2011 Annual report - touax group

4.4.4. Technological and quality risk linked
to modular buildings
Modular buildings may be affected by technical obsolescence
following quality improvements in rival equipment or (aesthetic)
upgrades requested by customers. Research into quality
materials generates extra costs. The Group invests in high-quality
equipment over and above existing standards and rival products,
enabling the Group to minimize the extra costs inherent in new
materials.
4.4.5. Sub-contracting risk
➜ Modular Buildings
Taking into account the variety of modular building installation
and set-up sites, the Group uses a significant number of
sub-contractors. The Group has implemented regular monitoring
procedures for sub-contractors. Moreover, the risk is covered
by insurance.
➜ Freight Railcars
The Group provides maintenance of rail equipment as an Entity
in Charge of Maintenance. The Group does not have its own
workshops and has concluded agreements with workshops
whereby they will carry out maintenance for TOUAX. To limit
quality risk, the Group has introduced control systems at all
levels and has daily contacts with the workshops.
4.4.6. Seasonal variation
➜ Modular Buildings
The construction and civil engineering business experiences
seasonal variations, which can slow down the division's
business at certain times of the year. To guard against
this risk, TOUAX strives to balance its business portfolio with
long-term contracts in non-seasonal market segments.
➜ River Barges
The volume of goods transported varies from season to season
and from year to year. The level of demand depends in particular
on agricultural production cycles. To compensate for this, the
Group concludes long-term leases.
4.4.7. Commercial risk
➜ Shipping Containers
Worldwide economic growth, particularly concerning international
trade, has a major impact on the demand for shipping containers.
Growth in the sector was confirmed in 2011 generating demand
for shipping containers. In addition, large ships ordered by the
shipping companies arrived on the market, resulting in a need for
containers. Consequently, the average utilization rate of shipping
containers increased in 2011 to 97 %. In order to limit the impact of
economic cycles, the Group has entered into long-term, fixed-price
agreements and increased sales of secondhand containers.
➜ Modular Buildings
The effects of the crisis have lessened, in particular in the
construction & civil engineering market. Daily prices and
utilization rates have increased. Prices went up on the whole,
with favourable market conditions for leasing companies, in
particular in Germany, Poland and the Czech Republic. At local
level, failure to return to a normal level of business will prevent
price increases and will have a more significant impact on the
operating margin. In order to protect itself against falling prices
and a drop in the utilization rate, TOUAX is diversifying into
segments and regions where prices remain at adequate levels
and is developing its equipment sales businesses.
➜ Freight Railcars
As volumes of goods transported did not significantly increase in
2011, the lessees continued to optimize management of their
fleets, continuing to return equipment or refraining from leasing
new equipment. TOUAX has adapted its commercial offer in
order to maintain its utilization rate. It should be noted however
that demand by customers varied according to the type of equipment.
Since railcars are mobile assets, the Group endeavours to reposition
the equipment, not only in different countries: the Group has also
diversified its range of equipment so that it is better-suited to
customers' requirements.
➜ River Barges
The profitability of this business is affected by the highly
competitive nature of the transport market, combined with
the effects of weather conditions and seasonal variations.
The Group has decided to refocus on the leasing business.
There is demand for barges from players in the river transport
sector, and on the whole there was a big increase in most of the
basins where the Group is present.
4.4.8. Management risk
A considerable portion of the container fleets and freight railcars
managed by the Group belongs to third-party investors or investment
companies owned by institutional investors. Management
contracts govern relations between each investor and the
Group. The Group does not guarantee any minimum revenues
and, under certain conditions, investors can terminate
the management contract and request that their assets be
transferred to another manager.
TOUAX has reduced the risk of terminated management
contracts by diversifying the number of investors. A report
summarizing the assets under management is produced every
month. Not one investor has withdrawn management of its
assets from the Group in the last 20 years.
Risk factors 25