APC 2012 Annual Report Download - page 38

2012 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC36
OVERVIEW OF THEGROUP’S STRATEGY, MARKETS AND BUSINESSES
1RISK FACTORS
cases where they were committed in the past by companies or
businesses that were not part of the Group at the time.
Schneider Electric may also be exposed to the risk of claims for
breaches of environmental laws and regulations. Such claims
could adversely affect Schneider Electric’s fi nancial position and
reputation, despite the efforts and investments made to comply at
all times with all applicable environmental laws and regulations as
they change.
If Schneider Electric fails to conduct its operations in compliance
with the applicable environmental laws and regulations, the judicial
or regulatory authorities could require us to conduct investigations
and/or implement costly clean-up measures to deal with the current
or past contamination of current or former production 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, including
servers, networks, applications and databases, that are essential to
the effi ciency of our sales and manufacturing processes. Failure of
any of these hardware or software systems, a fulfi llment 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 has
continued in France and the United States since2011, depending
on the strategic, technical and economic priorities in those two
countries. Brazil will be added to this list of countries in2013 .
In view of the project’s complexity, extensive functionalities and
its worldwide deployment, the Group has set up a dedicated
governance and cost control structure to manage these issues 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 and/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, on our 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 the Group
level, based on consolidated debt and taking into consideration
market conditions in order to optimize overall borrowing costs.
Most bond debt is fi xed rate. At December31,2012, 86% 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% increase in interest rates would have a positive impact of
around EUR26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,2012.
The Group’s international operations expose it
to currency exchange risk
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 these risks, fl uctuations in exchange rates between
the euro and these currencies can have a signifi cant impact on our
results and distort year-on-year performance comparisons.