CONTENTS - Capgemini

this trend is set to increase in the future, Capgemini has already
defined and implemented an overall policy to minimize exposure
to exchange rates and manage the resulting risk, particularly
through regular hedging of intercompany flows. These hedges
mainly take the form of forward purchases and sales of currencies
(see Note 18.B).
8.2.6 Financial instruments
Financial instruments are used to hedge in particular interest rate
and currency risks. All hedging positions relate to existing assets
or liabilities and/or operating or financial transactions. Gains and
losses on financial instruments designated as hedges are recognized
on a symmetrical basis with the loss or gain on the hedged items.
The fair value of financial instruments is estimated based on market
prices or data supplied by bank counterparties.
8.2.7 Employee-related liabilities
The present value of pension obligations under funded defined
benefit plans (see Note 19.I), calculated on the basis of actuarial
assumptions, is subject to a risk of volatility. A 0.5% change
in the discount rate used will trigger a corresponding change
in the present value of the liability of approximately 10%. If
trends concerning longer life expectancy at retirement – which
are gradually being reflected in actuarial mortality tables – are
confirmed in the future, the Group’s post-employment benefit
liability may increase.
8.3 Legal risks
The Group’s activities are not regulated and consequently do not
require any specific legal, administrative or regulatory authorization.
In the case of some services, such as outsourcing or specific projects
carried out for clients who are subject to specific conditions
or regulations, the Group itself may be required to comply with
contractual obligations related to such regulations.
The sheer diversity of local legislation and regulations exposes
the Group to a risk of infringement of such legislation and
regulations by under-informed employees, especially those
working in countries that have a different culture to their own.
Legal precautions taken by the Group, particularly those of a
contractual nature, can never provide an absolute guarantee
against such risks.
The Group is not aware of any litigation that is liable to have, or
has recently had, a material impact on its operations, financial
position or future prospects, other than those recognized in
the consolidated financial statements or disclosed in the notes
thereto (see Note 20 – “Current and non-current provisions” and
Note 28 – “Subsequent events”). There are no governmental,
court, or arbitration proceedings, including any proceeding of
which we have knowledge, pending or threatened, that might
have, or has had any material effect on the financial condition
or profitability of the Company and/or the Group during the
last twelve months.
8.4 Risks related to operations
Capgemini is a service provider, and as such, the main risks to
which the Group is exposed are (i) failure to deliver the services
to which it has committed, or (ii) failure to deliver services within
the contractual time-frame and to the required level of quality.
Risks concerning project execution
Contracts are subject to a formal approval procedure prior to signature,
involving a legal review and an assessment of the risks relating
to the project and to the terms of execution. The authority level at
which the contract is approved depends on the size, complexity
and risk profile of the project. The Group Review Board examines
the projects with the most substantial commercial opportunities or
specific risk exposures, as well as proposals for strategic alliances.
Capgemini has developed a unified set of methods known as the
“Deliver” methodology to ensure that all client projects are executed
to the highest standards. Project managers are given specific
training to develop their skills and acquire the appropriate level of
certification for the complexity of projects under their charge. The
Group also has a pro-active policy of seeking external certification
(CMM, ISO, etc.) for its production sites.
Contract execution is monitored using Group-defined management
and control procedures, and complex projects are subject to dedicated
control processes. The internal audit function checks that project
management and control procedures are being properly applied.
Expert teams may also intervene at the request of the Group’s Production
and Quality department to investigate projects that have a
high risk profile or that are experiencing difficulties.
In spite of the formal approval procedure for all client project
commitments undertaken by the Group, in some cases, difficulties
with respect to project execution or project costs may have been
underestimated at the outset. This may result in cost overruns not
covered by additional revenues, especially in the case of fixedprice
contracts, or reduced revenues without any corresponding
reduction in expense in the case of certain outsourcing contracts
where there is a commitment to provide a certain level of service.
The Group may provide a performance and/or a financial guarantee
for certain large contracts (see Note 25.C).
In spite of the rigorous control procedures that the Group applies
in the project execution phase, it is impossible to guarantee that
all risks have been contained and eliminated. In particular, human
error, omissions, and infringement of internal or external regulations
or legislation that is not or could not be identified in time,
may cause damage for which the Company is held liable and/or
may tarnish its reputation.
ANNUAL REPORT 2006 Capgemini
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