SOMFY_ANNUAL_FINANCIAL_REPORT_2017

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,

Consolidated net profit was €157.7 million, an increase of 10.1%. It takes into account a negligible net non-recurring operating expense, a net financial expense of €5.9 million, which mainly includes unrealised exchange differences, and income tax of €3.1 million, a particularly low level due notably to the recovery of the tax on dividends. Excluding tax rebates, net profit would have been €135.4 million, and would have fallen by 5.5%. Ultimately, profitability remained at a very satisfactory level with a The net cash surplus rose indeed from €15.5 million to €104.6 million (3) year-on-year, an increase of €89.1 million, and shareholders’ equity grew to €770.7 million. The Management Board will propose the payment of a dividend of €1.3 per share at the Annual General Meeting, an increase of 6.6% compared with the adjusted dividend paid last year (4) . 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; – cancel the shares bought back by the company within the – framework set out by Article L. 225-209 of the Commercial Code; allocate share purchase options to employees and/or certain – corporate officers of the company or related companies; increase the share capital through the issue of ordinary shares – and/or marketable securities giving access to the share capital with waiver of the preferential subscription right for members of a company savings plan pursuant to Articles L. 3332-18 and subsequent of the Labour Code; bring Article 20 of the bylaws into line with legal and regulatory – provisions. 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 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; return on capital invested (ROCE) of 19.7% (2) . The balance sheet was further strengthened.

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 2017, 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. Sales increased by 10.1% over the financial year just ended to €1,246.6 million. They benefitted from a positive scope effect of €11.2 million and suffered from a negative currency impact of €12.8 million. Growth stood at 10.3% on a like-for-like basis over the financial year, including 8.5% over the first half and 12.3% over the second, and followed an increase of 10.2% over the course of the previous year. It reflects significant growth within all business segments and locations (1) . The most noteworthy performances came from Asia-Pacific, America, France, Eastern and Central Europe, and Northern Europe, all of which recorded double-digit growth. The trend was less impressive, but nevertheless remained definitely positive within the two other major regions, Southern Europe and Germany. The strong performance of these figures is testament to the growing interest of consumers in different continents in motorised and connected solutions in the home, and thereby validates the Group’s choices and positioning (international coverage, innovation, digital transformation, etc.). Current operating result stood at €168.4 million over the financial year, down 5.2%, and represented 13.5% of sales. This decline resulted from factors that are both cyclical and structural, namely gaining market share, the rise in the price of raw materials, fluctuations in the main invoicing currencies and the integration of recently-acquired companies (iHome Systems, Myfox). On a like-for-like basis, current operating result would have been virtually stable at €178.0 million, and as such would have represented 14.3% of sales.

Germany, America, Asia-Pacific, Central and Eastern Europe, Northern Europe, Southern Europe and France are the geographic regions used to monitor (1) sales. Their sales are calculated based on customer location and therefore the destination of the sales. Return on capital invested or employed (ROCE) is equal to the ratio between the current operating result, after normative tax, and the sum of (2) shareholders’ equity (with the effects of goodwill impairment being neutralised) and the net financial debt. The net cash surplus corresponds to the difference between cash and cash equivalents and financial liabilities. It takes into account both deferrals in (3) payments and earnout on acquisitions as well as liabilities related to put options granted to holders of non-controlling interests. The change has been restated for the share par value split carried out in June 2017 (five new shares for every share held). (4)

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SOMFY – ANNUAL FINANCIAL REPORT 2017