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RISK FACTORS

5

RISKS RELATED TO THE GROUP’S OPERATIONS

5.2

RISKS RELATED TO THE GROUP’S OPERATIONS

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.

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 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 Business Units and subsidiaries or that inherently involve certain risk factors,

such as a large number of hours, a multi-year period, type of technology used, etc.

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 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. Similarly, the Group’s Project Management Handbook is regularly updated

and distributed to all project management players within the organisation. Special training

sessions are organised and specific audits conducted on a selection of projects covering

all of the Group’s areas of business.

Risk that business activities engaged

in with one or more major clients may

decline or cease altogether.

Negative impact

on revenue and

operating profit.

The business conducted with the Group’s ten largest clients involves varied skills in diverse

business sectors, which automatically significantly reduces dependency risk. The Group’s

strong relationship with its clients as a Tier-1 supplier also considerably mitigates this risk

as its business volumes are secured over the medium and long term.

In addition, the Group’s use of subcontracting and new skills training programmes enable

it to flexibly manage changes in workload.

Risk that the operational non-billing rate

(the TNFO) exceeds the threshold of 10%.

Negative impact

on operating profit.

As a key operating indicator for the Group, the TNFO is included in the periodic reporting

carried out by each legal entity which is reviewed by the Group’s management team.

If the TFNO exceeds the defined threshold the management team takes appropriate

measures to promptly lower it, notably by sharing and crossing over resources.

The TNFO is determined as follows:

Total unbilled hours of billable staff/Total hours worked by billable staff.

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.

Negative impact

on project performance

and revenue.

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.

Risk that clients may relocate their business

or projects to areas where the Group does

not operate.

Negative impact

on revenue, continued

relationships with

clients and operating

profit.

The Group constantly highlights its ability to provide services in the same geographic

locations as its clients. For example, it has an engineering centre in Romania and another

in India. This means that for its automotive clients who have developed part of their business

in Romania, Assystem has the facilities in place to partner them in their projects and work

there. Similarly, in the aeronautics sector, in 2015 the Group renewed a framework

agreement with a major client which provides for the gradual increased use of Assystem’s

Indian production base.

The risk that contracts entered into do

not generate sufficient margins to cover

development costs in geographic areas

where the Group has little or no operating

presence.

Negative impact

on operating profit.

As part of its development in the Asia-Middle East area, in 2013 the Group chose to base

its Executive Management Department for the Energy & Infrastructure business in Dubai.

Further development measures were launched in this region in 2014 and continued in

2015 via the acquisition of Radicon in Saudi Arabia, and in 2016 with the acquisition of

the Turkish company, Envy. Not taking into account the impact of the unfavourable operating

environment caused by the fall in oil prices (which adversely affected Radicon’s revenue and

earnings in 2016 due to the resulting reduction in infrastructure capex programmes in Saudi

Arabia), the Group is gradually covering the development costs incurred for its operations in

the Asia-Middle East area by the operating profit generated from new contracts won in this

region thanks to the combination of its local presence and global skills.

ASSYSTEM

REGISTRATION DOCUMENT

2016

73