RISK FACTORS AND INTERNAL CONTROL non-recurring effect on gross profit is determined adjusted to exclude the non-recurring effects of by comparing the historical purchase price and copper price variations. the supplier’s price effective at the date of the sale of the cables by the Rexel Group. Moreover, the OTHER RAW MATERIALS non-recurring effect on EBITA corresponds to the non-recurring effect on gross profit less, if any, the Risk non-recurring part of the change in administrative The Rexel Group is also exposed to variations in and commercial expenses (essential ly, the variable prices of other commodities which are part of part of compensation of sales forces, which the components of distributed products such as absorbs approximately 10% of the change in gross metals (steel, aluminium or nickel) or oil and its profit). derivatives (PVC, polyamide or polycarbonate). Oi lalso impacts transportation costs for Management of risk products distributed by the Rexel Group. In 2017, 2 These two effects are assessed, where possible, transportation costs accounted for 2.5% of the on al l of the cable sales of the period, with the Rexel Group’s sales. countries in this situation representing over two- Changes in prices of certain commodities may have thirds of the Rexel Group’s consol idated sales an adverse effect on the financial condition or the (excluding activities other than the distribution of results of the Rexel Group. electrical products). The Rexel Group’s internal procedures also provide that entities without Management of risk information systems al lowing them to carry out Rexel fol lows the evolution of commodity prices these calculations on an exhaustive basis must at Group level . Most of the entities of the Rexel assess these effects based on a sample representing Group have entered into transport outsourcing at least 70% of sales of the period, with the results agreements, which allow the impact of changes in being then extrapolated to all of the cable sales of oil prices to be managed. the period. Taking into account the sales covered, the Rexel Group bel ieves that the effects so 2.1.4.2 Risk relating to interest rate measured represent a reasonable estimation. The interest rate risk and the system in place to In 2017, the Rexel Group estimates that variations manage this risk are detailed in note 23.1 to the in cable prices have contributed to increase, on a Rexel Group’s consol idated financial statements recurring basis, its sales by approximately 1.4% on a for the year ended December 31, 2017 set forth in constant basis and same number of days (as defined section 5.2 “Consolidated Financial Statements” of in section 5.1 “Activity Report” of this Registration this Registration document. document). Furthermore, the change in cable prices The appl icable margin to the Senior Credit in 2017 resulted in a positive non-recurring impact Agreement (as described in note 22.1.1 of the on EBITA estimated at €14.2 million. Notes to the Rexel Group’s consolidated financial By comparison, in 2016, the Rexel Group had statements for the year ended December 31, 2017, estimated that variations in cable prices had set forth in section 5.2 “Consol idated Financial contributed to reduce, on a recurring basis, its sales Statements” of this Registration document) is by approximately 0.9% on a constant basis and determined based on the leverage ratio (as defined same number of days (as defined in section 5.1 in the Senior Credit Agreement), in accordance “Activity Report” of this Registration document). with the mechanism described in note 22.1.1 to the Furthermore, the change in cable prices in 2016 Rexel Group’s consol idated financial statements had resulted in a negative non-recurring impact on for the year ended December 31, 2017, set forth in EBITA estimated at €10.1 million. section 5.2 “Consolidated Financial Statements” of this Registration document. Thus, depending on the Although the occurrence of external risks cannot be Indebtedness Ratio, the margin applicable to the managed, the Rexel Group has implemented tools Senior Credit Agreement may vary between 0.60% to monitor and assess the risk level and impact. and 2.25% (i.e., a range of 165 base points), which A specific monthly reporting process has been may result in an increase in the financial expenses. developed and is analyzed by the central teams. Based on the leverage ratio as at December 31, 2017, Furthermore, the Rexel Group discloses results it amounts to 1.25%. REXEL 2017 – REGISTRATION DOCUMENT 45