SAFT : Report of the Chairman of the Supervisory Board 2015

SFT2015_DRF_EN_LIVRE-CS5-2col.indb

4.3 REPORT OF THE CHAIRMAN OF THE SUPERVISORY BOARD ON CORPORATE GOVERNANCE, INTERNAL CONTROL

AND RISK MANAGEMENT

The report by the Chairman of the Supervisory Board, presented below, in accordance with the provisions of article L.225- 68 of the French Commercial Code (Code de commerce)was approved by the Supervisory Board (hereinafter the "Board") on 15 February 2016, after an examination by the Supervisory Board's committees of the sections covering their respective areas of competence. It reports to the shareholders:

• on the composition of the Supervisory Board and the application of the principle of balanced representation of women and men on said Board, as well as the conditions for the preparation and organisation of its work (section 4.3.1); and

• the internal control and risk management procedures established by the Company (section 4.3.2);

• the provisions of the Afep-Medef Code, to which the Company refers, which have been complied with; and

• the principles and rules established by the Supervisory Board in order to determine the remunerations and benefits of any type granted to the company officers.

  The Afep-Medef Listed Company Corporate Governance Code, revised in November 2015, is available on the site of Medef (www.medef.fr).

  
  

  4.3.1 CORPORATE GOVERNANCE

  
  

  a) Composition of the Supervisory Board and conditions for the preparation and organisation of its work Supervisory Board

  The Supervisory Board has five members, all of whom are independent members on the date of the drawing up of the report:

• Mr Yann Duchesne, Chairman;

• Mr Jean-Marc Daillance, Vice-Chairman;

• Mrs Charlotte Garnier-Peugeot and Mrs Marie-Claire Daveu and Mr Bruno Angles, members.

  The criteria used by the Board to define the independence of one of its members are those established by the Afep-Medef Code. These criteria, which are stated in section 4.1 of this document, are reviewed each year. In 2015, the Remunerations and Appointments Committee once again noted that the members of the Supervisory Board do not, whether directly or indirectly, have any business relationship or other type of relationship with the Company or with one of its subsidiaries, and that they have been performing their Company officer duties at the Company for less than twelve years. Two of the Board's five members are women: i.e.40% of its members are women. Accordingly, it is ahead of the provisions of French Act

  
  

  No. 2011-103 of 27 January 2011 regarding balanced gender representation on Supervisory Boards, and complies with the recommendations of the Afep-Medef Code.

  All of the Board's members are French citizens. However, most of the Board's members have considerable international experience and hold positions in international firms or in companies having an international activity.

  
  

  Internal Rules and Regulations and ethical charter of the Supervisory Board

  The Supervisory Board's Internal Rules and Regulations had been updated on 12 May 2014 in order to take account of the various recommendations made in the Afep-Medef Code. It has not been modified since that date.

  The Internal Rules and Regulations including the ethical charter are available on the Company's site (www.saftbatteries. com). Its main provisions are contained in section 4.5 of this document.

  
  

  The Supervisory Board's duties

  The Supervisory Board's duties, as defined by law, the Company's Articles of Association and the Internal Rules and Regulations, consist of carrying out an ongoing control of the Management Board's management. In this connection, the Board can, at any time of the year, carry out the checks and controls it deems appropriate and obtain from the Management Board the documents it deems useful to the performance of its duties. At least once each quarter, it will hear the Management Board's report on the management of the Company and of the Group. In addition, and in accordance with the Company's Articles of Association, certain Management Board decisions require the prior authorisation of the Supervisory Board (see

  b) below).

  
  

  The Supervisory Board's functioning

  The Supervisory Board meets as often as required by the Company's interests and at least once per quarter. The timetable of the Supervisory Board's meetings is determined one year in advance and the Supervisory Board shall receive prior to each session the documents and information concerning the subjects placed on the meeting's agenda. During the year 2015, the Supervisory Board met ten times. The average rate of attendance of the Supervisory Board's members at meetings is 96%.

