2013-vinci-annual-report

C. Risk factors
Numerous internal and external risk factors may affect VINCI’s overall performance, as the Group’s businesses operate in a complex and
changing legislative, regulatory, geopolitical, economic and financial environment.
Due to VINCI’s decentralised organisation, these risks are identified, assessed and handled at the most appropriate level of responsibility
(subsidiary, business line, holding company) depending on their criticality.
VINCI’s risk management and internal control systems enable information on the most critical risks to be reported to and treated at the
centre. Under this system, the Group’s main entities map their risks with the aim of identifying the risk sources and events that could undermine
performance targets. These risks are evaluated according to their potential financial, human or reputational impact and the associated
likelihood of occurrence. The risk maps are reviewed annually.
Provisions are taken for likely risks, including in particular possible losses on completion of construction projects, as specified in Notes 19,
20, 22 and 23 to the consolidated financial statements.
As part of VINCI’s strategy (see page 20), the adaptation of the Group’s products, services and activities to changes in the economic climate
constitutes a major challenge vis-à-vis the operational, financial, legal, environmental and technological risks presented below.
REPORT OF THE BOARD OF DIRECTORS 125
1. Operational risks
1.1 Commitments
Commitments connected to bidding or to the acquisition of businesses constitute the main risk factor faced by VINCI companies. Risk
identification and assessment are an integral part of cost estimates made during the bidding stage of each project. Budgets are then prepared
and updated during the contract execution phase.
1.1.1 Bidding
The Group has a selective bidding policy that includes control procedures for tenders. Before commitments are taken, projects presenting
specific risks, in particular those that exceed the thresholds stated in the general guidelines, are reviewed by business line Risk Committees.
The VINCI Risk Committee reviews the largest projects.
In the Contracting business, VINCI companies seek to protect themselves against project performance risks at an early stage through the
terms and conditions of submissions, and in particular the associated technical, legal and financial commitments.
In addition, the Group’s diversity in its businesses, geographical locations and customers, as well as its multiple contracts, enables risk to
be widely distributed. By way of an example, approximately 36% of the revenue of VINCI Construction France is generated by contracts of
less than €5 million. The Group’s policy is to opt for highly technical projects that allow its know-how to be leveraged, particularly in countries
where the environment is known and manageable. The largest projects are often carried out in joint ventures with other companies, which
limits the Group’s risk exposure for each project.
New public-private partnership (PPP) and concession projects are systematically submitted to VINCI’s Risk Committee for examination and
approval. In order to limit commitments and the amount of risk capital invested in special purpose vehicles, these SPVs are generally developed
in partnership with other companies and are substantially financed by debt, generally with no or limited recourse against VINCI.
1.1.2 Property commitments
VINCI’s property development activities are mainly carried out through its specialised subsidiary, VINCI Immobilier, which accounted for less
than 2% of the Group’s revenue in 2013. VINCI Immobilier’s most physical commitments undergo systematic prior examination by the VINCI
Risk Committee and are subsequently subject to regular follow-up by VINCI Immobilier. Some VINCI subsidiaries, mainly in France, also
participate in property transactions as part of their construction activities. The Group’s policy is to undertake new projects only if the risks
related to the property and its construction are under control and if the pre-sale rate is sufficiently high.
1.1.3 Acquisitions and disposals
VINCI’s external growth policy is to take a majority interest in the share capital of targeted companies in order to limit the risks associated
with the integration of these companies and to be able to apply the Group’s management principles in them. Most proposed acquisitions
and disposals are submitted to the VINCI Risk Committee for approval. The largest projects are also submitted to the Board of Directors,
following examination by the Strategy and Investment Committee (see paragraph 3.6.2. of the section entitled “Corporate governance” in
the Report of the Board of Directors, page 144).
1.2 Contract Performance
1.2.1 General Risks
All of VINCI’s companies are exposed to risks that can affect satisfactory contract performance. The fields involved are detailed below.
Human resources management
VINCI’s success resides in the quality of its managerial model and its ability to attract, train and motivate its employees. Group companies
are therefore exposed to difficulties connected with recruitment and training in key job functions (management, supervisory and specialist
trades) and to the issues of employee health and safety, personnel costs, industrial action and departures.