5.2 Risk management and internal control - Report of the

5.2 Risk management and internal control - Report of the Chairman of the
Supervisory Board
on the conditions for preparation and organisation of the work of the Supervisory Board and on internal control
and risk management procedures and on the principles and rules set by the Supervisory Board to determine the
remuneration and benefits in kind of any nature granted to Management Board members.
This report has been prepared in accordance with article L 621-18-3 of the French Monetary and Financial Code (Code
Monétaire et Financier) and paragraph 7 of article L 225-68 of the French Commercial Code (Code de Commerce).
It was approved by the Supervisory Board members at its meeting on February 15, 2010.
It provides information on:
• the preparation and organisation of the work of the Supervisory Board and its specialist committees during the year
ended December 31, 2009;
• the changes in the Group’s internal control and risk management procedures; and
• the principles and rules set by the Supervisory Board to determine the remuneration and benefits in kind of any nature
granted to Management Board members.
This report has been provided by the Chairman of Supervisory Board on the basis of the following information:
• the internal regulations of the Supervisory Board as well as the work carried out by the Board Committees during 2009;
• the activity reports and summary reports of the Group’s internal audit teams;
• the discussions held with some members of the Management Board and in particular those in charge of the Finance
Department, the Legal Department and the Internal Control & Audit Department;
• review of the summary of the work of the Statutory Auditors notably that related to the examination of the financial and
accounting internal control.
This report was reviewed by the Audit Committee at its meeting on January 25, 2010.
The Company refers to the AFEP-MEDEF Corporate Governance Code for listed companies of December 2008. The text
of this code may be consulted on the MEDEF’s website (www.medef.fr).
As required by paragraph 8 of article L.225-68 of the French Commercial Code, this report indicates which of the
requirements of the AFEP-MEDEF Code of Corporate Governance have not yet been applied.
a) Company’s Governance
1) Composition and conditions for preparation and organisation of the work of the
Supervisory Board
Members of the Supervisory Board
The Supervisory Board, which comprises four members, has not been modified in 2009. Its composition is as follows:
• Yann Duchesne, Chairman,
• Jean-Marc Daillance, Vice-Chairman,
• Bruno Angles and Ghislain Lescuyer.
Mr Jean-Marc Daillance, Mr Bruno Angles and Mr Ghislain Lescuyer are independent. The criteria applied by the
Supervisory Board to qualify the independence of one of its members are those provided for in the AFEP-MEDEF
Corporate Governance Code. These criteria are listed on page 56 of this Reference Document.
Internal Regulations of the Supervisory Board
Internal Regulations of the Supervisory Board were drawn up in 2005. Amended in 2006, they were not amended further
during 2009. These Internal Regulations are available on the Company’s website (www.saftbatteries.com) in the section
Investors Centre / AMF regulated information / Reports on Internal Control and Corporate Governance. The main
provisions of these internal regulations are given on pages 181 to 184 of this Reference Document.
Role and responsibilities of the Supervisory Board
Within the scope of its role defined in the Internal Regulations of the Supervisory Board, the Supervisory Board oversees
the work of the Management Board on an ongoing basis. In this role, it may perform the checks and controls that it deems
appropriate at any time of the year, and may request that the Management Board provide any documents that it considers
useful for carrying out its duties. The Management Board presents the Supervisory Board with a report on the Company’s
management at least once a quarter. In addition, the by-laws and Internal Rules of the Supervisory Board stipulate that
certain decisions taken by the Management Board are subject to the prior approval of a majority vote of the Supervisory
Board. In the event of a split decision, the Chairman of the Supervisory Board has a casting vote.
Method of functioning of the Supervisory Board
The Board meets at least once a quarter. During the 2009 financial year, the Supervisory Board met ten times (compared
to 7 times during the 2008 financial year), on the following dates: January 28, February 13, March 20, April 3, April 27,
June 30, July 27, July 31, October 6 and October 29, 2009.
The average rate of attendance at meetings by Supervisory Board members amounts to 97.5%. No individual attendance
rate is lower than 90%.