  During the year 2015, the Supervisory Board examined and covered the following subjects:

  Closing of the financial statements:

• the Supervisory Board examined the consolidated financial statements and Company financial statements of the year 2014, as well as the 2014 Annual Financial Report, the half- yearly financial statements closed at 30 June 2015 and the associated financial report;

  Report of the Chairman of the Supervisory Board on corporate governance, internal control and risk management

  
  

  
  

• it draws up the reports and resolutions presented at the Combined General Meeting of 12 May 2015;

• it heard from the Statutory Auditors, who attended the Supervisory Board's meetings having examined the annual and half-yearly financial statements and approved their fees for the year 2014.

  Review of activity:

• several sessions during the first half of the year 2015 were devoted to the organisation of the Company's management following the passing of the Chairman of the Management Board at the end of 2014. After having appointed an interim Chairman of the Management Board in 2014, during the first quarter of 2015, the Supervisory Board completed the process to select a new Chairman of the Management Board, with the assistance of an executive recruitment firm;

• during the second half of the year, the Supervisory Board devoted several sessions to reviewing the updating of the Group's strategy proposed by the Management Board; on 4 September and 9 November 2015, under the aegis of the Strategy and Technologies Committee, the Supervisory Board reviewed the Company's strategy, which was then presented to investors on 16 November 2015. It also examined the proposals to reorganise the Company that were presented to it by the Chairman of the Management Board;

• the Supervisory Board presented its annual report for the year 2014 to the government's Auditor, in accordance with the agreement of 4 May 2005, signed between Saft and the French government (see section 8.4.4 of this document);

• it took note of the budget forecasts for the year 2015 and examined the Management Board's quarterly activity reports.

  Financial communication:

  The Supervisory Board reviewed all of the press releases concerning the Group's annual and half-yearly turnover and results, as well as the documents presenting these results to financial analysts and investors.

  Remunerations:

• the Supervisory Board determined the amount and breakdown of the attendance fees of its members for the year 2015, by applying the criteria established by its Internal Rules and Regulations, which took effect in 2015;

• based on the recommendations of the Remunerations and Appointments Committee, the Supervisory Board:

  • determined the annual variable remuneration of the members of the Management Board and of the Executive Committee (SMC) on the basis of the level of performance obtained by the Group for the year 2014 and in accordance with the objectives that had been set for the members of the Management Board and the Executive Committee (SMC),

  • approved the objectives and the methods for calculating the annual variable remuneration of the members of the Management Board and of the members of the Executive Committee (SMC) for the year 2015,

    
    

  • examined a plan to allot free preference shares to management, to be submitted for a vote at the next General Meeting of the Shareholders.

    Internal audit:

    The Supervisory Board reviewed the work and assignments carried out in 2015 by the Group's Internal Audit and Control Department and approved the internal audit action plan for the year 2016.

    Corporate governance:

    Following the sudden passing of the Chairman of the Management Board in September 2014, the Supervisory Board began a process to select the new president and participated in the definition of his or her profile, under the aegis of its Remunerations and Appointments Committee and with the assistance of an executive recruitment firm. After having interviewed several candidates, the Supervisory Board appointed Ghislain Lescuyer as Chairman of the Management Board at its session of 13 March 2015, and defined the conditions for his remuneration. In this connection, the Supervisory Board decided that, unlike his predecessor, Mr Lescuyer will not have an employment contract with the Company, thereby following the recommendations of the Afep- Medef Code.

• In response to a proposal by its Remunerations and Appointments Committee, it examined the candidacy of Mrs Daveu, who has expertise in the area of sustainable development and energy and decided to co-opt her as a member of the Supervisory Board, replacing Mr Ghislain Lescuyer. This co-opting was approved by the Combined General Meeting of 12 May 2015.

• In May 2015, the Supervisory Board modified the composition of the committees - described below - in order to replace the areas of expertise on the committees and to ensure a more balanced sharing of responsibilities between its members.

• Finally, a point on the Supervisory Board's agenda was devoted, in 2015, to its composition, organisation and functioning, the conclusions of which are presented below in the paragraph "Assessment of the functioning of the Supervisory Board".

  
  

  Specialised committees

  The Supervisory Board has three specialised committees that prepare and provide guidance on the subjects falling within their area of expertise and submit to them their opinions and recommendations. The role of the committees is described in the Supervisory Board's Internal Rules and Regulations.

