2005 Annual Report - Touax

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Risk factors annual report <strong>2005</strong> the river belongs, or, if the river crosses several countries, of a commission made up of members in the countries concerned. In addition to the administrative formalities associated with navigation authorizations, some countries (the USA in particular) consider rivers to be a “strategic defense” sector and subject foreign companies to special authorizations. These authorizations are liable to be modified by political decisions. Regulations can also change, particularly with regard to safety, with new technical specifications being imposed on vessels. Such measures can result in substantial upgrading costs, or even make certain units obsolete (e.g. the requirement whereby oil tankers must have a double-bottomed hull). The Group is currently involved only in dry bulk transport, a sector which is less affected by new transport regulations. Following the return of a leased convoy in France in 2003 comprising a pushboat and two barges, the Group has requested the customer to restore these vessels to their original condition. The customer is contesting this request, as a result of which proceedings have been instituted by and against TOUAX in order to resolve this dispute. For reasons of confidentiality, no sum can be disclosed. In the Netherlands, the Group is owed a sum of €0.5 million following the resolution of a dispute with a customer. To date, no payment has been received. No amount has been recognized in the Group’s financial statements. Following the war in Kosovo, as a result of the embargo and the bombing of the bridges on the Danube, the Group suffered a large loss in Romania. The Group is currently pursuing lawsuits with a view to recovering the losses incurred. For reasons of confidentiality, the significant sums being sought cannot be disclosed. ■ Railcars There are currently no known significant disputes affecting the railcars business. Industrial and environmental risks Economic risk ■ Shipping containers The shipping container leasing market is highly competitive, with a large number of leasing companies, manufacturing plants, financing organizations, etc. The economic risk concerns the risk of losing customers due to a lack of competitiveness. On the basis of the quality of its customer base (23 of the top 25 international shipping operators are currently customers of the Group), the TOUAX Group considers that it provides high-quality services at competitive prices and that it therefore has significant strengths with which to confront the competition. The quality of TOUAX’s customer base also limits the risks of insolvency. The Group relies on daily contact with its customers and a reporting system with weekly analyses of its customer portfolio, enabling it to introduce preventive or corrective measures as necessary. ■ Modular buildings The Group’s modular buildings business mainly involves three distinct markets: building & public works, industry and local and regional authorities. The building & public works market has strict rules defined by the large public works companies. These companies impose their rental prices and terms (framework contracts). They apply penalties when these rules are breached. The demand for modular buildings is closely linked to the mainstream building market. To limit its risks, the Group has on the one hand diversified to appeal to industry and local and regional authorities and on the other hand imposes the same rules on its own suppliers, thus passing on some of the risks to them. The local and regional authorities market is regulated (invitations to tender, strict procedures, etc.). This market is very dependent on government policies and the budgets of local and regional authorities. The demand for modular buildings among these authorities relates mainly to classrooms, crèches and hospital extensions. The risk of a contraction of the market is limited by the term of the leasing contracts, which generally exceeds one year. Furthermore, the Group believes that demand among local and regional authorities will continue to grow. The industrial market is closely linked to levels of investment. The demand for modular buildings is correlated to the cost and availability of office space and hence to the employment situation. The low cost of modular buildings compared to the costs of standard buildings means that growth in demand can be expected in the same way as for local and regional authorities. The extent of this risk is analyzed by country on the basis of monthly reports on the customer portfolio. ■ Railcars Growth in the freight railcar leasing business depends on the deregulation of rail operators. The Group believes that European countries will take further steps towards deregulation and privatization, thereby increasing the competitiveness of rail transport and the volumes transported. Geopolitical risk ■ Shipping containers The demand for containers depends on worldwide economic growth and international trade. Moreover, 20
