VINCI - 2005 annual report

B. RISK FACTORS
1. OPERATING RISKS
1. 1 CONSTRUCTION, ROADS, ENERGY
In general, VINCI Construction’s, Eurovia’s and VINCI Energies’ businesses
are dependent on the economic climate and public-sector orders. If these
decrease, pressure on business volumes and prices may result.
In fulfi lling orders, Group companies are also exposed to the risk that the
actual time and / or cost of construction will be different from the estimate
made when the contract was awarded. Time and cost depend on a certain
number of factors that are diffi cult or impossible to forecast such as changes
in raw material prices, labour and sub-contracting costs, diffi culties
connected with the technical complexity of the project to be built, and
climatic and geological conditions.
Group companies are also exposed to the risk of customer insolvency.
The risks described above are lessened by the fact that Group companies’
revenue arises from a large number of contracts. These are estimated to
number approximately 300,000 a year. They are generally of a modest size
and last a few months, involving a very diverse range of skills, geographical
locations and customers.
1. 2 PROPERTY
The Group’s property development activities are exposed to a number of
risks connected in particular to administrative, technical and commercial
factors that could result in delays (or the abandoning of some projects),
budget over-runs and uncertainties regarding the sales price of properties.
VINCI’s exposure to property risks is limited. The Group’s property development
activities are mainly carried out through its specialised subsidiary,
VINCI Immobilier. This company’s activities are concentrated in the Paris
Region and France’s main conurbations. In 2005, they accounted for less
than 2% of the Group’s revenue.
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VINCI 2005 ANNUAL REPORT
The major projects carried out by VINCI Construction Grands Projets
account for less than 7% of the Construction division’s revenue and less
than 3% of the Group’s consolidated revenue. In this area, the Group’s
policy is to favour projects with high technical value added, allowing its
know-how to be leveraged in countries where the environment is known
and manageable. These major projects are also usually carried out with
outside companies in consortia in order to limit the Group’s risk exposure.
Regarding order-taking, the Group has set up a policy for selecting new
business. Procedures to monitor commitments at an early stage have been
implemented for a long time. The budgetary procedures and reporting
and internal control systems in each business line and at holding company
level also enable regular (usually monthly) monitoring of key management
indicators and a periodic review of each entity’s results. All these procedures
are described in the “Report of the Chairman on the work of the Board
of Directors and on internal control procedures”, page 169.
Some VINCI subsidiaries may also participate in isolated property development
operations in connection with the Group’s construction activities,
mainly in France, Belgium and Luxemburg.
Property development projects are submitted to the Risk Committee for
prior examination and agreement. The Group’s policy is to undertake new
projects only if all risks are under control and if the property is suffi ciently
pre-sold.