APC 2011 Annual Report Download - page 39

372011 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC
DESCRIPTION OFTHEGROUP, ANDITSSTRATEGY, MARKETS ANDBUSINESSES
1
RISK FACTORS
The Group may be exposed to the risk of claims for breaches of
environmental laws and regulations. Such claims could adversely
affect the Group’s fi nancial position and reputation, despite
the efforts and investments made to comply at all times with all
applicable environmental laws and regulations.
If the Group fails to conduct its businesses in full compliance with
the applicable environmental laws and regulations, the judicial
or regulatory authorities could require the Group to conduct
investigations and/or implement costly clean-up measures to deal
with the current or past contamination of current or former facilities
or off-site waste disposal facilities, and to scale back or temporarily
or permanently close facilities in accordance with the applicable
environmental laws and regulations.
Information systems risk
The Group operates, either directly or through service providers,
a wide range of highly complex information systems (servers,
networks, applications, databases, etc.) that are essential to the
effi ciency of its sales and manufacturing processes. Failure of any of
these hardware or software systems, a fulfi lment failure by a service
provider, human error or computer viruses could adversely affect
the quality of service offered by the Group.
The Group regularly examines alternative solutions to protect
against this type of risk and has developed contingency plans to
mitigate the effects of any information system failure. Dedicated
governance structures have been set up to manage relations with
service providers responsible for outsourced IT systems operations.
Problems may also be encountered during the deployment of new
applications or software. In particular, in the last few years, the
Group has developed an information system under SAP (bridge),
which it started to roll out in 2008. This roll-out process was
carried out fully or partially in 17 countries in 2009 and 2010, and
will continue in 2012 and over several more years, depending on
strategic, technical and economic priorities.
In view of the project’s complexity, extensive functionalities and its
worldwide deployment, a dedicated governance and cost control
structure has been set up to track attainment of project milestones
and limit the related risks.
However, despite the Group’s policy of establishing governance
structures and contingency plans, there can be no assurance
that information systems projects will not be subject to technical
problems or execution delays. While it is diffi cult to accurately
quantify the impact of any such problems or delays, they could
have an adverse effect on inventory levels, service quality and,
consequently, the Group’s fi nancial results.
Market risks
Interest rate risk
The Group is exposed to risks associated with the effect of changing
interest rates. Interest rate risk on borrowings is managed at
Group level, based on consolidated debt and according to market
conditions. The core aim of interest rate management policies is
to optimise overall borrowing costs. Most bond debt is fi xed rate.
AtDecember31, 2011, 81% of the Group’s gross debt was fi xed rate.
Maturities of fi nancial assets and liabilities are presented in note26.4
to the consolidated fi nancial statements.
A 1% change in interest rates would have an impact of around
EUR12million on the Group’s net fi nancial expense.
The fi nancial instruments used to hedge the exposure of the
Group to fl uctuations in interest rates are described in note 26
to the consolidated fi nancial statements for the year ended
December31,2011.
The Group’s international operations expose it
to the risk of fluctuations in foreign exchange
rates
Due to the fact that a signifi cant proportion of transactions of
Schneider Electric are denominated in currencies other than the
euro, the Group is exposed to currency risk. If the Group is not able
to hedge them, fl uctuations in exchange rates between the euro
and these currencies can have a signifi cant impact on its results
of operations and distort year-on-year performance comparisons.
The Group actively manages its exposure to currency risk to reduce
the sensitivity of earnings to changes in exchange rates. Hedging
programs mainly concern foreign currency receivables, payables
and operating cash fl ows, which are generally hedged by means of
forward purchases and sales.
Depending on market conditions, risks in the main currencies may
be hedged based on cash fl ow forecasting using contracts that
expire in 12months or less.
The Group’s currency hedging policy is to protect subsidiaries against
risks on all transactions denominated in a currency other than their
functional currency. More than twenty currencies are involved, with