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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