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2011 Annual report - touax group

2011 Annual report - touax group

Annual

Annual report 2011 In response to the creation of financial vehicles (ad hoc companies), the Group has set up collateral deposits. Financial vehicles can tap into the collateral deposits when returns from the investment programs are insufficient. Collateral deposits are topped up if returns improve. To date and according to profitability forecasts, the Group believes it does not have any unprovisioned risk of losing its collateral deposits. This risk is monitored as part of a half-yearly appraisal of the Group’s distributions to investors, together with daily monitoring of the utilization rates and per diem unit revenues. Management contract termination clauses vary according to the program. The main reasons for which contracts can be terminated are as follows: • material non-performance of any one of the manager’s obligations (such as evidence of discriminatory management), • bankruptcy or winding-up of TOUAX in its capacity as an asset manager, • failure by TOUAX to pay any revenues collected and owing to its different investors, • a change in the majority shareholder. Only in certain specific cases (particularly securitization) a contract can be terminated due to poor performance of an investment managed by TOUAX. 4.4.9. Psycho-social risk The Group's success depends to a large extent on the expertise and pro-active capabilities of its teams. These are even more in demand in times of economic uncertainty. Increasing pressure, more stringent demands across the entire production line, and uncertainty concerning the end of the crisis are part of the teams' daily environment, causing stress and difficulties in the workplace. The senior management endeavours to be close to the teams to preserve the Group's human capital. 4.5. Liquidity risk The TOUAX Group's top priorities for managing its liquidity risk are to ensure financial continuity, to meet its commitments at their due dates, and to optimize the cost of debt. The Group has carried out a specific review of its liquidity risk, and considers it is able to meet its commitments at the future due dates. 4.6. Market risk Market risks include currency risk, interest-rate risks, and risk on securities held. 4.6.1. Interest-rate risk The TOUAX Group relies on loans for both its development requirements and its investment policy. A large share of its loans apply a variable interest rate. Most of the Group's interest-rate risk is related to its variable interest-rate loans. Interest rate risk management is described in the notes to the consolidated financial statements, note 26 page 91. 4.6.2. Currency risk Information on currency risk and its management is provided in note 26 of the notes to the consolidated financial statements, page 91. Because of its international presence, the TOUAX Group is naturally exposed to currency fluctuations. These fluctuations may affect the Group's results via the conversion into euros of accounts for its subsidiaries outside the euro zone. This makes it difficult to compare performance between two fiscal years. The Group's exposure to currency risk is mainly linked to fluctuations in the US dollar, the Czech crown and the Polish zloty against the euro. The Group believes it has minimal exposure to operational currency risk, as income and expenses are generated in the same currency. The Group considers that a 10 % decrease in the exchange rate of the US dollar vs. the euro would cause a 2.3 % drop in current operating income. Similarly, a 10 % drop in the Czech crown and the Polish zloty would cause a drop in current operating income of 0.7 % and 1.3 % respectively. 4.6.3. Risk on equity and other financial instruments The Group's strategy is to invest its excess cash in UCITS (Undertakings for Collective Investments in Transferable Securities) money market funds, for a short-term. The Group has no dealings on the financial stock markets. Equity risk management is described in the notes to the consolidated financial statements, note 26 page 91. Liquidity risk management is assessed according to the Group's requirements set forth in the notes to the consolidated financial statements, note 26 page 91. The list of loans containing specific clauses and commitments is mentioned in note 18.2.3 page 86. 26

➜ Risk of dilution for shareholders The Group's strategy is based on the growth and development of various fleets. This strategy requires considerable funding. One of the methods used by the Group is to issue a call for funds to equity markets. Shareholders who do not subscribe to the call for funds are exposed to a risk of dilution of their stake in TOUAX's capital. The table below lists the calls for funds over the past five years: (€ thousands) Bond with Equity Equity redeemable call call equity (share (issue Year warrant capital) premium) Target 2007 40,393.3 growth 2008 6,236.6 17,072.7 growth 2009 7,622.0 10,537.4 growth 2010 2011 4.7. Insurance – coverage of the risks Risks concerning the lessor’s civil liability in terms of operating equipment are always covered. Only the risks relating to operating losses are not always covered. The Managing partners and business managers are responsible for assessing and covering the risks of operating losses in line with market conditions. The Group has a systematic policy of insuring its tangible assets and its general risks. The Group has three types of insurance policy: equipment insurance, operational liability insurance, and liability insurance for company officers. The Group does not have a captive insurance company. The risk of losses or damage to tangible assets in the Modular Buildings, River Barges and Freight Railcars divisions is covered by the equipment insurance policy (comprehensive property insurance). Insurance for tangible assets in the Shipping Containers division is delegated to the Group’s customers and suppliers (warehouses) in accordance with standard business practices. Operating losses arising from lost or damaged tangible assets are covered by tangible assets insurance. Third-party liability insurance of the TOUAX SCA parent company covers personal injury occurring in the normal course of operation. The Group’s subsidiaries each have their own third-party liability insurance. Public liability insurance for company officers covers incumbent and acting managers of the Group whose liability could be invoked due to an act of professional misconduct as part of their management, supervisory or leadership activity performed with or without a mandate or delegated authority. The Shipping Containers business has third-party liability insurance. Equipment is insured directly by customers and warehouses in accordance with standard business practices. Modular Buildings insurance guarantees the value of equipment as a whole and specifically when it is at warehouses or on lease and when the customer has neglected to take out insurance during the lease term. In particular, this insurance covers the risks of explosions, fire, hurricanes, storms, collisions, water damage, natural disasters, theft, and so on. River Barges insurance guarantees against damage, loss, third-party claims and costs arising from a navigation accident, explosion, fire or any case of force majeure and more specifically damage arising from a malfunction to the propulsion and steering mechanisms, machine breakages, electrical damage, leaks, damages arising from poor berthing or loading, mooring risks, damage to engineered structures, risks of pollution, and costs arising from investigations, surveys, proceedings, and legal representation. Insurance includes contractual third-party liability for entrusted barges belonging to third parties, coverage for the transporter’s liability such as defined by legislation and regulations, and coverage for the goods transported. Coverage and guarantee amounts depend on the vessels and waterways. Note that risks of war are covered for barges operating along the Danube. The Freight Railcars business has third-party liability insurance and equipment damage insurance covering the cost of losses and damages arising from natural disasters, fires, explosions, theft or loss, and any event beyond the Group’s reasonable control. Insurance also covers loss of lease revenues if a damaged railcar is immobilized for repairs. The Group believes adequate coverage is in place for its risks, especially those concerning its equipment. Risk factors 27

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