Compagnie de Saint Gobain : Consolidated Financial Statements for year ended 31 December 2021 with Audit Report - PDF

CONSOLIDATED

FINANCIAL

STATEMENTS

DECEMBER 31, 2021

GROUP CONSOLIDATION REPORTING DEPARTMENT

COMPAGNIE DE SAINT-GOBAIN

STATUTORY AUDITORS' REPORT

ON THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2021

The Statutory Auditors

PricewaterhouseCoopers Audit	KPMG Audit
Crystal Park	Tour Eqho
63, rue de Villiers	2, avenue Gambetta
92208 Neuilly-sur-Seine Cedex,	CS 60055
France	92066 Paris La Défense Cedex,
	France

PricewaterhouseCoopers Audit	KPMG Audit
Tour Eqho
Crystal Park
2, avenue Gambetta
63, rue de Villiers
CS 60055
92208 Neuilly-sur-Seine Cedex, France
92066 Paris La Défense Cedex, France

STATUTORY AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2021

This is a translation into English of the statutory auditors' report on the consolidated financial statements of the Company issued in French and it is provided solely for the convenience of English speaking users.

This statutory auditors' report includes information required by European regulation and French law, such as information about the appointment of the statutory auditors or verification of the information concerning the Group presented in the management report and other documents provided to shareholders.

This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.

COMPAGNIE DE SAINT-GOBAIN

Tour Saint-Gobain

12, place de l'Iris

92400 Courbevoie cedex

To the Shareholders,

Opinion

In compliance with the engagement entrusted to us by your Shareholders' Meeting, we have audited the accompanying consolidated financial statements of Compagnie de Saint-Gobain ("the Group") for the year ended December 31, 2021.

In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at December 31, 2021 and of the results of its operations for the year then ended in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The audit opinion expressed above is consistent with our report to the Audit and Risk Committee.

Basis for Opinion

Audit Framework

We conducted our audit in accordance with professional standards applicable in France. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our responsibilities under those standards are further described in the Statutory Auditors' Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

Independence

We conducted our audit engagement in compliance with independence requirements of the French Commercial Code (code de commerce) and the French Code of Ethics (code de déontologie) for statutory auditors, for the period from January 1, 2021 to the date of our report and specifically we did not provide any prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014.

Compagnie de Saint-Gobain

STATUTORY AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2021

Page 2

Justification of Assessments - Key Audit Matters

Due to the global crisis related to the Covid-19 pandemic, the financial statements of this period have been prepared and audited under specific conditions. Indeed, this crisis and the exceptional measures taken in the context of the state of sanitary emergency have had numerous consequences for companies, particularly on their operations and their financing, and have led to greater uncertainties on their future prospects. Those measures, such as travel restrictions and remote working, have also had an impact on the companies' internal organization and the performance of the audits.

It is in this complex and evolving context that, in accordance with the requirements of Articles L.823-9 and R.823-7 of the French Commercial Code (code de commerce) relating to the justification of our assessments, we inform you of the key audit matters relating to risks of material misstatement that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period, as well as how we addressed those risks.

These matters were addressed in the context of our audit of the consolidated financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on specific items of the consolidated financial statements.

Measurement of goodwill, intangible assets and property, plant & equipment

Description of risk

The carrying amounts of goodwill, intangible assets and property, plant & equipment were significant at December 31, 2021, representing €11,181 million, €2,705 million and €11,663 million, respectively. These assets may be impaired due to internal or external factors, including decisions to change the Group's strategy in certain markets, a decline in Group performance, the Group's commitments to carbon neutrality, changes in competition, unfavorable market conditions particularly in the context of the Covid-19 pandemic and changes in legislation or regulations. These changes are likely to have an impact on the Group's forecast cash flow and, consequently, the assets' recoverable amounts.

The impairment tests performed by Management using the method described in Note 7.5 to the consolidated financial statements led to the recognition of impairment losses of €213 million in the year ended December 31, 2021 (including impairment on assets held for sale), as indicated in Note 5 to the consolidated financial statements.