During the 2009 financial year, the Supervisory Board reviewed inter alia the following points:
Closing of the financial statements:
• The Supervisory Board reviewed the consolidated financial statements and parent company financial statements for the
2008 financial year and the annual report for 2008, the half-year financial statements at June 30, 2009 and the related
financial report.
• It adopted the reports and resolutions presented to the Annual General Meeting on June 3, 2009.
• It approved the statutory auditors’ fees for 2008.
Business reviews:
• The Supervisory Board looked at the budget forecasts for 2009 and the 2009-2011 Strategic Plan.
• It reviewed the Management Board’s quarterly activity reports
• It authorised the signature of regulated related-party agreements.
• It authorised various sureties, endorsements and guarantees issued.
Financial communication:
• The Supervisory Board reviewed all the press releases with regard to sales and the Group’s annual and half-year
results. It also examined the documents presenting these results to financial analysts.
Remuneration:
• The Supervisory board proceeded to set and allocate attendance fees among its members
• It set the remuneration of the Management Board members and the Saft Management Committee members
• It authorised the Management Board to implement a new stock option plan.
Corporate Governance:
• The Supervisory Board approved the Chairman’s report on the conditions for preparation and organisation of the
Board’s work, internal control and risk management procedures and the principles and rules for setting the remuneration
of the members of the Management Board.
• It renewed the terms of office of the members of the Management Board.
• It examined then applied the principles of the AFEP-MEDEF Corporate Governance Code for listed companies of
December 2008.
• It reviewed and approved the Group’s ethics charter.
• It finally looked at the work carried out by the specialist committees as presented below.
Specific transactions:
• The Supervisory Board reviewed the proposal for refinancing the Group’s bank debt and authorised the signature of a
credit agreement for the requirements of this refinancing.
• It studied the proposal to increase the share capital with maintenance of preferential subscription rights and authorised
the Management Board to make use of the authorisation granted by the Annual General Meeting in order to implement
this increase in capital.
Specialist Committees
The Supervisory Board has set up two specialist committees – an Audit Committee and a Remuneration Committee –
whose roles and modus operandi are described in the Internal Regulations of the Supervisory Board. The purpose of
these two Committees is to improve the way the Supervisory Board operates and to facilitate decision-making through a
prior review of specific topics.
Audit Committee
The Group’s Audit Committee comprises three members of the Supervisory Board, all of whom are independent
members and are appointed on an individual basis and may not be represented at meetings by another person. The
members of the Audit Committee are Jean-Marc Daillance, Chairman, Bruno Angles and Yann Duchesne. Due to their
current and/or previous professional responsibilities, described on pages 56, 66 and 67 of this Reference Document, the
three Audit Committee members are individually or collectively competent with regard to accounting and audit issues,
particularly with regard to the Group’s business segments.
The Audit Committee’s roles are the following:
• analyse the annual and interim consolidated and parent company financial statements prior to their presentation to the
Supervisory Board, as well as the various other financial documents published by the Company;
• carry out a review of the financial statements with the Management Board and the Statutory Auditors in order to ensure
that their presentation to the shareholders and the Auditors is satisfactory;
• keep informed of the accounting rules applied within the Group and examine any proposed amendments to the
applicable accounting standards and/or methods;
• oversee the process of selecting the Company’s Statutory Auditors.
• review, in conjunction with the Statutory Auditors and the Finance and Accounting Department, whether the Company’s
financial and accounting controls are appropriate and effective, and put forward recommendations for improving internal
control procedures;
• examine any issues brought to its attention, and discuss any matters it deems fit with Saft’s Statutory Auditors,
management executives and other staff members, on a direct, independent and confidential basis, and review the
Company’s management documents, ledgers, books and registers;
• participate in the analysis of any planned financial transaction that may have a significant impact on the Group;
• approve the Annual Internal Audit Plan, as well as the results of the internal audit assignments performed during the
previous year.
The Audit Committee also reads the Internal Audit Report for the year and monitors implementation of the action points
recommended therein.
