Report of the Chairman and CEO on Internal Control

In accordance with Article 117 of the French Financial Securities Act of 1 August 2003, and the provisions of Article L 225-37 of the Commercial Code, the object of this report is to describe the organization of the work of the Board of Directors, and the internal control procedures adopted by Groupe SEB for the year ended 31 December 2007.

This report, drawn up under the supervision of the Chairman, is based essentially on the coordinated work of the Group’s Audit and Organization department, in liaison with the Finance department and the main corporate and operational functions. It also takes account of consultations with the Audit Committee and the statutory auditors.

The Group's internal control function

The internal control procedures have the following stated objectives:

• to ensure, on the one hand, that the management and carrying out of operations and the behaviour of employees comply with the guidelines for the company’s activities as set out by its governing bodies, as well as by applicable laws and regulations and the internal principles, standards and rules of the company;
• to ensure, on the other hand, that the accounting, financial and management information provided to the company’s governing bodies is a true and accurate reflection of the activity and situation of the company.

One of the aims of the internal audit system is to anticipate and control risks arising from the company’s business operations, as well as risks of error or fraudulent behaviour, particularly in the areas of accounting, finance and legal matters. As with any control system, it cannot provide an absolute guarantee that these risks are totally eliminated.

Groupe SEB is an international company with a three-fold organizational structure: Strategic Business Areas (responsible for product lines), Continental Management Structures (responsible for product marketing by geographic zone), and shared Corporate Support Functions. It operates on the basis of decentralized responsibility and broad delegation of authority. To guarantee efficient overall management, Groupe SEB applies clearly-defined functional and delegation rules. It also benefits from a well-established corporate culture which is rooted in shared fundamental values that foster an ethical working environment: high-quality work, mutual respect, team spirit, loyalty and thoroughness.

The internal control process is based on a structured Quality Management System defining 14 key functional areas which integrate the demands and constraints of sustainable development.

A signatory of the Global Compact since 2003, Groupe SEB supports the values set out in this document and promotes them throughout the company. The Human Resources department states in its guiding principles that “The Group is a community of men and women who share the same objectives and values”.

Against this background, Groupe SEB enjoins all its employees to uphold ethical standards and act in accordance with them.

The integrity of the control function is also assured by an internal control manual, detailing the main internal control guidelines for each Group structure:

• delegation guidelines which define the limits of delegated authority;
• internal control rules governing commercial operations, the management of client credit and methods of settlement, relations with banking institutions, payroll management, control of purchasing, financial asset management and the protection of corporate property and assets; 
• respect for rules governing division of responsibilities;
• policies applying to insurance cover and hedging; 
• financial reporting control principles.

The risk analysis and internal control processes use two basic tools:  

• An annual top-down review and analysis of the main risks, via formalized interviews with all 23 members of Group General Management. The individuals responsible for each operational or Group-wide function present a review of the risks in their particular sphere and their assessment of the probable impact of each risk. A synthesis of this information is used to draw up a chart of the main areas of risk facing the company.
• A bottom-up process involving self-evaluation questionnaires, based on functions. These are sent out to each operational entity and are designed to identify possible weak points and encourage the practice of self-evaluation at all levels with a view to the more efficient functioning of the Group.

In 2007, this computer-based self-evaluation system was deployed in 26 subsidiaries for ten functions: Finance, Purchasing, Information Systems, Production, Research & Development, Quality, Consumer Services, Human Resources, After-sales Service and Logistics.

The self-evaluation process will be carried out every two years for each of the Group’s entities.