SOMFY - Annual financial report 2018

05 REPORT ON CORPORATE GOVERNANCE

OBSERVATIONS OF THE SUPERVISORY BOARD ON THE MANAGEMENT BOARD’S MANAGEMENT REPORT AND THE FINANCIAL STATEMENTS FOR THE YEAR JUST ENDED

Ladies and Gentlemen,

Ultimately, the return on capital employed held firm at the very healthy level of 20.4%. The balance sheet remained very strong, with equity that increased to €894.4 million. The net financial surplus totalled €222.4 million, an increase of €117.8 million, including €42.1 million in respect of the change in Dooya’s consolidation method. The Management Board will propose the payment of a dividend of € 1.4 per share at the Annual General Meeting, an increase of 7.7% compared with the dividend paid last year. The report of the Management Board also provides all information required by existing regulations. Furthermore, you will be asked to authorise the Management Board to: implement a new treasury share buy-back programme; – allocate existing shares free of charge to employees and/or – certain corporate officers of the company or related companies. You will also, in particular, be asked to vote on: the renewal of the term of office of a member of the – Supervisory Board; the approval of the fixed, variable and exceptional items – comprising the total remuneration and benefits of any kind paid or allocated in respect of the financial year just ended to Jean Guillaume DESPATURE, Chairman of the Management Board; the approval of the fixed, variable and exceptional items – comprising the total remuneration and benefits of any kind paid or allocated in respect of the financial year just ended to Pierre RIBEIRO, Chief Financial Officer and member of the Management Board; the approval of the fixed, variable and exceptional items – comprising the total remuneration and benefits of any kind paid or allocated in respect of the financial year just ended to Michel ROLLIER, Chairman of the Supervisory Board; the approval of the principles and criteria used to determine, – apportion and allocate the various fixed, variable and exceptional items of remuneration comprising total remuneration and benefits of any kind attributable to the Chairman of the Management Board and the member(s) of the Management Board; the approval of the principles and criteria used to determine, – apportion and allocate the various fixed, variable and exceptional items of remuneration comprising total remuneration and benefits of any kind attributable to other members of the Supervisory Board. Draft resolutions, in line with the agenda, will be submitted for your approval. We have no specific comments to make regarding the various documents that have been submitted to you (in particular the Management Board’s management report), or in relation to the parent company and consolidated financial statements for the 2018 financial year. Therefore, we ask you to adopt the proposed resolutions. The Board is keen to point out that 2018 was another year of progress, with satisfactory business development and growth in current operating profitability (excluding the impact of exchange rates), highlighting the robustness of the Group’s business model and strategy.

The Management Board has convened this Combined General Meeting to submit the financial statements for the year just ended for your approval. Pursuant to Article L. 225-68 of the Commercial Code, the Management Board has kept us periodically informed on company transactions through the presentation of quarterly reports. For verification and control purposes, the Management Board has also submitted to us the parent company and consolidated financial statements at 31 December 2018, which you are requested to approve today. The Management Board has also provided us with its report, which has just been presented to you. We hereby submit to you our observations on these financial statements and on this report pursuant to the provisions of the above-mentioned Article L. 225-68. This report fairly reflects information that was regularly provided to us during the financial year just ended. Group sales were €1,126.7 million over the year just ended, an increase of 3.4% after the restatement resulting from the change in the consolidation method of Dooya and 5.2% on a like-for-like basis. This performance was achieved after strong growth in the previous financial year. It reflects both the strong performance of historical markets, such as Benelux, France, the United Kingdom and Scandinavia, and the momentum of new markets, such as India, Hungary, Poland, the Czech Republic and Russia. The sales of the now equity-accounted Dooya totalled €178.0 million, an increase of 9.4% in real terms and 12.0% on a like-for-like basis. The current operating result for the financial year stood at €177.8 million, up 1.8% based on a like-for-like consolidation method, equating to 15.8% of sales in spite of adverse foreign exchange effects costing €10.6 million. It would have totall68ed €189.1 million, up 8.2% and equating to 16.5% of sales on a like-for-like basis. This 50-basis point increase in the current operating margin on a like-for-like basis was the result of business growth and an improvement in the gross profit margin driven by healthy sales prices, and higher raw materials costs offset by productivity gains. At the same time, overheads increased due to continued investment in research and development and participation in major industry events (the CES trade show in Las Vegas and R+T in Stuttgart). Net profit fell 11.0% to €140.4 million. It takes into account a significant negative balance of non-recurring operating expenses and income, primarily due to costs associated with the termination of a project in China, and an automatic increase in the income tax charge given the tax reliefs of €22.3 million recorded over the previous financial year. Restated for the above-mentioned items, net profit stood at €148.1 million, an increase of 9.2%.

The Supervisory Board

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SOMFY – ANNUAL FINANCIAL REPORT 2018