number of initiatives to raise the awareness of employees of risks relating to fraud, corruption or non-compliance with the Group’s rules of ethics.
The process of evaluating risks is described in greater detail in the report prepared by the Chairman of the Supervisory Board, presented hereafter in section 4 of this annual report.
2.2.6
RISKS LINKED TO INFORMATION
SYSTEMS
Types of risksDaily management activities include purchasing, production and distribution, billing operations, reporting and consolidation as well as exchange and access to internal information. It is based on a proper functioning of technical infrastructure and applications. The risk of failure or shutdown of systems and the risk of cybercrime or industrial espionage can not be ruled out, which could lead to signifi cant fi nancial impact and/or damage the image of the Group.
Risk management
To minimize the impact of these risks, the Direction of Information Systems of Saft Group has established strict rules on data backup, protection and access to confi dential data, security of materials and applications. In addition, the Group has implemented and released an IT charter that defi nes best practices and responsibilities to contribute to IT security.
RISK FACTORS
2
Credit and counterparty risks
2.3 CREDIT AND COUNTERPARTY RISKS
2.4 LIQUIDITY RISK
2.5 MARKET RISKS
2.3.1 CREDIT RISKS
Types of risks
Credit risk is the risk that a debtor does not settle a debt in due time. Because of the nature of the Group’s business, trade receivables constitute the main source of credit risk to which the Group is exposed.
Risk management
Information on exposure to credit risk and its management is provided in note 3 of the Consolidated Financial Statements.
2.3.2 COUNTERPARTY RISKS
Types of risks
Counterparty risk is the inability of a counterparty to fulfi l its obligations. The Group is exposed to counterparty risks in the transactions on the fi nancial and banking markets that it uses to manage foreign exchange and interest rate risks and to manage its payment fl ows.
Risk management
Information on counterparty risk and its management is provided in note 3 of the Consolidated Financial Statements.
Types of risk
Liquidity risk relates to the risk of Saft being unable to meet its monetary needs with the fi nancial resources it generates from its business activities or those it mobilises through third parties. The Group’s main liquidity risk is linked to its borrowings.
Risk management
Information on exposure to liquidity risk and its management is provided in note 3 of the Consolidated Financial Statements. The Company has conducted a review of its liquidity risk and considers that it is able to meet its future payment terms. These are presented in note 18 of the Consolidated Financial Statements.
2.5.1
RAW MATERIAL PRICE RISKS
Types of risks
Some of the metals used by Saft in manufacturing batteries - nickel, cobalt, cadmium and silver in particular - are traded on international commodities markets. Other metals, such as lithium, are covered by international over-the-counter contracts. Raw material costs fl uctuate based on supply and demand, or according to fi nancial market forecasts, and cannot therefore be controlled by the Group. These fl uctuations may result in considerable variations in production costs and could therefore have a signifi cant impact on the Group’s profi tability.
Risk management
Quantitative information on exposure to raw material price risk and its management is provided in note 3 of the Consolidated Financial Statements.
2.5.2
FOREIGN EXCHANGE RISKS
Types of risks
Given the Group’s international presence, it is exposed to fl uctuations in exchange rates:
Q in relation to its operational activities, both industrial and
commercial;
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2
Contractual and legal risksQ during the euro conversion process of the accounts of its
subsidiaries denominated in foreign currencies.
The Group’s exposure to foreign exchange risk is mainly related to fl uctuations of the US dollar, Swedish krona and pound sterling against the euro, and of the shekel and the Swedish krona against the US dollar.
Risk management
Information on exposure to foreign exchange risk and its management is provided in note 3 of the Consolidated Financial Statements.
2.5.3
INTEREST RATE RISKS
Types of risks
The Group is subject to fl uctuations in interest rates, almost exclusively as a result of its long-term debt.
Risk management
Information on exposure to interest rate risk and its management is provided in note 3 of the Consolidated Financial Statements.
2.5.4
SHARE PRICE RISK
Types of risk
The Group has implemented a liquidity contract in order to improve the liquidity of Saft Groupe SA stock on the Paris stock exchange (Euronext). The Group’s exposure to equity market risks is solely linked to fl uctuations in the price of treasury shares.
Risk management
The data relating to transactions in the Company’s own shares throughout the fi nancial year, and the measures taken to manage this risk, are presented in the section 8.6 in this Registration Document.
2.6 CONTRACTUAL AND LEGAL RISKS
For all of the risks listed below, the Group Legal Department assists operational people for the negotiation and drafting of sales contracts, as well as the management of litigation. It has also set up standard contracts and documentation accessible to all subsidiaries and provided special training on major risks.
2.6.1
RISKS RELATED TO PRODUCTS SOLD
Types of risks
In selling its batteries, Saft guarantees the functioning and/ or the compliance of its products with specifi cations defi ned by its customers, for periods between one and ten years. Moreover, in the event of the failure of a battery produced by Saft to function properly, Saft could face liability for bodily injury, or for pecuniary or immaterial damage suff ered as a result. Saft could also face liability resulting from a design error of a complex battery or of the failure to function properly due to the interface with other systems. The failure of a battery to function properly could involve costs linked to the return of products by customers, require new development investment and monopolise technical and economic resources. Any such costs could have a signifi cant impact on the Group’s profi tability and cash fl ow. Saft’s commercial reputation could also be damaged, leading to a loss of certain customers and a signifi cant reduction of its consolidated revenue.
Risk management
In order to prevent such risks, Saft has implemented quality procedures in production and subjects its manufactured products to functional tests. In the case of returned products, the nature and the origin of failures are analysed and corrective actions are implemented.
The Group has put in place insurance policies, in particular to cover its civil liability and the risk of product returns. The Group’s insurance policies in place are analysed in section 2.8 hereinafter.
Finally, Saft accounts for provisions for guarantees calculated on the basis of historical statistics. These provisions are detailed in notes 2.22 and 21 to the Consolidated Financial Statements.
2.6.2
RISKS RELATED TO EXPORT CONTROL
Types of risks
Exports represent a signifi cant portion of Saft’s business, and mainly involve batteries produced for sensitive sectors such as space or defence.
The export of these batteries from the countries in which they are manufactured may be restricted or subject to the granting of licences. This applies to the Group’s exports from
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2
Risks related to the impact of the Group’s business on the environment, human health and safety
the USA, the UK, France, Israel and Germany. In addition, the geopolitical context leads States to adopt measures to restrict or ban exports of certain critical or strategic products for the defence. These measures may concern Saft batteries. There is no guarantee that the export restrictions will not become stricter, which could reduce Saft’s ability to fulfi l contracts and could have a negative eff ect on its revenue, fi nancial position and profi tability.
Risk management
In order to limit the risks of sanction from the States having taken measures to restrict exports, Saft provides legal oversight on regulations on export controls and ensures the compliance of its operations to its legal obligations.