Reference Document

Risk Factors
4.1. Risks relating to the Group and its activities 4
Losses on one or several large contracts could reduce
Technip’s net income or cause it to incur a loss.
If Technip fails to achieve expected margins or incurs losses on
one or more of its key contracts, it may experience a decrease
in net income or a net loss.
Unforeseen additional costs could reduce Technip’s margin
on lump-sum contracts.
Technip’s engineering, procurement and construction (“EPC”)
projects could encounter difficulties that could lead to additional
costs, lower revenues, litigation or disputes. These projects are
generally complex, requiring the purchase of important equipment
and the management of large-scale construction projects. Delays
could occur and Technip could encounter difficulties with the
design, engineering, procurement, construction or installation
related to these projects. These factors could impact Technip’s
ability to complete certain projects on its initial schedule.
Furthemore, under the terms of certain of Technip’s contracts, its
customers agree to provide certain information relating to design
or engineering, as well as materials or equipment for use on a
particular project. These contracts may also require the customer
to indemnify Technip for any additional work or expenses if the
customer (i) changes its instructions or (ii) is unable to provide
Technip with required information relating to the design or engineering
for the project or adequate materials and equipment.
In these circumstances, Technip generally negotiates monetary
compensation from the customer for any additional time or money
spent as a consequence of the customers’ failure. However, Technip
cannot guarantee that it will receive adequate compensation for
expenses incurred, including through litigation or arbitration. In
such an event, Technip’s earnings and financial condition could
be significantly affected.
Technip could be held liable to pay monetary compensation should
it fail to meet schedules or to comply with other contractual
provisions. Problems with the performance of contracts (present or
future) could also have a significant impact on Technip’s operating
income and harm Technip’s reputation in its industry and with
its customers.
Risks related to subcontractors and suppliers with respect to
lump-sum or cost plus fee contracts.
Technip generally uses subcontractors and suppliers for the performance
of its contracts. Technip’s inability to hire subcontractors or
to acquire equipment and materials could compromise its ability
to generate a significant margin on a project or to complete it
within the contractual timeframe.
If the amount that Technip is required to pay for such services,
equipment or materials exceeds the amount estimated during
the proposal phase for lump-sum contracts, Technip could incur
losses in the performance of such contracts. Any delay on the
part of subcontractors or suppliers in the completion of their
portion of the project, any failure on the part of a subcontractor
or supplier to meet its obligations or any other event attributable
to a subcontractor or supplier that is beyond Technip’s control or
that Technip cannot anticipate can lead to delays in the overall
progress of the project and/or generate potentially significant
extra costs.
Technip performs a credit analysis as part of its selection process
for subcontractors and suppliers, which could lead Technip to not
select a subcontractor or a supplier, to require that they issue
bank guarantees or to adapt their payment conditions to the
risks identified.
Despite this process, failures and defaults by subcontractors or
suppliers could result in significant delays and extra costs, and
Technip could be required to compensate customers for such
delays. Even where these extra costs are borne by the defaulting
supplier or subcontractor, Technip could be unable to recover the
entirety of these costs and this could impact Technip’s financial
results.
Equipment or mechanical failure could impact project costs
and reduce Technip financial results.
The successful execution of projects by Technip is dependent on its
assets being highly reliable. Nevertheless, Technip could experience
equipment or mechanical failures. Equipment or mechanical
failures could not only result in greater project execution costs,
but also lead to delays in ongoing or subsequent projects for which
such assets were intended to be used. Despite the maintenance
program implemented by the Group to keep its assets in good
working condition, failures may still occur. Any equipment or
mechanical failures with respect to Technip’s main assets could
impact a project’s costs, decrease revenues and lead to penalties
for failure to comply with a project’s conditions. Any such event
could significantly affect the economics of a project and Technip’s
results of operations.
Technip’s business could be heavily impacted by national
or international terrorist acts, wars or revolutions, or by
the consequences of such events. Furthermore, a large
number of projects are located in emerging countries where
political, economic and social instability could result in the
cancellation, postponement or delay of those projects.
A large part of Technip’s business in 2009 involves projects in
countries where national or international events related to terrorist
acts, wars or revolutions, acts of subversion or the consequences
of such acts, unforeseen political events or social instability or
changes in economic or social policies (see in particular the
regulatory and legal risks included in Section 4.3 of this Reference
Document) could result in a significant decrease of the Group’s
profi tability and signifi cantly impact its fi nancial results and
situation.
Political instability may also result in fewer new projects meeting
Technip’s criteria. As a result, political instability in emerging
countries could lead to greater costs and therefore significantly
impact the Group’s financial results and limit the Group’s growth
opportunities.
Exposure to a particular area or country can be reduced by choosing
either not to carry out new Projects in that area or country
or by specific analysis and the implementation of preventive and
protective measures against the identified risks, making such risks
acceptable. Technip maintains contact with insurance companies
and export-credit agencies to subscribe when necessary insurance
to cover political risk. However in the event of national or regional
political instability, these insurance policies may be inadequate to
prevent a loss on ongoing projects, which could reduce Technip’s
net income or cause Technip to incur a loss.
2009 Reference Document
011