APC 2015 Annual Report Download - page 44

2015 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC42
OVERVIEW OF THE GROUP’S STRATEGY, MARKETS AND BUSINESSES
1RISK FACTORS
In line with the Group’s overall policy of conservatively managing
liquidity risk and protecting our fi nancial position, when negotiating
new liquidity facilities the Group avoids the inclusion of clauses that
would have the effect of restricting the availability of credit lines,
such as covenants requiring compliance with certain fi nancial ratios.
As of December31, 2015, Schneider Electric SE had no fi nancing
or confi rmed lines of credit that were subject to covenants requiring
compliance with fi nancial ratios.
The loan agreements or lines of credit for some of our liquidity
facilities include cross-default clauses. If we were to default on any
of our liquidity facilities, we could be required to repay the sums due
on some of these facilities.
Moreover, anticipated reimbursement provisions exist for certain
fi nancing and lines of credit in case of change of control. Under
these provisions, the debt holders may demand repayment if
a shareholder or shareholders acting together hold more than
50% of the company’s shares, for the majority of contracts, and
this event triggers a downgrading of the company’s rating. As of
December31, 2015, EUR5.5 billion of the Group’s fi nancing and
lines of credit had these types of provisions.
7.5 Legal risks
Our products are subject to varying national
and international standards and regulations
Our products, which are sold in national markets worldwide, are
subject to regulations in each of those markets, as well as to various
supranational regulations (sales restrictions, customs tariffs, tax
laws, security standards,etc.). Changes to any of these regulations
or standards or their applicability to the Group’s business could lead
to lower sales or increased operating costs, which would result in
lower earnings and profi tability.
Our products are also subject to multiple quality and safety
controls and regulations, and are governed by both national and
supranational standards. The majority of our products comply with
world-recognized International Electrotechnical Commission (IEC)
standards as well as with the applicable rules in the European
Union, and in particular the REACh and RoHs rules. Any necessary
capital investments or costs of specifi c measures for compliance
with new or more stringent standards and regulations could have a
negative impact on Group operations.
In addition, in the majority of the markets on which its products
are sold, Schneider Electric is subject to national and supranational
regulations governing competition. If the Group is implicated in
these areas, this could have a signifi cant impact on the Group’s
businesses, results and fi nancial position. However, to mitigate
these risks, the Group completed its «Principles of Responsibility»
by implementing a global competition law policy that has been
widely rolled out within the Group, together with a training program
set up by the Legal Affairs Department.
Risks related to products sold
In addition, in case of malfunction or failure of one of its products,
systems or solutions, Schneider Electric could incur liability arising
from any resulting tangible or intangible damages, or personal
injury. Similarly, the Group could incur liability based on errors in the
design of a product, system or solution or because of a malfunction
related to the interface with other products or systems. The failure
of a product, system or solution may involve costs related to the
product recall, result in new expenditures for development, and
launch technical and economic resources. Such costs could have a
signifi cant impact on the profi tability and cash and cash equivalents
of the Group. The business reputation of Schneider Electric could
also be negatively impacted.
To prevent these risks, Schneider Electric has implemented quality
procedures at the level of design, development and production of
its produvcts, systems and solutions. In case of product returns, the
type and source of the failures are analyzed and corrective actions
are implemented. The Group has also put in place insurance
coverage to cover its civil liability and the risk of product recalls (see
section1.7 Risk factors on Insurance policy).
The development and success of the
Group’sproducts depends on its ability
toprotect its intellectual property rights
The future success of Schneider Electric depends to a signifi cant
extent on the development and protection of patents, knowledge
and trademarks («intellectual property rights»). Third parties may
also infringe its intellectual property rights, and the Group may
have to expend signifi cant resources monitoring, protecting and
enforcing its rights. If we fail to protect or enforce our intellectual
property rights, our competitive position could suffer, which could
have a material adverse effect on our business. In addition, the
unauthorized use of intellectual property rights remains diffi cult to
control, particularly in foreign countries whose laws do not always
effectively ensure the protection of these rights. They could be
counterfeited or used without the consent of Schneider Electric,
which could have a material adverse effect on our reputation and
operating profi t.
To mitigate this risk, the patents developed or purchased by the
Group are tracked by the Industrial Property team within the
Finance and Control - Legal Affairs Department. All intellectual
property queries are centralized and managed by this team for the
whole Group and in coordination with the other Finance- Control
- Legal Affairs Departments it ensures that the Group’s interests
are defended throughout the world. The same approach and
organization applies for the Group’s brands portfolio.