RISK FACTORS AND INTERNAL CONTROL section 5.2 “Consolidated Financial Statements” of 2.1.4 Market risks this Registration document). As at December 31, 2017, the Rexel Group was in 2.1.4.1 Risks relating to changes in prices compliance with al l of its financial commitments of certain raw materials under these securitization programs. COPPER If Rexel Group companies do not comply with their obligations as established by the credit institutions Risk or the investors, such programs could be terminated. In connection with the distribution of cable Furthermore, the qual ity of the receivables products, which account for approximately 13% of assigned has an impact on the cost and amount its sales, the Rexel Group is exposed to fluctuations of the financing obtained, which could affect the in cable prices. As copper accounts for 60% of the Rexel Group’s financial condition if the quality of composition of cables, cable prices change in the receivables deteriorates. In addition, the Rexel accordance with copper prices. These changes Group’s receivables are transferred to special are not, however, solely and directly l inked to purpose entities that are financed through the copper price fluctuations to the extent that the issuance of short-term debt instruments subscribed cable prices paid by the Rexel Group also depend by investors. In exceptional circumstances, the Rexel on suppl iers’ situation and commercial pol icies, Group cannot guarantee that the special purpose the competitive environment of the Rexel Group entities could continue to issue such instruments, or and exchange rates. The Rexel Group’s exposure to do so under similar terms. In such circumstances, to copper price variations is therefore indirect, and the Rexel Group may be forced to refinance al l or the Rexel Group is unable to provide a relevant part of the programs affected by such events under sensitivity analysis in connection with copper- less favorable terms. based cable price variations. The securitization programs are a material source of The Rexel Group bel ieves that a decrease in financing of the Rexel Group. In the cases described copper-based cable prices would have the in the paragraph above, Rexelcannot provide fol lowing effects: assurances that the Rexel Group may refinance itself under similar terms, if at all. Refinancing under less •A negative recurring impact linked to a decrease favorable terms may have a material adverse effect in sales, insofar as the Rexel Group passes on most on the financial condition or results of operations of of the price decreases in the purchase prices of the Rexel Group. these cables through lower sales prices; and •A negative non-recurring impact on gross margin Management of risk corresponding to the impact of copper-based The Finance-Treasury department conducts a cable price decreases between the time they monthly fol low-up of the contractual obligations were purchased and the time they were sold, until to be compl ied with. For pan-European plans, a complete turnover of inventory. simulation of the various ratios’ sensitivity to the An increase in copper-based cable prices would evolution of sales forecasts (which determines the have the reverse effects of those described above. amount of liabilities) and the evolution of certain parts of the aged trial balance is carried out on The recurring effect in relation to the price variation a monthly basis by the Rexel Group’s Finance- of copper-based cables reflects the price impact Treasury department with the help of the financial linked to the change in value of the copper part management of the relevant countries. For the other included in the sel l ing price of cables from one programs, subject to lower risk, a monthly review of period to another. This effect mainly relates to sales the ratios is carried out. and margin. The accounting treatment of the securitization The non-recurring effect in relation to the price programs is described in note 22.1.3 of the Notes to variation of copper-based cables reflects the effect the Rexel Group’s consolidated financial statements of copper price variations on the sel ling prices of for the year ended December 31, 2017, which are cables between the moment they are purchased set out in section 5.2 “Consol idated Financial and the time they are sold, until al l such inventory is Statements” of this Registration document. sold (direct effect on gross profit). In practice, the REXEL 2017 – REGISTRATION DOCUMENT 44