Assystem - Registration Document 2016

RISK FACTORS

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. 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. 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. 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. 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. 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.

Risk that business activities engaged in with one or more major clients may decline or cease altogether.

Negative impact on revenue and operating profit.

Risk that the operational non-billing rate (the TNFO) exceeds the threshold of 10%.

Negative impact on operating profit.

5

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.

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 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.

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ASSYSTEM

REGISTRATION DOCUMENT 2016