64 2016 ANNUAL REPORT 2016 ANNUAL REPORT 65

GOVERNANCE AND RESULTSGOVERNANCE AND RESULTS

Risk of major damage to the Group s reputation The Group s reputation and its image may at any time be damaged by unfavorable events harming our product notoriety, or by the uncontrolled dissemination (via the media and social networks) of harmful information relating to our activities, production facilities, products or their composition and to our management.

To cope with this risk, the Group has developed crisis man- agement arrangements designed to prevent situations of crisis and mitigate their impacts.

Risk of price volatility for raw materials In all the markets where it operates, the Group is confronted with increasing price volatility, for milk and industrial prod- ucts, which has become more acute in Europe since 2007 and taken a new turn for the worse in 2015 with the suppression of milk market regulation. In the event of a steep rise in mar- ket prices, the Group might not be able to raise its prices to distributors in the same proportion and in accordance with the same timing, thereby inducing a risk for the level of its financial results.

Faced with this risk, the Group is able to rely, on the one hand, on a unique portfolio of international and local brands recognized in their markets, and on its two complementary and countercyclical Cheese Product and Other Dairy Product business segments, and on the other hand, on the long-term partnerships with its milk producers.

Risk of a major incident at a strategic site Certain specialties or strategic ingredients are manufactured or transit via a limited number of sites or even a single site. The occurrence of an incident resulting in the total or partial destruction of one such site might have a material impact on the production and commercialization of the products concerned.

For many years, the Group has pursued a program of securing its sites, and preventing fire risks, with the help of its insurers and sets improvement objectives for its main industrial sites designed to reduce the occurrence of such risks. The Group also continues to engage in Business Continuity Planning for the event of any major incident. The Group has also always, traditionally, practiced a prudent policy of protection of its assets and insurance cover for major risks such as damage to assets, loss of profits and civil liability.

Personal safety risk The health and safety of the men and women who work for the Group are a priority. In order constantly to improve safety at work, the Group has deployed an international program of mobilization, training and management known as Safety is OUR business! It includes a guide destined for all production units; poster displays of the program s 10 golden rules ensure comprehensive dissemination of the goals of prevention. The program s Behavioral Safety Visits are a key feature of the program, raising awareness and commitment on the part of all the persons concerned: general management, line managers and operatives. A program designed to enhance the safety of travelling personnel has also been developed.

Financial risk Market risk

The Group is exposed to short-term financial risks such as the risk of changes in interest or foreign exchange rates, or in the purchase prices for raw materials, which may have an unfavorable impact on the Group s sales and financial results. The Group s policy consists in monitoring and managing the associated exposures centrally and only using derivative financial instruments for the purpose of economic hedging. Market transactions are subject to strict procedures. Foreign currency risk is also limited by the Group s strategy aimed at producing and commercializing most of its specialties on a local basis.

Investment risk The Group is exposed to counterparty risk, in particular with regard to its banking partners, in the framework of its financial management. The Group s banking policy is designed to reduce its risks by diversifying its counterparties, giving preference to the quality of their credit and liquidity, and applying financial limits for any one counterparty.

Financing risk The Group has had occasion in recent years to increase its debt via short and long-term financing. The Group s financing policy consists in centralizing and diversifying its financing sources and ensuring its compliance with the associated covenants.

Climate risk In the short term, the Group has not identified any significant financial risks associated with the impacts of climate change. The risks associated with climate change are limited given the geographical location of our subsidiaries. To date, those sites having nevertheless identified potential risks have pre- pared for their occurrence by developing business continuity plans and performing specific surveys.

With the aim of progressive reduction of its greenhouse gas emissions, SAVENCIA Fromage & Dairy sets priorities for its reduction of energy consumption and takes care to ensure that new equipment installed has a lower level of emissions.

Risk of loss of customers The concentration of hypermarket and supermarket chains, the Group s foremost customers, increases the risk of delist- ing given that sales are progressively made to a smaller num- ber of customers.

To guard against this risk, the Group stresses the strength of its brands, the quality of its services to customers and the profitability accruing to its customers by means of the Group s policy of regular innovation.

INTERNAL CONTROL AND RISK MANAGEMENT GENERAL REMARKS SAVENCIA SA s internal control procedures are designed in particular to ensure that the accounting and financial infor- mation communicated to its corporate governance bodies provides a true and fair view of the financial performance and financial position of the companies comprising the Group. They are also intended to provide control over the operating processes deployed in the Group s various operating entities.

Internal controls are implemented by each Group entity and by Group general management, with support from the Board of Directors and its Audit and Risks Committee, with the purpose (in conjunction with the Group s risk mapping) of ensuring that:

The laws and regulations applying in each of the countries in which the Group operates, and the Group s operating policies, are duly complied with;

Its assets are safeguarded; The accounting and financial information communicated to its corporate governance bodies provides a true and fair view of the financial performance and financial position of the companies comprising the Group and complies with all the applicable laws and regulations.

The internal control procedures are equally designed to pre- vent and detect error and fraud.

As with any system, they cannot provide absolute assurance as to the complete identification and control of all risks.

The Group s Enterprise Risk Management at all levels of the Group, based on its risk mapping, aims to control the Group s operating, financial, strategic etc. risks whilst optimizing:

Means of prevention; Means of reducing or covering risks (e.g. via insurance); The acceptance of certain risks.

RISK MAPPING The Group possesses a description of its risks prepared in liai- son with general management. The description is designed to identify the main risks to which the Group is exposed and to develop measures designed to reduce, so far as possible, their impact and occurrence. Deployment of our enterprise risk management approach to the Group s main operating subsid- iaries is in progress in order to improve the Group s knowledge of the risks with which it is confronted.

Risk-mapping includes the following phases: Identification of risks: a risk is the possibility of occur- rence of an event the consequences of which would be liable to affect people, assets, the environment, the Group s objectives or its reputation;

Evaluation of the level of severity of risks: risks are assessed in terms of their probability of occurrence and impact; Analysis of the level of control over risks: this involves examining the existing measures of prevention and pro- tection and, in consequence, the level of control over potential exposures.

The main risks identified at the level of the Group are as follows:

Risk of failure to comply with regulatory requirements The Group s activities are subject to multiple laws and reg- ulations, fluctuating and ever more demanding, with regard to food safety, consumer protection, nutrition, the environ- ment or competition law.

The Group strives to ensure compliance with all the appli- cable legal and regulatory requirements of the countries in which it operates and engages the measures it deems appropriate for that purpose. In addition to permanent monitoring of regulatory developments, it thus for exam- ple develops awareness-raising campaigns directed at the employee populations concerned and engages in appropri- ate training initiatives.

Product risk Consumer confidence in the Group s brands reposes on raw materials and products of irreproachable quality, so the Group is particularly attentive to its products food safety. The risk of contamination is mainly related to microbiological causes, but also includes potential chemical contaminants, allergens or foreign bodies at all stages of product elaboration from the collection of milk, or purchase of other raw materials, through manufacturing to storage and distribution.

The Group s quality assurance policy covers raw material pur- chase processes, production and distribution. It is in line with the most severe international protocols for food safety diagno- sis and control and is continuously updated in particular for new businesses such as infantile nutrition or parapharmaceuticals.