Determining the assets' recoverable amounts is a key audit matter given the potentially significant nature of any impairment and the high degree of estimation and judgment required by Management in assessing impairment losses. Management exercises judgment when making assumptions regarding future changes in sales (in both volume and value terms), profitability, investments and the other cash flows required to operate the assets, and when determining an appropriate discount rate to apply to future cash flows.

How our audit addressed this risk

We familiarized ourselves with the procedures implemented within the Group for impairment testing purposes particularly with regard to take into account the impacts of the Group's commitments to carbon neutrality, and tested the effectiveness of the controls implemented by the Group to ensure the quality and reliability of the aforementioned procedures and their consistency with data from the budget and the medium- term business plan prepared by Management.

We also assessed the consistency and relevance of Management's approach to determine the cash-generating units for asset impairment testing. We adapted our audit approach to the risk of impairment, which varies depending on the cash-generating unit.

Our valuation specialists performed an independent analysis of certain key assumptions used by Management for impairment testing purposes, in particular the discount rate, by referring to both external market data and comparable company analyses.

Compagnie de Saint-Gobain

STATUTORY AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2021

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For a selection of cash-generating units, we analyzed the consistency of future cash flow projections with regard to past performance and our knowledge of the business, confirmed by interviews with the Heads of the relevant Segments and Businesses and qualitative and quantitative parameters relating to the depth and potential duration of the health crisis triggered by Covid-19.

We carefully examined the calculation of the normalized amount of the terminal cash flows projected to perpetuity. We performed our own sensitivity analyses of certain key variables of the measurement model, particularly with regard to take into account the impacts of the Group's commitments to carbon neutrality, to assess the materiality of their potential impact on the recoverable amounts of the most high-risk assets.

We verified that the disclosures provided in the notes to the consolidated financial statements on the measurement of goodwill, intangible assets and property, plant & equipment, the underlying assumptions and sensitivity analyses were appropriate and in particular that, given the context related to Covid-19, the sensitivity ranges communicated have remained extended.

Measurement of provisions for liabilities and litigation related to asbestos

Description of risk

The Group is exposed to various legal risks, including asbestos-related litigation in the United States.

As indicated in Note 9 to the consolidated financial statements, provisions amounting to €1,349 million were recognized at December 31, 2021 for contingent liabilities and litigation. Significant contingent liabilities, whose amount or timing cannot be estimated with sufficient reliability, are disclosed in the notes to the consolidated financial statements.

With regard to asbestos-related risks in the United States, determining and measuring the provisions recognized for contingent liabilities and litigation and assessing the appropriateness of the related disclosures in the notes to the consolidated financial statements are a key audit matter given the amounts involved and the high degree of estimation and judgment required by Management in determining those provisions. Judgment is required, in particular, to assess the status and resolution of the ongoing legal proceedings (in particular the voluntary petition for relief under Chapter 11 in the United States): duration, cost, estimation of the number of current and future cases covered, definition of the damages by the judicial authority, etc.

How our audit addressed this risk

To obtain an understanding of contingent liabilities and litigation regarding asbestos in the United States and the related judgments made, we held discussions with Management and lawyers chosen by Management, at the Group and country level as well as at the main subsidiaries concerned. We also contacted certain law firms and external experts chosen by Management to assist them with the monitoring of these risks.

We:

• examined the minutes of the Board of Directors' meetings and the Group's risk mapping prepared by Management and presented to the Audit and Risk Committee;
• familiarized ourselves with the procedures implemented by Management when measuring the provisions for asbestos-related risks in the United States and determining the disclosures thereon in the notes to the consolidated financial statements;
• assessed the permanence of methods and performed a critical review of internal analyses relating to the probability and possible impact of these contingent liabilities and new items of litigation by examining the available information relating to the proceedings (correspondence, judgments, notifications, etc.). We also reviewed the responses to the confirmation letters of the law firms chosen by Management, particularly in terms of their experience at resolving comparable situations in the past. We also used our professional judgment to assess the positions adopted by Management, to see where they fell within risk assessment ranges and the consistency of those positions over time;
• verified the arithmetical accuracy of the calculations of changes in provisions and the consistency of the main items of change in relation to the underlying data, in particular the payments made during the year in respect of these risks.