Assystem - 2015 Registration Document

RISK FACTORS

RISKS LINKED TO THE ACTIVITY

5.2 RISKS LINKED TO THE ACTIVITY

Type

Impact

Risk reduction measures

Risk that fixed-price contracts may lead to excess non-billable hours.

Negative impact on revenue and gross margin, and ultimately, on operating profit.

Contract review process (conducted monthly within the different Business Units and subsidiaries abroad, and quarterly at Group level, with the involvement of the CFO and the Executive Vice-President in charge of HR Development for contracts representing revenue in excess of a threshold adapted to the activity and size of the said Business Units and subsidiaries or that have certain inherent risk factors, such as a large number of hours, a multi-year period, the technology used, etc.). These contract reviews are used to assess the progress of projects under way and all the identified risks in order to define and implement appropriate action plans (both for customers and in-house). The Group’s project management process is widely publicised and rigorously formalised with a view to ensuring that project-related risk management is deeply embedded in the Group’s culture. In this respect, the Group’s Project Management Handbook is regularly updated and distributed to all project management players within the organisation. Ad hoc training is organised and specific audits are conducted on a selection of projects covering all of the Group’s areas of business. The business conducted with the Group’s ten leading clients involves varied skills in diverse business sectors, which consequently significantly curbs the potential impact in terms of dependence. The Group’s strong position with its clients (notably as their top-ranking provider) considerably reduces this risk by ensuring its business volumes in the medium and long term. In addition, the use of subcontracting and the implementation of training courses with a view to redeveloping skills also enable changes in workloads to be managed. As a key operating indicator for the Group, the TNFO is included in the periodic reporting reviewed by members of the management team. If the TNFO diverges from the established threshold, members of the management team take the appropriate decisions, notably in terms of interoperability of resources, in order to lower the TNFO within a very short time span. TNFO is determined as follows: Total unbilled hours of billable staff/Total hours worked by billable staff. Staff turnover management is placed under the ultimate responsibility of the Group’s Executive Vice-President in charge of HR Development. Annual recruitment plans are established on the basis of a turnover rate of 20 to 25% and changes in the rate during the period are regularly measured, analysed and monitored. The Group maintains a close-knit relationship with several engineering schools in France and abroad (particularly by taking part in school-company forums), which gives it access to a substantial pool of skills and resources. Staff turnover is measured as follows: Staff departures during the year/Average headcount during the year. The Group strives to emphasise its ability to provide its services in the geographic areas in which clients may choose to locate their business. The Group already has two engineering centres serving business relocations, one in Romania, and the other in India. Clients in the automotive sector who operate part of their business in Romania, are already supported by Assystem for projects and operations conducted in that country. In the Aeronautics sector, the service level agreement renewed in 2015 with a major client comprises increased use of the Indian production base, due to be gradually implemented. With regard to development in the Asia-Middle East-Africa region, in 2013 we installed the Executive Management Department for the Group’s Energy & Infrastructure division in Dubai. Supplementary development actions began in this zone in 2014 and continued in 2015, in particular via the acquisition of the Saudi company Radicon, which has a higher operating profitability level than the average level observed for the Group as a whole. The Group is gradually covering the development costs of the activity generated in the area through the operating profitability achieved in the contracts entered into, thanks to a combination of the effects of its local presence and its global skills (including by Radicon, in synergy with the rest of the Group).

Risk that business activities engaged in with one or more major clients may decline or cease altogether.

Negative impact on revenue and operating profit.

Risk that the operational non-billing rate (the TNFO) exceeds the threshold of 10%.

Negative impact on operating profit.

5

Risk that net staff turnover is not effectively managed and that the turnover rate is such that the replacement of resources cannot be ensured during the period. Risk that clients may relocate their business or projects to areas where the Group does not operate. The risk that contracts entered into do not generate sufficient margins to cover the development costs in geographical areas where the Group has little or no presence.

Negative impact on project performance and revenue.

Negative impact on revenue, on continued relationships with

clients, and on operating profit.

Negative impact on operating profit.

65

ASSYSTEM

FINANCIAL REPORT 2015