The Audit Committee met six times in 2009 (the same number of meetings as in 2008): on January 28, February 13, April
27, June 26, July 27, and October 29, 2009.
The attendance rate of the members of the Audit Committee at the meetings was 100% in 2009.
During its meetings, the Audit Committee reviewed, before their submission to the Supervisory Board, inter alia, the
following subjects and matters:
• At the time of the closing of the annual financial statements for 2008 and the interim financial statements for 2009, the
Audit Committee verified the way in which the closing of the accounts was conducted, reviewed the financial statements
and other related financial information, held discussions with the Statutory Auditors and reviewed their reports.
• It also reviewed the amount of fees paid to the Statutory Auditors in respect of 2008.
• It examined the various press releases with regard to quarterly sales and the annual and half-year results as well as the
various documents presenting these results to financial analysts.
• It reviewed the annual budget for 2009 as well as the Management Board’s quarterly activity reports.
• It reviewed the annual Internal Audit Report and the work carried out by the Group’s internal audit team and in
particular:
- the 2009 audit plan,
- the monitoring carried out in 2009 with regard to the points noted during site and/or thematic audits conducted in
2008,
- the monitoring of the results of the self-assessment of the quality of internal control made by each of the group’s
business units in light of the Group’s key processes.
- the diagnostic review carried out with regard to corporate governance via a comparison of the Group’s practices with
the various recommendations issued by the AFEP/MEDEF and the AMF.
• Finally, it participated in the review of the projects for refinancing bank debt and for an increase in capital.
Remuneration Committee
The Remuneration Committee comprises three members of the Supervisory Board, two of whom are independent.
Committee members are appointed on an individual basis and may not be represented at meetings by another person.
The members of the Remuneration Committee are Yann Duchesne, Chairman, Ghislain Lescuyer and Bruno Angles.
The role of the Remuneration Committee is to review the following issues and put forward recommendations to the
Supervisory Board:
• the amount of attendance fees awarded to Supervisory Board members,
• remuneration paid to members of the Management Board and members of the Saft Management Committee,
• stock option plans,
In the course of its work, the Remuneration Committee relies, in particular, on external studies and reports on Executive
remuneration on a regular basis.
The Remuneration Committee met six times in 2009 (it met 7 times in 2008): on February 13, March 9, March 20, April 3,
April 27 and July 31, 2009.
The attendance rate of the members of the Remuneration Committee at the meetings was 100%.
During its meetings, the Remuneration Committee reviewed, inter alia, the:
• annual changes in the remuneration of the Chairman and the members of the Management Board, as well as of the
members of the Saft Management Committee (SMC),
• the methods of calculation and fixing of the variable part of the 2008 remuneration for the members of the SMC,
• setting of the group’s quantative performance objectives to be used as a basis for calculation of the variable part of 2009
remuneration for the members of the Group’s Management Committee (SMC).
• the amount of attendance fees awarded to Supervisory Board members for 2009,
• the stock options to subscribe for shares allocated during the 2009 financial year,
• the conditions for the grant of stock options to members of the Management Board, the conditions for exercise of such
stock options and of sale by Management Board members of the shares purchased through the exercise of their stock
options, in accordance with the AFEP-MEDEF Code of Corporate Governance,
• concurrent holding of a corporate office and an employment contract by the Chairman of the Management Board, in light
of the recommendation in the AFEP-MEDEF Code of Corporate Governance.
Assessment of the Supervisory Board’s operation
In January 2009, the Supervisory Board carried out a self-assessment of its functioning and its work methods with the
assistance of an outside specialist firm.
This self-assessment concerned the following main subjects:
• the composition of the Supervisory Board,
• its functioning as compared to the Group’s strategic challenges,
• the internal rules of functioning and methods of operation of the Board and its specialist committees,
• finally, the quality of the information provided to the Board and the decision-making processes on the Board.
