Assystem - 2015 Registration Document

5

RISK FACTORS

LIQUIDITY AND MARKET RISKS

5.3 LIQUIDITY AND MARKET RISKS

Every month, Group Treasury presents reports to the Deputy Chief Executive Officer & Chief Financial Officer on the positions and results of its management in compliance with the principles and policies put in place by the Group’s senior management team. Most Group entities use common software programs (Taïga, Kyriba or Swaps). These tools help to secure flows and enable more reliable reporting, in accordance with Group standards.

The Group has its own organisation enabling it to manage all market risks in a centralised manner; interest rate risk, exchange rate risk, counterparty risk and liquidity risks it is exposed to. Within the Finance Department, Group Treasury operates on the financial markets as the Group’s financial risk management body. This unit is organised in a manner that ensures the segregation of tasks.

Type

Impact

Risk reduction measures

Risk of a failure to effectively control finance costs (interest rate risk).

Negative impact on financial expenses.

To reduce this risk, whenever necessary the Group puts in place appropriate hedging measures, using derivative financial instruments depending on market conditions, validated by the Deputy CEO & Chief Financial Officer. In this case the financial instruments used are primarily swap contracts . On 31 December 2015 the Company reported cash flow that was considerably higher than its debt and therefore uses no rate hedging. At end-December 2015, the Group’s external debt essentially consisted of fixed-rate bonds (Ornane). Odirnane bonds, themselves at a fixed rate, are considered to be equity instruments in the Group’s consolidated financial statements. The Group monitors offerings and contracts in foreign currencies in order to safeguard operating margins related to these contracts denominated in foreign currencies. The hedge mechanisms put in place when a risk is identified mainly correspond to forward purchase or sale contracts, whose amounts and maturities are matched with the underlying exposure. To hedge currency operations within the Group, the Group makes use of cash swaps. The Group’s balance sheet risk essentially relates to euro/sterling and euro/US dollar exchange rates (or euro/Saudi Riyal, bearing in mind that when this document was released the US dollar/Saudi Riyal exchange rate was virtually fixed). The Group undertakes counterparty review and monitoring procedures which are approved by the management team. In 2014, it notably increased the number of front-running banking institutions it uses for investments, hedges and borrowings. Assystem has put in place: • a liquidity optimisation process based on centralised cash management with monthly reports submitted to the Deputy Chief Executive Officer & Chief Financial Officer; • a system for proactively managing its debt. The Group has access to a €120 million credit facility (unused as at 31 December 2015) with a sufficient maturity to finance its operating requirements. Assystem has carried out a specific review of its liquidity risk and is in a position to deal with upcoming due dates. Contractual provisions are in place giving the Group the possibility of only paying in the form of shares the amount due in excess of the nominal amount of the bond issues. This limits the risk of the Company’s capital being diluted. In view of the Assystem share price at 31 December 2015, no significant dilution is expected in respect of these instruments. Ornane bonds are an instrument with two components (a bond and a financial derivative). The change in fair value of the derivative is recorded as a net financial result. This accounting treatment has no cash effect and has an inverse impact as compared with changes in the share price. Given the impact of the high volatility of this item in the income statement, Assystem has elected to record changes in fair value of the Ornane’s derivative component in a separate line within financial income and expenses. The Ornane debt was substantially reduced in 2014, with three partial redemptions bringing the number of Ornane bonds outstanding to 1,234,858 as at 31 December 2015, thereby reducing the impact this variation has on the net financial result on a like-for-like basis. The Group’s revolving credit facility includes a clause that requires compliance with a financial ratio (covenant). This ratio is consolidated net financial debt/consolidated EBITDA. It is calculated each half-year based on the last twelve months. Non-compliance with the covenant entitles the lenders to require early repayment of the outstanding amount under the facility. As at 31 December 2015, the ratio was below the ceiling provided for in the covenant. The Ornane and Odirnane bonds are not subject to any covenants.

Risk of a failure to effectively control foreign- currency flows and the valuation of subsidiaries outside the Eurozone (exchange rate risk), given the geographical diversity of the Group’s establishments and operations.

Negative impact on equity and/or consolidated profit due to exchange rate volatility.

Risk of default by a financial counterparty.

Negative impact on consolidated profit.

Risk of inability to meet financial commitments (liquidity risk).

Negative impact on the cost of debt and on the Group’s image.

Risk of lack of control over the number of shares to be delivered on the redemption of Ornane and Odirnane bonds.

Dilutive effect on capital.

Complexity of the Ornane bonds.

Highly volatile financial income.

Risk of a breach of a financial covenant triggering early repayment of borrowings.

Negative cash impact.

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ASSYSTEM

FINANCIAL REPORT 2015