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RISK FACTORS
94
LISI 2015 FINANCIAL REPORT
2.6
/
OTHER RISKS
2.6.1 Raw materials risks
The LISI Group is potentially exposed to changes in the
costs of the raw materials (steel, alloys, plastics, aluminum,
and titanium) used in the course of its business activities.
Nevertheless, the Group estimates that such price increases
are unlikely to impact negatively on its profit margins. Indeed,
some commercial contracts include price-revision formulae
which allow selling prices to be varied in accordance with
changes to raw material costs. Suppliers work to limited time
frames based on guaranteed-price contacts. At December
31, 2015, the LISI Group uses no financial instruments to
manage its future exposure to changes in the costs of such raw
materials. It can still benefit from agreements with suppliers to
hedge against annual or multi-year periods to limit the impact
of fluctuations in certain ore prices.
2.6.2 Energy-related risks
To cover its energy costs, the Group entered into a supply
contract with electricity company EDF for its French sites (due
to expire in 2017). For foreign sites, similar contracts have also
been entered into, particularly in the Czech Republic and the
UK.
2.6.3 Commercial risks
For the record, the Group manufactures thousands of different
items using various raw materials (steels, alloys, aluminum,
various plastics, titanium, etc.) and employing a wide range of
technologies (cold and hot forging, forming, machining, die
trimming and stamping, plastic injection, heat and surface
treatment). Business risk, representing the risk of loss of
contracts related to a product, is thus spread over a considerable
number of productsmanufactured in the Group's 43 global sites.
The main product families are developed in collaboration with
customers, and the proportion of sales revenue from patented
products plays only a secondary role in total consolidated sales.
2.6.4 Customer-related risks
Looking at the figures for 2015, only three clients accounted
for more than 5% of the LISI Group’s consolidated sales. Our
10 largest customers accounted for 52% of total sales; this
list includes clients of all 3 divisions, LISI AEROSPACE, LISI
AUTOMOTIVE and LISI MEDICAL. Our 51 largest customers
accounted for 80% of sales.
Figures for our 3 largest customers have evolved as follows:
2015
2014
2013
CUSTOMER A
15.0%
15.8%
15.2%
CUSTOMER B
8.0%
6.4%
6.0%
CUSTOMER C
5.5%
5.2%
5.6%
2.6.5 Product-related risks
The LISI Group is exposed to the risk of actions for liability or
to enforce a guarantee by its customers regarding products
sold. It is also subject to liability actions in the event of product
fault leading to injury or damages. To protect itself against such
risks, as described in paragraph 3 below, the LISI Group has
third party liability cover for use of its products after delivery.
The LISI Group’s liability is often limited to compliance with
the original product specifications or customer-defined
specifications; it cannot be extended to the ways in which
products are used. However, it is possible that the insurance
policy taken out may not be sufficient to cover every possible
financial consequence eventuality linked to such claims,
particularly in the USA. This is why the LISI AEROSPACE
division has set up an additional provision for product liability
in the amount of 1% of the division's sales revenue, capped at
€10 million.
2.6.6 Supplier-related risks
As a general rule and in view of the nature of its manufacturing
activities, the Company does not rely exclusively on any one
supplier or strategic subcontractor. The Group’s main suppliers
are those that provide it with raw materials. Outsourcing is
confined mainly to technical applications, primarily specific
heaat treatment and finishing operations (surface treatment
and assembly), since most of the Group’s activities are
integrated. For 2015, the various operations outsourced by the
Group’s sites represented approximately 6.4% of consolidated
sales revenue.
The volume distribution of the main suppliers is as follows:
2015
2014
First supplier
6.6%
3.1%
First five suppliers
15.0%
12.2%
First ten suppliers
20.6%
17.2%
2.6.7 Currency risks
The Group is exposed to the fluctuations of currencies such as
the US dollar against the euro, and to a lesser extent to changes
in the Canadian dollar, the British pound, the Turkish lira, the
Czech crown or the Polish zloty. To reduce this level of risk,
the LISI Group hedges the currency risk through financial
instruments for an estimated amount corresponding to its final
exposure.
The detail of such currency risk hedging is described in Chapter
3, paragraph 2.5.3.3 "Currency risks", as well as the hedging
strategy in place.
2.6.8 Interest rate risk
The Group has hedged a significant part of the interest rate
risk on its loans by swapping variable rates for fixed rates on
medium-term credit lines. The detail of such interest rate