VINCI - 2008 annual report

Report of the Board of Directors
Natural disasters
Like all companies, VINCI may be aff ected by natural disasters such as earthquakes, fl oods, cyclones, lightning or exceptional meteorological
conditions which could lead to the collapse or accidental destruction of Group infrastructure assets under construction or in use. Such events
can lead locally to a signifi cant reduction in the Group’s revenue or to an increase in the costs to maintain or repair its facilities.
Crisis situations need to be managed, and VINCI has made appropriate preparations several years ago by setting up appropriate operational
organisation arrangements.
Actions undertaken, and training provided, relate to alert procedures, the deployment of crisis management arrangements, and crisis management
and resolution. The central organisation involves VINCI’s business units, which have also set up their own crisis management and communication
arrangements to increase eff ectiveness in the event of a crisis. These include planning of resources, both material and human, rapid
deployment of the crisis plan, mobilisation of employees, and optimisation of crisis management systems.
1.2.2 Risks specifi c to VINCI’s business lines
The VINCI companies within each of the Group’s business lines (concessions, energy, roads, construction, property, etc.) are exposed to risks,
of which the prevention, control and daily management lie at the heart of their business.
Concessions and PPPs
The main risks associated with concession and PPP activities relate to design and construction (which are, however, usually borne by the companies
in charge of construction), fi nancing, infrastructure operation, changes in the legal and regulatory framework, and fi nancial risks (infl ation,
interest rates) due in particular to the long-term nature of these activities. Whenever toll receipts account for virtually all the revenue from operating
concessions, the main risks associated with this activity relate to traffi c or infrastructure usage and users’ acceptance of tolls and prices.
Motorway concession operating companies’ traffi c levels may also be aff ected by fuel prices and changes in the economic climate.
Moreover, as price increases applied by the motorway concession operators ASF, Cofi route and Escota) are based principally on infl ation
(excluding tobacco prices), they are exposed to the risk of a decline in the infl ation rate which would result in lower price increases.
The main fi nancial risks and the legal and regulatory risks are described in paragraphs 2 (Financial risks) and 3 (Legal risks) below.
Contracting (VINCI Energies, Eurovia, VINCI Construction)
In fulfi lling orders, Group companies are exposed to the possibility that the actual time and / or cost of construction will be diff erent from the
estimate made when the bid was prepared. Time and cost depend on a number of factors that are diffi cult to forecast, such as the weather or
changes in pay rates, subcontracting costs and raw material prices. Exposure to oil prices aff ects in particular Eurovia, which uses bitumen for
road surfaces, fuel oil in its industrial plants and petrol and diesel in its vehicles and machinery.
Moreover for major projects, the technical complexity of unique infrastructure assets and geological conditions are also areas where unexpected
factors may be important.
Group companies’ activities are also exposed to the risk related to of their customers’ solvency as described in Note 23.4 to the consolidated
fi nancial statements on page 244.
Some of the Group’s activities may also be aff ected by the environmental, industrial and technological risks described in paragraph 4.
Property
The Group’s property development activities are exposed to a number of risks associated in particular with administrative, technical and commercial
factors that could result in delays (or even the abandoning of some projects), budget over-runs and uncertainties regarding the pace of sales
and the sales price of projects.
2. Financial risks
2.1 Counterparty risk
Counterparty risk may result in either a loss of value or a loss of liquidity. The Group is exposed to loss of value in respect of its investments of cash
(subscription to negotiable debt securities, marketable securities, etc.) and in respect of its fi nancial receivables, derivative fi nancial instruments
and guarantees or sureties received. It is exposed to a loss of liquidity on the amounts of its unused confi rmed credit facilities. Counterparty risk
is described in Note 23.4 to the consolidated fi nancial statements on page 244.
2.2 Liquidity risk
The Group’s exposure to liquidity risk relates to its obligations to repay its existing debt and to the fi nancing of its future needs, associated in
particular with the investment programmes of concession operators and with the Group’s general needs.
Details of these obligations and the Group’s resources to meet them (cash fl ow surpluses, unused confi rmed credit lines, fi nancial ratings) are
given in Note 22.2 to the consolidated fi nancial statements, on pages 234 to 237.
Some fi nancial agreements include early repayment conditions applicable in the event of non-compliance with ratios and fi nancial covenants,
which are described in Note 22.2.5 to the consolidated fi nancial statements, on page 236.
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