This diagnostic review enabled us to identify a certain number of areas for improvement which have already led to
changes in the method of functioning of the governance bodies. This formal self-assessment process, which the
Supervisory Board intends to renew from time to time, is aimed at increasing the efficiency of the decision-making
process in light of the company’s interests.
Finally, a review of the functioning of the Supervisory Board over the past year was carried out at the Supervisory Board
meeting in February 2010.
Compliance by the Company with the recommendations in the AFEP-MEDEF Code of Corporate Governance for
listed companies of December 2008
The Company complies with the recommendations of the AFEP-MEDEF Code except for the following points:
• the coexistence of a term of office on the Management Board and an employment contract in the case of Mr John
Searle, the Chairman of the Management Board: after reviewing Mr John Searle’s situation, the Supervisory Board
considered that, although the recommendation of the AFEP-MEDEF code was understandable for an executive officer
who had recently joined a company, it could not be justified for an executive officer who has had a long successful
career in the Group, and in particular as an employee not holding any corporate office. The Supervisory Board
accordingly decided to authorise the maintenance in effect of the employment contract entered into between Saft
Acquisition SAS and Mr John Searle alongside his term of office as Chairman of the Company’s Management Board,
• stock-option plans: no specific rules have been established to set the frequency and/or periodicity of implementation of
stock option plans. The Group considers that it would be appropriate to maintain a certain degree of flexibility in this
area, given that any stock option programme must receive the prior authorisation of the shareholders at a General
Meeting.
• Selection and Appointments Committee: At its meeting on January 25, 2010, the Supervisory Board decided to enlarge
the responsibilities of the Remuneration Committee to include the selection and appointment of the members of the
Group’s managing bodies. It accordingly changed its name to “Remuneration and Appointments Committee“.
2) Limitations set by the Supervisory Board to the Management Board’s powers
The Management Board has the broadest powers to act in all circumstances in the Company’s name for all matters falling
within the scope of the Company’s corporate purpose, except for powers conferred by the law to other persons or bodies.
The by-laws of the Company as well as the Internal Regulations of the Supervisory Board however stipulate that certain
decisions require the prior approval of the Supervisory Board in the following matters:
•disposals of properties and shareholdings, and granting of guarantees,
• investments or divestments changing the scope of consolidation of the Group;
• investments relating to an acquisition or any commitment over and above a certain amount;
• issue of bonds or shares, and for the implementation of any authorisation in this area.
In addition, any forecasts, management documents and related analytical reports drawn up by the Management Board
must be provided to the Supervisory Board.
3) Provisions of the by-laws governing shareholders’ participation in the Annual General
Meeting
Shareholders’ participation in general meetings is governed by sections 13, 14 and 22 of the Company’s by-laws which
can be consulted on the www.saftbatteries.com website under the section “Investor Centre/Shareholder information“.
4) Principles and rules adopted to determine the remuneration and benefits of any kind
granted to the Company’s Management Board members
The fixing of the remuneration of the Company’s Management Board members is the responsibility of the Supervisory
Board, which bases itself on the opinions and recommendations made by the Remuneration Committee.
Supervisory Board members
No remuneration other than attendance fees is granted to the Supervisory Board members. For the year 2009, a global
maximum amount of €200,000 in attendance fees was approved by the Annual General Meeting on June 3, 2009.
Following a proposal by the Remuneration Committee the Supervisory Board has, in accordance with article L.225-83 of
the French Commercial Code, determined the following individual amounts of attendance fees for 2009:
• Mr Yann Duchesne, Chairman: €48,693 (€47,738 in 2008)
• Mr Bruno Angles, Mr Jean-Marc Daillance and Mr Ghislain Lescuyer: €32,462 each (€31,825 in 2008).
Management Board members
The composition of the Management Board, which comprises five members, was the following at December 31, 2009:
• Mr John Searle, Chairman
• Mr Thomas Alcide,
• Mr Bruno Dathis,
• Mr Xavier Delacroix,
• Ms Elizabeth Ledger.