such demand fluctuates as a function of volumes of containerized traffic and available freight capacities. Geopolitical risk concerns the risk of cyclical recession and the risk of national protectionist measures (customs tariffs, import restrictions, government regulations, etc.). However, the Group believes that it has a low exposure to geopolitical risk, with more than 80% of its leasing contracts having an average term of three to five years and non-revisable leasing rates. The risk is managed by analyzing the breakdown into long- and short-term leasing contracts. ■ River barges In the case of rivers which cross several countries (such as the Danube), there are risks concerning the navigation fee (tax) which is charged to the units by the country to which the portion of the river belongs. Political risk ■ River barges One of the main cargoes transported by river within Europe is coal. Coal transport is linked to the energy policies of the countries using river transport. A European country which changes its choices of energy supply by markedly reducing thermal energy in favor of other forms, such as nuclear, hydro, wind energy or any other form, could lead to overcapacity in river transport and therefore trigger a significant fall in freight volumes. To limit this risk, the Group intends to develop its activities in the area of river barge leasing and has diversified in respect of the materials carried (metals, fertilizers, cereals, cement, waste, etc.). ■ Railcars The Group considers that a large-scale renewal of the freight railcar fleet is necessary due to the aging of the fleet, and that this renewal will take place with the support of the lessors. The railcar leasing market will therefore depend on government policies (combined road-rail transport, boosting of structural investment, etc.). Environmental risk ■ Shipping containers In some countries, notably the United States, the container owner may be liable for any environmental damage caused when the cargo is unloaded. The Group has effected insurance to cover such risks and requires its customers to do likewise. There are no significant past or present disputes relating to environmental risk, particularly since the Group does not operate tank containers. The Group believes that its other activities are not subject to significant environmental risks. Management risk A significant part of the container, modular building and railcar fleet managed by the Group belongs to third-party investors or financial vehicles (special purpose entities) owned by institutional investors. The relations between each investor and the Group are governed by management contracts. The Group does not guarantee any minimum revenue. In certain circumstances, investors can terminate a management contract and demand that assets be transferred to another manager. TOUAX has limited the risk of breach of management contracts by diversifying the number of investors. A summary of the fleet under management is drawn up each month. In the last twenty years, no investor has ever withdrawn the management of these assets from the Group. The formation of financial vehicles (special purpose entities) has resulted in the Group setting up collateral deposits. The financial vehicles can draw on these deposits if the profitability generated by the investment programs proves insufficient. The collateral deposits are reconstituted if profitability improves. On the basis of profitability forecasts, the Group currently considers that it has no unprovisioned risk for loss of collateral deposits. This risk is monitored by means of six-monthly assessments of distributions to investors and daily monitoring of utilization rates and per diem unit revenues. Termination clauses under management contracts vary depending on the program. The main termination clauses are related to: • grave breach of an obligation of the manager (such as proof of discriminatory management), • bankruptcy of TOUAX as a manager, or its dissolution, • non-payment by TOUAX of the revenues collected and owed to its various investors, • change of majority shareholder. In certain specific cases only (in particular securitization), termination may be caused by a poor performance by an investment whose management would have been entrusted to TOUAX. Supply risk The Group is not a manufacturer. In other words, the Group purchases the equipment which it leases. The Group may therefore find itself in a situation whereby it is unable to purchase new equipment rapidly when manufacturing plants no longer have sufficient order capacity. However, this risk is limited in time and only affects the growth of the Group, not the equipment already under lease. ■ Modular buildings The Group may be liable if a subcontractor defaults, up to the limit of the insurance cover. To date, the annual report <strong>2005</strong> 21
Page 1 and 2: 2005 annual report your operational
Page 3 and 4: The message of the general partners
Page 5 and 6: contents Shipping containers 4 Modu
Page 7 and 8: Modular buildings A flexible servic
Page 9 and 10: Freight railcars Services for indus
Page 11 and 12: tion chart River barges FRANCE Sein
Page 13: Stock market Distribution of capita
Page 16 and 17: Responsible persons Persons respons
Page 18 and 19: Selected financial information Sele
Page 20 and 21: Risk factors annual report 2005 Aga
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Page 26 and 27: Information concerning the issuer H
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Page 30 and 31: Brief survey of activities annual r
Page 32 and 33: Organigram Parent-subsidiary relati
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Page 44 and 45: Main shareholders Breakdown of shar
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Significant contracts There are no
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Reports of the Managers Analysis by
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Draft resolutions Combined General
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The present document was filed with
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Tour Arago. 5 rue Bellini 92806 Put
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2005 Annual Report - Touax

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