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2011 Annual report - touax group

2011 Annual report - touax group

Annual

Annual report 2011 4.2. Industrial and environmental risks 4.2.1. Business risk ➜ Shipping Containers Demand for containers is linked to changes in container traffic and total transport traffic. Fluctuations depend on the level of global economic growth and of international trade. In addition, the shipping container leasing market is very competitive with many leasing companies, factories, funding agencies, etc. The economic risk corresponds to the cyclical risk of recession and the risk of loss of customers generated by a lack of competitive advantages. They are limited both by the large number of long-term lease agreements and by the quality of the Group's services and equipment, which reflect the quality of its customer base. Almost 79% of the leased fleet has non-cancelable lease agreements for an average of three to five years with lease prices that cannot be revised. The world's 20 leading shipping lines work with the Group. ➜ Modular Buildings Demand for modular buildings depends on three separate markets: the public buildings and works sector, local authorities and industry. The construction & civil engineering market has strict rules set by the main construction companies. These companies impose their conditions and lease prices (master agreements). They apply penalties in case of failure to abide by the rules. Demand for modular buildings is closely linked to the traditional construction market. Trends in the construction & civil engineering sector depend locally on the risk of cyclical recession and government policies to support or revive the sector in order to maintain demand. To reduce inherent risks, the Group has diversified its business between industries and local authorities, while applying the same rules to its own suppliers, thereby transferring part of the risks. The local authorities market is regulated (invitations to tender, strict procedures, etc.). This market is highly dependent on government and local investment policies and on the budgets allocated. Demand for leasing or purchase of modular buildings by local authorities mainly concerns classrooms, day-care centres and hospital extensions. Risk of a contraction in the market is tempered by the term of the Group’s lease agreements, which are generally for more than one year. The industrial market depends closely on industrial investments. Demand for modular buildings is influenced by office space cost and availability, the employment market, and companies’ needs for flexibility. The low cost of modular buildings compared to traditional buildings, and their flexibility, enable the Group to increase its sales. To limit these risks, the Group is diversifying its activities in several countries. ➜ Freight Railcars Demand for freight railcars is linked to changes in rail transport. The Freight Railcars leasing business benefits from the entrance of new operators on the transport market as a result of rail traffic deregulation and privatization. In addition, demand for freight railcars depends on the development of global trade and intra-European exchanges. Economic risk corresponds to the risk of cyclical recession. This risk does not have an impact on long-term leases. ➜ River Barges Demand for river barges is linked to changes in river transport. Fluctuations depend on the level of economic growth in the countries the rivers flow through, as well as in the countries that import products from these countries. Demand for containerized transport also depends on international trade. Economic risks correspond to the risk of cyclical recession at global or local level. This risk does not have an impact on long-term lease agreements and is limited by geographical diversification of the Group across several basins. 4.2.2. Geopolitical risk ➜ Shipping Containers As the demand for containers depends on international trade, the geopolitical risk corresponds to the risk of protectionist measures taken by countries (customs tariffs, curbed imports, government regulations, etc.). The Group limits its exposure to this risk by signing long-term lease agreements. Risk management is based on an analysis of the breakdown in the Group’s long-term and short-term lease agreements, by customer and geographical area. ➜ River Barges For rivers such as the Danube that cross several countries, there is a risk concerning the tolls levied by each country on boats using their stretch of the river. Thanks to refocusing of the business on leasing, this risk is entirely borne by the lessees. 22

4.2.3. Political risk ➜ Freight Railcars The freight railcars leasing market depends, in part, on European and governmental policies, in particular for the development and renovation of infrastructures. The share of rail transport has fallen significantly over the last few decades due to the lack of these investments. The Group believes creation of the common market in Europe along with the deregulation of rail transport and current structural investment policies will help boost rail transport. ➜ River Barges River transport depends on European and governmental policies to improve river navigability conditions and in particular on projects to create or renovate infrastructures (locks, dredging of rivers). The main goods transported in Europe are coal and cereals. The energy and cereal export policies of states affect demand for river transport. To limit this risk, the Group has refocused on leasing of river barges. 4.2.4. Environmental risk The environmental risks likely to affect the company’s assets or earning are insignificant, since the Group is mainly a service provider. ➜ Shipping Containers In some countries, particularly the US, shipping container owners may be liable for any environmental damage caused as containers are unloaded. The Group has taken out insurance to cover against this type of risk and has obliged its customers to do likewise. No significant disputes have occurred or are currently pending in terms of environmental risks, since the Group does not operate tank containers. ➜ Modular Buildings The environmental impact of the Group’s business of producing modular buildings is particularly limited due to the minimal use of paints and solvents. The Group reduces these risks by complying with current health and safety standards. 4.2.5. Climate risk ➜ River Barges River navigation depends on climatic conditions: precipitation, drought, and ice making it difficult or impossible for barges to pass or limiting unloading. 4.3. Credit and counterparty risk 4.3.1. Counterparty risk concerning customers Provisions for depreciation of the Group's trade receivables are detailed in the notes to the consolidated financial statements, note 18.1.1 page 83. ➜ Shipping Containers Customer default risk is ultimately borne by the equipment owners. As the Group mainly performs third-party asset management for leasing shipping containers, the counterparty risk for customers is low. Moreover, the quality of TOUAX’s customers actually reduces the risks of insolvency. The Group relies on daily contact with its customers and a weekly review and analysis system for its customer portfolio, in order to implement preventive or corrective actions as necessary. ➜ Modular Buildings The Modular Buildings leasing business is diversified among several market segments (Construction & Civil Engineering, Industry, and Local Authorities) and several geographic areas (9 countries). It also has a large number of customers. Customer default risk is highly diversified. Risk analysis is carried out for all new customers. Risks are measured and analyzed for each country based on monthly reviews of the customer portfolio. ➜ Freight Railcars The risk of customer default is ultimately borne by the equipment owners, given that the Group mainly carries out third-party asset management. Most of the Group's customers are railway operators. Risk analysis is systematically done for all new customers. Some customers encountered financial difficulties in 2011 following the crisis suffered since 2008. The risk of default has resulted in increased monitoring, with a monthly review of the customer portfolio, and daily contact with customers. ➜ River Barges Most customers are industrial or logistics groups. The terms of payment of the transport contracts are strict, with payment at the latest before unloading. These terms are common in the river transport market and limit customer default risk. The customer portfolio of the leasing and chartering business line is monitored monthly to manage customer default risk. Poor weather conditions can also affect grain harvests in a given country or region leading to reductions in exports. Climate risk is limited to the river transport and chartering business; it does not influence long-term lease agreements. These risks are limited by the fact that the Group is present in different geographic locations. To minimize this risk, the Group has refocused on the leasing business. Risk factors 23

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