The remuneration of the Chairman and members of the Management Board is set by the Supervisory Board, based on
proposals from the Remuneration Committee. The remuneration comprises a fixed annual part, set on the basis of the
level of responsibilities and experience of each member and with reference to market practices. It also includes a variable
part determined on the basis of the objectives related to the Group’s financial performance, relating to sales, to EBITDA
(defined as operating profit before amortisation and depreciation, restructuring costs and other operating income and
expenses) and operating working capital. The amount of the variable part may represent up to 60% of the fixed part,
unless specific circumstances arise.
As far as the Chairman of the Management Board is concerned, it is anticipated to grant him, in the event of forced
departure, a contractual indemnity with regard to termination of his employment contract, the payment of which is subject
to compliance with the beneficiary’s performance conditions, assessed in light of the performance of Saft Groupe SA.
This payment will therefore only be made if the following two criteria are met:
• payment at least once over the last three years of at least 20% of the maximum annual performance bonus;
• positive EBIT of Saft Groupe SA over the entire length of the beneficiary’s terms of office.
This clause provides for the payment of eighteen months’ average remuneration, and the potential combined amount of
the termination indemnity and the non-compete indemnity shall not in any case exceed 24 months’ salary.
Detailed information on the remuneration and other benefits of any kind granted to Management Board members is
provided in tabular form in the Corporate Governance section of the Group’s management report for 2009, on pages 58 to
64 of this Reference Document.
The Management Board members receiving attendance fees for their duties performed in respect of Saft Group
subsidiaries and/or joint ventures return these fees to the Company.
With the exception of the Chairman, the Management Board members employed in France benefit from the incentive and
mandatory profit sharing schemes of Saft SA.
The Chairman and three members of the Management Board (Elizabeth Ledger, Bruno Dathis and Xavier Delacroix)
benefit from the same additional defined-contribution pension scheme as Group executives in France, set up within the
scope of the Plan d’Épargne Retraite Interentreprises (PERI) which the Group is responsible for funding. This pension
scheme fulfils the criteria of the AFEP/MEDEF Code of Corporate Governance.
The Chairman and members of the Management Board all benefit from a vehicle, the costs of rental and use of such
vehicle being borne by the Company.
5) Policy regarding the grant of stock options
Nature of options
The stock options issued are options for the subscription of new shares approved by the Group’s shareholders at their
Annual General Meetings held on June 29, 2005, June 22, 2006, December 17, 2007 and June 16, 2008.
Criteria for definition of the categories of beneficiaries
The stock options are granted, following a proposal by the Management Board, by a decision of the Supervisory Board.
The beneficiaries of these stock options are Group executives. For each stock option plan for the subscription of shares,
the number of beneficiaries of stock options is around one hundred Group employees. The members of the Saft
Management Committee (of which the members of the Management Board of Saft Groupe SA are also members) are not
entitled to receive, collectively, more than 25% of the options granted in the framework of each plan.
Periodicity of plans
The stock plans are established at a frequency of more than one year. Four main plans have been adopted by the
Management Board since the company was listed: in June 2005, in November 2006, in January 2008 and in March 2009.
Conditions of exercise of options
The conditions of exercise of options are as follows: any prohibited periods of exercise are defined and communicated to
all option beneficiaries. During these periods, no beneficiary may exercise his or her options.
With regard to Management Board members, the Supervisory Board has provided that:
• at least 15% of the number of shares resulting from the exercise of any options granted under the option plan must be
retained throughout the length of their terms of office. This rule applies starting from the plan authorised by the Annual
General Meeting on December 17, 2007, and decided that:
• at the time of each new grant of stock options, the value of the stock options granted to each member of the
Management Board, calculated by applying IFRS, must not exceed a maximum limit of 35% (thirty-five percent) of all the
components of annual remuneration of each beneficiary,
• the maximum percentage of stock options that may be granted to all members of the Management Board compared to
the total overall number voted by the Annual General Meeting may not exceed 25% (twenty-five percent), and the
maximum percentage granted to each Management Board member may not exceed 6% (six percent) of this total overall
number,
• the current members of the Management Board who have received stock options may not have recourse to transactions
to hedge the risks they incur,
• no discount may be applied at the time of grant of stock options to Management Board members,
• exercise by Management Board members of their stock options shall be linked to the following performance conditions:
positive EBITDA during the financial year of grant of the stock options (on condition that these stock options are
allocated by June 30 at the latest) and the following two financial years (or the next three financial years if the stock
option grant is made after June 30),
• Management Board members must abstain from exercising their options during the following windows:
- a period of 60 days prior to publication of the press releases with regard to the annual results,
- a period of 30 days prior to publication of the press release with regard to the half-year results,
- a period of 15 days prior to publication of press releases with regard to quarterly sales.