  Audit Committee

  The Group's Audit Committee is comprised of three independent members who are appointed on a personal basis and cannot be represented.

  Chairman: Jean-Marc Daillance,

  Members: Marie-Claire Daveu and Yann Duchesne.

  Their professional experience (described in section 4.1 "Management and supervisory bodies") affords them the required expertise in accounting and financial auditing, in particular with respect to the Group's areas of activity.

  
  

  Pursuant to applicable laws and regulations, the Audit Committee monitors:

• the financial information preparation process;

• the effectiveness of the internal control and risk management systems;

• the legal control of the annual financial statements and the consolidated financial statements by the Statutory Auditors;

• the independence of the Statutory Auditors.

  The Audit Committee reports on a regular basis to the Supervisory Board on the nature of the work it has carried out.

  The Audit Committee met six times during the year ended and on 15 January 2016, its Chairman met with the Statutory Auditors, a meeting at which the senior executives were absent.

  The average rate of attendance of the members of the Audit Committee at the meetings was 100% in 2015.

  During its meetings, the Audit Committee examined, inter alia, in accordance with the work schedule it defined for itself at the beginning of the year, the following subjects and matters, before sending this information to the Supervisory Board:

  Preparation of financial information:

• at the time of the closing of the 2014 annual financial statements and the 2015 half-yearly financial statements, the Audit Committee verified the closing of the financial statements, reviewed the financial statements and other associated financial information and concluded that there had been no change in accounting standards or methods during the year 2015; it met with the Group's Financial Director, heard the Statutory Auditors and took note of their reports;

• it examined the various financial press releases mainly on quarterly turnover and the annual and half-yearly results, as well as the various documents presenting these results to financial analysts;

• it examined the 2015 annual budget, as well as the Management Board's quarterly activity reports.

  Review of activity:

• on 21 April 2015, the Audit Committee attended a presentation by the Company's Director of Information Systems concerning, notably, the security of the Group's information systems and the measures taken to reinforce the protection of networks and combat cybercrime.

  Activity of the Statutory Auditors:

• the Audit Committee took note of the audit plan of the Statutory Auditors for the year 2015 and examined the conclusions of the interim work on internal control. This review enabled the Audit Committee to ensure the

  consistency of the results of the work of the external auditors to review internal control;

• it revised the amount of the fees paid to the Statutory Auditors for the year 2014.

  Internal control, risk management and governance:

• on 10 June, 2015, the Chairman of the Audit Committee met with the new director of auditing and internal control who presented its organisation and its priorities with respect to auditing, internal control and risk management to the Audit Committee on 20 October 2015;

• finally, the Audit Committee reviewed the Chairman's report on the conditions for the preparation and organisation of the Supervisory Board's work, the internal control and risk management procedures and on the principles and rules for the determination of the remunerations of the Company officers.

  The Remunerations and Appointments Committee

  The Remunerations and Appointments Committee is comprised of three independent members who are appointed personally and cannot be represented.

  Chairperson: Charlotte Garnier-Peugeot, Members: Yann Duchesne and Bruno Angles.

  The main duties of the Remunerations and Appointments Committee are to examine and to make proposals to the Supervisory Board on the following points:

  Remunerations:

• the amount and breakdown of the attendance fees of the Supervisory Board's members;

• the remunerations and benefits of the members of the Management Board and of the members of the Executive Committee;

• any stock option and/or bonus share plans.

  Appointments:

• the appointment and reappointment of the members of the Management Board and the proposal to the General Meeting of the members of the Supervisory Board;

• the structure and composition of the Supervisory Board and its committees;

• the review of the expected changes to the Executive Committee's management resources, as well as the succession and/or reappointment of its members;

• the review of the independence of the members of the Supervisory Board, in accordance with the criteria defined by the Afep-Medef Code.

  The Remunerations and Appointments Committee met four times during the year ended and the attendance rate of its members at meetings was 100% in 2015.

