ASSYSTEM_Registration_Document_2017

5

RISK FACTORS

RISKS RELATED TO THE ECONOMIC ENVIRONMENT

that there are no relevant significant risks to which it is exposed other than those described below. A description of the type and impact of each risk factor is set out below, together with an explanation of the measures taken to reduce those risks. The internal control and risk management procedures put in place by the Company related to preparing and processing accounting and financial information are described in Chapter 3 of this Registration Document.

Assystem conducts its business in a constantly-changing environment. The Group is therefore exposed to risks which, if they materialise, could have a significant adverse effect on its business, financial position and/or earnings. This Chapter sets out the risk factors to which the Group could be exposed, including risks relating to the economic environment, operational risks, legal risks and financial risks. The Group considers

5.1 RISKS RELATED TO THE ECONOMIC ENVIRONMENT

Impact

Risk reduction measures

Type

Risk of political, social and economic instability in some of the geographic areas in which the Group operates. Risk that the markets and geographic areas in which the Group operates may have a dilutive effect on margins. Risk that contracts entered into do not generate sufficient margins.

Risk of volatility in revenue and operating profit.

The revenue and operating profit generated in these geographic areas have a relatively limited impact overall as the Group generates over 80% of its revenue in Western Europe. In addition, its recent acquisitions (ECP and BQG – see Chapter 1) have further increased the proportion of the Group’s revenue and operating profit derived from Western Europe. Close monitoring of ongoing projects and new business by the management of the division concerned and regularly relaying information to members of the management team. Review of gross margins for ongoing projects and new business. Specific process for selecting projects and submitting bids (financial review of key project elements, in particular projected revenue and margins and margin on completion for fixed-price projects) and authorisation by designated managers. Contract review process (conducted monthly within the various Business Units and subsidiaries, and quarterly at Group level) 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 specific risk factors, such as a multi-year period. Client creditworthiness investigations conducted when new contracts are taken on, and regularly re-conducted for contracts or clients already in the portfolio. Members of the Group's accounting teams carry out the credit management function in order to regularly monitor the collection of trade receivables, track progress in the collection of outstanding receivables, and issue the necessary reminders. Procedure drawn up and applied for prior authorisation of recurring capital expenditure (primarily for software). This procedure sets out the authorised signatories within the operating entity and requires signature by one or even two members of the management team for capital expenditure in excess of a given threshold. Capital expenditure (i.e. investments excluding external growth) represents just over 1% of the Group's consolidated revenue, which is normal in Assystem's industry, and means that exposure to risks related to this expenditure is limited. The Board of Directors is systematically informed of, and holds discussions on, any potential acquisitions of equity interests or other external growth investments, once these have been assessed by the Group's executive and operations teams.

Erosion of gross margin and, ultimately, of operating profit. Negative impact on gross margin and, ultimately, on operating profit.

Risk of non-recovery of trade receivables.

Negative impact on realisable and available assets and on operating profit. Negative impact on revenue and operating profit.

Risk that investments made do not generate the expected returns.

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ASSYSTEM

REGISTRATION DOCUMENT 2017