ASSYSTEM_Registration_Document_2017

5

RISK FACTORS

LIQUIDITY AND MARKET RISKS

5.3 LIQUIDITY AND MARKET RISKS

Every month, Group Treasury reports to the CFO & Deputy CEO on the positions and results of its management in compliance with the principles and policies put in place by the Group’s executive management team. Most Group entities use the same 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 a dedicated organisational structure which enables it to centrally manage all market risks to which it is exposed, namely interest rate risk, exchange rate risk, counterparty risk and liquidity risk. Within the Finance Department, Group Treasury operates in the financial markets as the Group’s financial risk management body. This unit is organised in such a way as to ensure the segregation of tasks.

Impact

Risk reduction measures

Type

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

Negative impact on financial expenses.

To reduce this risk, the Company sets up appropriate hedges using derivative financial instruments, taking into account the prevailing market conditions. The financial instruments used – which mainly correspond to swaps – are approved in advance by the CFO & Deputy CEO. At 31 December 2017, the Group was in a net cash position and had not set up any interest rate hedges. The Group monitors offerings and contracts in foreign currencies in order to safeguard the related operating margins. The hedges put in place when exchange rate risk is identified mainly correspond to forward purchase or sale contracts, whose amounts and maturities are matched with the underlying exposure. To hedge intra-group transactions in foreign currencies, the Group uses currency swaps. The Group's balance sheet risk essentially relates to the euro/Turkish lira and euro/US dollar exchange rates (or the euro/Saudi riyal rate, bearing in mind that at the date of this Registration Document the US dollar/Saudi riyal exchange rate was pegged). See Note 8.6 to the consolidated financial statements for details about the Group's financial risk management strategy. The Group undertakes counterparty review and monitoring procedures which are approved by executive management. Assystem has carried out a specific review of its liquidity risk and considers that it is capable of meeting its future maturities. Furthermore, Assystem has put in place: • a liquidity optimisation process based on centralised cash management with monthly reports submitted to the CFO & Deputy CEO; • a pro-active debt management strategy. At 31 December 2017, the Group had access to a €120 million revolving credit facility with a sufficient maturity to finance its general corporate requirements (five-year term from 28 September 2017 with two one-year extension options subject to the lenders’ agreement). On 19 January 2018, in order to finance its additional equity investment in Assystem Technologies Group, Assystem (i) signed an addendum to its revolving credit facility, raising the amount to €150 million, and (ii) put in place a €30 million bullet loan repayable on 28 September 2022. The new financing agreement signed on 19 January 2018 contains a covenant based on the consolidated gearing ratio (consolidated net debt at the test date/ EBITDA for the past 12 months as adjusted for acquisitions and divestments). This ratio is measured at the end of each half-year period (with the first test taking place at 31 December 2017), and must not exceed 3.75 at end-December and 3.95 at end-June. If the covenant is breached, a qualified majority of lenders (representing at least two thirds of the lending commitments) may demand early repayment of the borrowings. At 31 December 2017, the Group's gearing ratio was negative and therefore well below the ceiling specified in the covenant.

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

Negative impact on equity and/or consolidated profit.

Risk of default by a financial counterparty.

Negative impact on consolidated profit. Negative impact on the cost of debt and on the Group's image.

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

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

Negative cash impact.

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ASSYSTEM

REGISTRATION DOCUMENT 2017