  Report of the Chairman of the Supervisory Board on corporate governance, internal control and risk management

  
  

  
  

  During these meetings, the Remunerations and Appointments Committee examined the following subjects on which it communicated its recommendations to the Supervisory Board:

• following the sudden passing in September 2014 of John Searle, Chairman of the Management Board, the committee participated in the definition of the background sought for the position of Chairman of the Management Board and participated in the process of selecting candidates to be introduced to the Supervisory Board; at the end of this process, carried out with the assistance of an executive recruitment firm, the candidacy of Mr Ghislain Lescuyer was recommended for the position of Chairman of the Management Board. The Remunerations and Appointments Committee also recommended that, in accordance with the recommendations of the Afep-Medef Code, the Chairman of the Management Board, who is a Company officer, not be covered by an employment contract, unlike his predecessor. It participated in the determination of the fixed and variable remuneration of the Chairman, on the basis of a variety of analyses of the practices noted in companies that are very similar to the Saft Groupe;

• the Remunerations and Appointments Committee carried out an analysis of the terms and conditions of the allotment of the severance compensation of the Chairman of the Management Board and proposed to the Supervisory Board the associated performance criteria;

• it participated in the preparation of a long-term incentive plan for management in the form of the allotment of bonus performance shares that will be submitted for a vote to the shareholders at an upcoming General Meeting;

• it proposed to the Supervisory Board the Group's performance objectives used as the basis for the calculation of the variable portion of the 2015 remuneration of the members of the Management Board and of the Executive Committee (SMC);

• it examined the independence of the members of the Supervisory Board, based on the criteria of the Afep-Medef Company Governance Code, and concluded that all of the members were independent, and that none of them have a business relationship, whether directly or indirectly, with the Company and all of the mandates of the Supervisory Board's members have been in progress for less than twelve years.

Strategy and Technologies Committee

The Strategy and Technologies Committee is comprised of three independent members who are appointed personally and cannot be represented.

Chairman: Bruno Angles,

Members: Jean-Marc Daillance and Marie-Claire Daveu.

The purpose of the Strategy and Technologies Committee is to assist the Supervisory Board in the assessment of the Group's

major strategic and technological guidelines proposed by the Management Board. Accordingly, it examines on a regular basis the Company's strategic objectives and assesses the implementation of the strategy by the Management Board.

After the appointment of Mr Ghislain Lescuyer as Chairman of the Management Board, the Strategy and Technologies Committee organised several days dedicated to a detailed examination of the Company's strategy. All of the members of the Supervisory Board participated in these days. At the end of this work, a morning meeting was held to present the strategy and the new organisation to investors and analysts, on 16 November 2015. The new strategic plan, called Power 2020, will be deployed over the next four years.

The attendance rate at the meetings of the Strategy and Technologies meetings was 100%.

Assessment of the functioning of the Supervisory Board

After having carried out a formalised review of its functioning in 2013 and 2014, guided by the Secretary of the Supervisory Board under the supervision of the Remunerations and Appointments Committee, in 2015, the Supervisory Board devoted a point on its agenda to the assessment of its work. The Supervisory Board declared itself satisfied with the time devoted in 2015 to the Group's strategic challenges. This point had been identified as area for improvement in 2014. The co- opting of Mrs Marie-Claire Daveu to the Supervisory Board, approved by the Combined General Meeting of 12 May 2015, enhanced the diversity and complementarity of the various types of expertise of the Supervisory Board's members. In the future, the Supervisory Board aims to focus on the examination of the Company's strategic human resources and talent management and to set up a new succession plan for the members of the Management Board following the changes which have occurred in the last years.

The Company's compliance with the recommendations of the Afep-Medef listed company Corporate Governance Code

in 2015, the Company remedied two areas of non-compliance that had been identified concerning the recommendations of the Afep-Medef Code and that had been declared in the previous annual report. Firstly, the Chairman of the Management Board, appointed by the Supervisory Board on 13 March 2015, is not bound to the Company or to any one of its subsidiaries by an employment contract, but rather, by a Company officer contract.

Secondly, on 12 May 2014, the Supervisory Board modified its Internal Rules and Regulations in order for the breakdown of the attendance fees to be comprised of a fixed portion and a dominant variable portion, which is determined based on criteria established each year by the Supervisory Board in accordance with a proposal by the Remunerations and Appointments Committee.