AMF recommendation dated December 22, 2008 with regard to the information to be provided in the Reference
Document in respect of the remuneration of the Management Board members
Full information on the remuneration of Management Board members is provided in tabular form in the “Corporate
Governance” section of the Group’s management report for 2009.
b) Internal control procedures and risk management
1) Internal control procedures and risk management
The Company has set up internal control procedures designed to ensure that the information contained in the
consolidated financial statements is reliable and to exercise internal control over the Group’s companies. Saft Group
comprises the parent Saft Groupe SA and its consolidated subsidiaries detailed in note 4 to the consolidated financial
statements. The Group does not include the ASB and Johnson Controls-Saft Advanced Power Solutions LLC joint
ventures which are not consolidated.
Definition and objectives of internal control
The Group’s definition of internal control is based on that drawn up by the Committee of Sponsoring Organisations
(COSO) of the Treadway Commission, whose report was published in the United States in 1992.
Within the Group, internal control is defined as a set of processes implemented by the Supervisory Board, Management
Board and all the personnel, designed to ensure rigorous and effective management of the Group, in accordance with the
guidelines set by the Company’s corporate governance bodies in relation to the Group’s operations.
The aim of the Group’s internal control system is therefore to provide reasonable assurance regarding the achievement of
objectives in the following areas:
• compliance with applicable laws and regulations, as well as with the Group’s defined strategies and internal procedures,
• protection of the Group’s assets,
• prevention and control of fraud and error, particularly in the area of accounting and finance,
• reliability of financial and accounting information.
Limitations of internal control
As in any control system, the Saft Group’s process of internal control cannot lead to an absolute guarantee related to the
implementation of the Group’s objectives and the control of all the risks.
In this respect, the likelihood of achieving these objectives is subject to the limits inherent in any internal control system
and in particular human error or a case of deliberate collusion between several people making it possible to elude the
control system in place or cases where the implementation, or maintenance of the control, is more burdensome than the
risk which it is supposed to alleviate.
Internal control players
During the 2009 financial year, the Group decided to change the organisation of the audit and control functions by
providing for the oversight function for these activities to be carried out fully internally. The functions involving the
monitoring of internal control and internal audit are now under the responsibility of a manager whose activity solely relates
to these functions.
The Group’s internal control processes
The Group has based its internal control approach on the following five components set out in the COSO report:
• control environment,
• risk assessment,
• control activities,
• information and communication, and
• monitoring.
Control environment
The Group has created a strict control environment underpinned by the role of the Saft Management Committee (SMC),
which is responsible for discussing and setting the Group’s strategic goals.
The SMC is chaired by the Chairman of the Management Board and meets at least once a month. Based on the files
presented to it and information exchanged during meetings, the Committee marks out the path to be followed by the
Group, sets the foundations for the decisions to be taken by the Group’s corporate governance structures, and monitors
all projects and operations at the highest level.
Continually enhancing the control environment is a key objective for the Group, as it has demonstrated by the adoption of
Internal Regulations for the Supervisory Board and the setting up an Audit Committee and a Remuneration Committee in
the Company’s Supervisory Board.
During the 2009 financial year, several actions made it possible to strengthen the Group’s control environment. It put in
place a Group ethics charter, and set up a specific Information Systems Security Committee (ISSC). In 2009, this
committee carried out, in particular, a review of the information systems code of conduct, in order to raise user awareness
with regard to the confidentiality and the need to protect data.
