Assystem - Registration Document 2016

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.

Type

Impact

Risk reduction measures

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 swap contracts – are approved by the CFO & Deputy CEO. The Company had no interest rate hedges in place at 31 December 2016. At 31 December 2016, the Group’s external debt primarily consisted of drawdowns on its revolving credit facility. 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 euro/sterling 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) as well as the euro/Nigerian naira exchange rate. 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 Management. In 2016, it notably increased the number of leading banking institutions it uses for investments, hedges and borrowings. 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 2016, the Group had access to a €120 million revolving credit facility (of which €80 million had been drawn down) with a sufficient maturity to finance its operating requirements. On 24 January 2017, the Company put in place a new financing arrangement amounting to €280 million and breaking down as (i) an €80 million five-year term loan, and (ii) a €200 million five-year revolving credit facility with two one-year extension options (subject to the lenders’ agreement). At 31 December 2016, only 490,268 Odirnane bonds were still outstanding, i.e. 8.8% of the original issue (see Chapter 7 of this Registration Document). On 1 February 2017, Assystem announced that it intended to redeem in advance of maturity all of its outstanding Odirnane bonds. All of these bonds were redeemed in cash – with no Assystem shares allocated to the bondholders – for a total amount of €14.35 million, including accrued coupons, which was paid between end-February and 6 March 2017.

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 establishments and operations.

Negative impact on equity and/or consolidated profit due to exchange rate volatility.

Risk of default by a financial counterparty.

Negative impact on consolidated profit.

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

Negative impact on the cost of debt and on the Group’s image.

Risk of lack of control over the number of shares to be delivered on redemption of Odirnane bonds.

Dilutive effect on capital.

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

Negative cash impact. On 24 January 2017 Assystem entered into a new €280 million financing arrangement with a pool of banks, comprising (i) an €80 million term loan redeemable at maturity in January 2022 and (ii) a €200 million five-year revolving credit facility with two one-year extension options (subject to the lenders’ agreement). Consequently, the €80 million drawn down under the previous revolving credit facility, which was included in “Other short-term debt and current financial liabilities” at 31 December 2016 was repaid in early 2017. The new financing agreement 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 2016), and must not exceed 2.75 at end- December and 3.0 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 corresponding borrowings. At 31 December 2016, the Group’s gearing ratio was below the ceiling specified in the covenant.

74

ASSYSTEM

REGISTRATION DOCUMENT 2016