2011 Annual report - touax group

Annual report 2011
4.3.2. Counterparty risk
Counterparty risk from cash and cash equivalents, as well as
from derivative instruments under contract with banks and/or
financial institutions, is managed centrally by the Group's
Treasury and Financing Department.
This risk is discussed in the notes to the consolidated financial
statements, note 26 page 91.
4.3.3. Risk of dependence
➜ Patents, licenses
The Group is not significantly dependent on any patent or
license holders, procurement, industrial, business or financial
agreements, new manufacturing processes and suppliers, or
local authorities.
➜ Customers, suppliers
Leasing is a recurring, stable business. As such, leasing revenues
are not very volatile. The business sectors are distinct, and
the customers and suppliers for each sector are different.
The businesses use low-tech equipment which can easily
be built and leased. In each of its businesses, the Group has a
diversified portfolio of customers and suppliers, and is not
dependent on any one leasing customer or supplier.
Third-party asset management is also a recurring business.
However, the signing of new management programs, and
therefore the sale of equipment and disposal of assets, may
fluctuate considerably from one quarter to another or from
one year to the next. The Group sells equipment to a limited
number of investors: 38% of the revenues from equipment
sales in 2011 came from a single investor. To minimize the risk
of investor dependence, the Group diversifies the number of
investors it works with.
The primary customer accounts for an estimated 13% of revenues,
the top five accounts for 28% of revenues, and the top ten represent
34% of revenues. The primary customer is the equipment investor
mentioned previously.
4.4. Operational risks
4.4.1. Supplier risk
The Group buys part of the equipments it leases. Therefore,
the Group can find itself in the situation of having a product
whose characteristics are not in line with the optimization
needs of the market or not being able to buy new equipment
quickly enough when the factories no longer have the capacity
to accept new orders. Note that the economic uncertainty has
restricted production capacity. This capacity risk is partly limited
over time, and it only has an impact on the Group’s growth, not
on the equipment already leased. Moreover, the Group pays
close attention to the quality of the equipment purchased.
➜ Modular Buildings
In its role as manufacturer, the Group's production of modular
buildings may slow down if a supplier of intermediate
products or spare parts runs into financial or technical trouble.
To overcome any possible breach of contract, the Group is
developing a network of primary and supporting suppliers. This
risk is limited to the new equipment produced by the Group.
➜ River Barges
The fuel market can affect the competitive advantage of the
river transport industry, either due to lack of fuel or to higher
prices. Since the Group has repositioned its businesses on
leasing, this risk is now limited.
4.4.2. Raw material prices risk
Equipment purchase prices vary according to the volatility of
commodity prices, especially steel. Such volatility is not only
attributed to the economic mechanism of supply and demand,
but also to sensitivity concerning exchange rate fluctuations
when commodity prices are listed in dollars (see exchange rate
risk, note 26 page 91).
The rise in commodity prices has a knock-on effect on the final
prices of equipment, while inflation also has a positive impact
on equipment sale prices and residual values. Lease prices are
mainly correlated with equipment prices. In an environment
marked by falling prices, the Group may see an occasional drop
in profitability. This risk is limited due to the length of the Group’s
contracts and its long-life equipment. To date, the Group has
not observed any major drop in prices due to the significant
reduction in production capacity.
Volatile commodity prices can also affect the prices of ordered
equipment for firm purchase agreements spread over time. This
Group is reducing this risk by restricting its firm commitments
and by negotiating indexing mechanisms for commodity prices,
especially steel.
4.4.3. Risk of shipping container location and loss
Containers are sometimes returned by lessees in areas where
demand for containers is low (such as the US). In order to
protect itself from this risk, the Group contractually controls
return locations and applies “penalties” (drop off charge) when
it recovers containers in locations with a low demand.
The Group has also set up a used container sales department
in order to reduce inventory in locations with a low demand.
Container inventory levels at warehouses are monitored every
day and analyzed every month. Furthermore, containers can
also be lost or damaged. In such cases, the Group invoices its
customers for the replacement values previously accepted in
each lease agreement, where the amount is always greater
than the asset’s net book value. Loss or damage due to natural
disasters is either covered by the customer’s insurance policy
or by the policies of the depots.
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