Econocom - 2020 annual report

04 risk factors regulatory risk

Pledges, guarantees, 1.8. collateral provided and borrowings Real security interests provided as collateral for borrowings or financial liabilities by the Group chiefly consist of receivables offered as collateral for its short-term funding. The amount of pledged and mortgaged assets is disclosed in note 20 to the consolidated financial statements. As part of its strategy, the Group continues to develop its business by seeking targeted acquisition opportunities. Acquiring and integrating companies gives rise to certain risks, including higher-than-anticipated financial and operatingexpenses, failure of the operational integration, which can lead to loss of major clients or the departure of important membersof the acquiree’sstaff and a decline in financial performance. Regulatory risk 2. Legal risks 2.1. The Group operates as a service provider in various Western European countries and is therefore subject to numerous different laws as well as customs, tax and labour regulations. In order to limit its exposure to legal risks, the Group has set up subsidiaries in each country run by managers who are familiar with the applicable local laws and regulations, who work alongside the Group’s Legal Counsels and external consultants. Econocommonitorson an ongoingbasis any litigation and one-off situations that could result in a financialrisk. Any pendinglitigation is covered by provisions for appropriate amounts calculatedby GroupManagement. Risks related 1.9. to external growth

Integration of the acquired companies may also disrupt the Group’s existing businesses and lead to insufficientresources,particularly in terms of management. The synergies expectedfroman acquisitionmay fall short of forecasts or take longer to achieve than initially announced, and the costs of implementing these synergies may exceed expectations. The above-mentioned factors may also have a negative impact on the goodwill recognised in the consolidated financialstatements(seealsonote 9“Goodwill and impairmenttesting” to the consolidated financialstatements). Several years ago, Econocom group put in place an original integrationand governance model for some of these new acquisitions (called“satellites”)so as to preservetheiragility, boost their performanceand competitiveness and generate synergies at Group level. The foundingshareholdersof these satelliteshave retaineda non-controllinginterestin the share capital and have a very broad level of managerialautonomy.The related integration risk is mitigated by the fact that taken individually, these transactions are relatively small.

Disclosures or arbitrationlikely to have a substantialimpact on Econocom group’s financial position, assets,businessor the resultsof its operations at 31 December2018, are presentedin note 16 to the consolidated financial statements. concerning litigation

Risks associated 2.2. with tax inspections

The Group undergoesregular tax inspections in the various countries in which it operates. Althoughthe outcomeof these inspectionsis uncertain, the Group has estimated as accurately as possible the associated risks and has recognised the appropriate provisions for those risks in its financial statements. The outcome of these inspectionscould have a negative impact on

106

2020 annual report