Risk assessment
Risk assessment is the identification and analysis of all the internal and external risks that may affect the Group’s ability
to achieve its objectives. It also forms a basis for determining the Company’s control activities and certain areas of work
by the internal audit team.
In order to secure this essential internal control component, Group management regularly engages in risk mapping, and
identification of the associated controls with regard to all its processes and has thus:
• ranked all its potential risk exposures based on their impact and on the assessment of the level of control for each of
them; and
• engaged in self-assessment of the Group’s internal control system as a whole.
The Saft Group’s risk map was updated at the end of 2009. This update did not bring to light any significant change in the
main risks as compared to those identified at the time of the previous update made in 2007. It nevertheless led to a
change in the ranking of the main risks related to the Group’s business activities and to the environment in which it
performs its business.
The results of this new risk map moreover led the Group to change the description of the risk factors as presented on
pages 68 to 77 of this Reference Document.
On the basis of the recommendations received from the employees who took part in the process for updating this risk
map, an action plan was prepared by the Group’s executive management. These various documents were presented to
the Audit Committee and the Supervisory Board in January 2010.
Finally, a specific map of the information system risks is currently being prepared.
Control activities
Control activities involve monitoring the operations and performance of the Group’s divisions, ensuring the proper
application of the standards and procedures that contribute to implementing the policies adopted by Group management
and, finally compliance with the laws and regulations in force.
In addition, the Group has put in place a rigorous and pro-active system for monitoring the performance of each division
and application of Group policies. This system is implemented as follows:
• the department in charge of management control carries out in-depth monthly reviews of the operations of subsidiaries
and business units, based on the budget, actual results, and forecasts which are periodically updated. Each subsidiary
or business unit performs a monthly reporting process using specifically dedicated Magnitude software, which is
carefully reviewed by the divisions’ management controllers and the SMC, and specific analyses are conducted in the
subsidiary where necessary;
• the Chairman of the Management Board, Chief Financial Officer, and heads of the Group’s manufacturing divisions
meet each month to examine the monthly performances of each division and the units making up such divisions,
whether of a commercial (e.g. product orders and, sales) or financial nature and also forecasts and their periodical
updates.
Under the supervision of the Saft Management Committee, a set of rules and procedures has been established for each
executive management team of the Group’s manufacturing divisions.
Furthermore, the Group has an internal control manual which comprises all the key controls, i.e. those considered as
essential for the proper performance of Saft’s operations. This manual is updated as required.
This internal control manual served as the basis, in 2008, for a self-assessment process by each operating entity of the
quality of its internal control for each of the 17 processes identified at the level of the Group. The results of this selfassessment process were consolidated then analysed by the Group’s internal audit department. The findings of this
process led to the implementation of a short-term action plan by each unit intended to strengthen the areas for
improvement noted. They moreover made it possible to adopt the focus for the 2010 audit plan.
Information and communication
This component of the internal control process entails identifying, capturing and communicating pertinent information in a
form and timeframe that enables all the Group’s employees to assume their responsibilities. Forming the bedrock of
effective internal control procedures, it is centered on an informational process that flows down, across and up the
organisation, from the strategies set by the Management Board through to their implementation in each of the Group’s
companies and business units.
The Group uses a range of intranet and messaging systems enabling it to effectively share information between the
Management Board, the Saft Management Committee and the subsidiaries or business units. Through these systems,
each participant can access the qualitative and quantitative information required for performing their duties.
Each category of information is fed through effective specifically-tailored communication channels, enabling the following
data to be relayed:
• information on budget control ;
• accounting and financial information provided by the subsidiaries to Group head office;
• operating and business-specific information exchanged between the Saft Management Committee and the management
team of each manufacturing division.
For example, the financial control function in relation to the subsidiaries is carried out by divisional management
controllers and the heads of management control within the business units or subsidiaries. To this end, the SMC is
provided with the following documents:
• the three-year business plan, which is updated once a year
• the budget, drawn up on a yearly basis. Gap analyses are carried out and there is a full reforecast at least once a
quarter;
• monthly financial reporting packages using the Magnitude software application.
