ASSYSTEM_Registration_Document_2017

RISK FACTORS RISKS RELATED TO THE GROUP'S OPERATIONS

5.2 RISKS RELATED TO THE GROUP'S OPERATIONS

Impact

Risk reduction measures

Type

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

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

A contract review process has been put in place (conducted monthly within the various Business Units and subsidiaries, and quarterly at Group level, with the involvement of the CFO & Deputy CEO) for contracts representing revenue in excess of a threshold adapted to the activity and size of the Business Units and subsidiaries or that inherently involve certain risk factors, such as a multi-year period. These contract reviews are used to assess the progress of projects under way and all the identified risks in order to draw up and implement appropriate action plans (both for clients and in-house). The business conducted with the Group's largest clients requires varied skills in diverse business sectors, which automatically significantly reduces the risk of dependency and revenue concentration. In addition, in a number of cases clients would find it difficult to replace the Group’s technical expertise which means that they will need its services over a relatively long period of time. As a key operating indicator for the Group, the ONBR is included in the periodic reporting carried out by each legal entity which is reviewed by the Group's executive management team. If the ONBR exceeds the defined threshold, executive management takes appropriate measures to promptly lower it, notably by sharing and crossing over resources. The ONBR is determined as follows: Total unbilled hours of billable staff/Total hours worked by billable staff. 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 constantly highlights its ability to provide services in the same geographic locations as its clients.

Risk that business activities engaged in with one or more major clients may decline or cease altogether. Risk that the operational non-billing rate (the ONBR) exceeds the threshold of 10%. 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 development costs in geographic areas where the Group traditionally has little or no operating presence.

Negative impact on revenue and operating profit.

Negative impact on operating profit.

Negative impact on project performance and revenue.

Negative impact on revenue, continued relationships with clients and operating profit.

5

Negative impact on operating profit.

The Group regularly reviews the allocation of its management resources and the configuration of its local resources in order to avoid incurring costs in a given geographic area that, over the long term, are out of proportion with the revenue generated in that area.

85

ASSYSTEM

REGISTRATION DOCUMENT 2017