The Group also has a specific information and control system for decision-making and monitoring in respect of
investment. Investment spending information is thus reported to Group management on a monthly basis, as part of a
strict and formally documented authorisation procedure overseen by a specifically appointed officer. Authorisations
relating to investment spending over € 30,000 are countersigned by the Chairman of the Management Board.
Finally, Saft is endeavouring to strengthen the tools for management and provision of information such as intranet and the
shared databases that offer better access to information and improved information sharing within the Group.
Monitoring
Internal control systems need to be supervised in order to assess their relevance over time.
This is accomplished through ongoing monitoring activities, notably via internal audits.
Internal audits are performed on all of the Group’s entities, businesses and processes by the internal audit function. The
audit programme is presented to the Saft Management Committee and approved by the Audit Committee. Group entities
which have been subject to internal audits draw up action plans whose implementation is systematically monitored. One
of the main roles of the internal audit function is to independently check that internal control procedures are in place and
that they are effective. Professional internal audit standards are applied, as drawn up by international professional bodies
such as the Institute of Internal Auditors.
In the framework of the internal audit plan for 2009, the following assignments were carried out:
• Follow-up of correction of the areas for improvement identified at the time of the audits of business units carried out in
2008, for the production sites in Poitiers, Zhuhai (China) and Bangalore (India) and the commercial sites in Hong Kong,
Singapore and Sydney.
• Specific audit of a site in order to remedy an identified internal control weakness(1).
• Consolidation and analysis of the results of the self-assessment of internal control. This work has led to:
- a campaign for communication of these results and the areas for improvement identified, both to financial controllers
of the Group’s business units, and the managers of business units and the Group’s divisions.
- the proposal by each of the Group’s business units of action plans which will be followed by the internal audit and
control department in 2010.
In order to improve the existing self-assessment process, the Group is considering the implementation of a dedicated IT
tool.
Internal control procedures related to preparing financial and accounting information
The Group’s financial and accounting information is produced by the Finance Department, which coordinates the
accounts-closing procedures for Saft Groupe SA and its subsidiaries. In addition to the points relating to accounting and
financial information described above in each of the components of the internal control systems, the following specific
points should be highlighted:
• a Group-wide consolidation software is used, based on a standard reporting package, in order to help the Group
management to take action and to provide the public with consistent accounting and financial information. These data
are regularly expanded in order to improve the quality of the available financial information at the Group’s level;
• statutory accounting and financial information is closing file produced in line with a defined schedule, and is based on
formally documented procedures and control processes. Each entity compiles a “closing file” in order to ensure the
traceability of accounts closing operations;
• the Group Finance Department draws on the work conducted by the Finance departments of each subsidiary, as well as
on the management and budgetary control procedures set up within the Group. This enables objectives to be set and
accounting and financial information to be collected and analyzed at the different levels of the organisation. It also
permits swift application of any requisite corrective measures;
• the Group has drawn up a “Manual of Accounting and Consolidation Principles” which is used by all Group companies.
This manual defines the accounting measurement methods used and sets out the consolidation rules to be applied. It
also includes a detailed analysis of International Financial Reporting Standards (IFRS) and their application within the
Saft Group. The Manual is available on the Group’s intranet;
• a basic set of accounting and financial procedures that are regularly reviewed and updated is made available on the
Group’s intranet.
2) Information that may have an impact in the event of a public offering (Article L.225-100-3
of the French Commercial Code)
With the exception of clauses relative to a change of control of the Company included in loan agreements and disclosed
in note 17 to the Consolidated Financial Statements, the Company has not entered into any major agreement that would
be amended or automatically terminated in the event of a change of control of the Company.
The commitments made by the Company with regard to the French State and the Israeli State are described on pages
176 and 177 respectively of this Reference Document.
(1) The audit has now been completed and revealed no material consequences of any kind for the company and for Saft Group.