Risks and uncertainties

MAIN RISKS AND UNCERTAINTIES TO WHICH EXOR S.p.A. and its principal subsidiaries are EXPOSED

Risks associated with general economic conditions

The earnings and financial position of EXOR and its principal investment holdings are particularly influenced by the general state of the economy in the countries in which they operates and by the variables which affect performance, including increases or decreases in gross national product, access to credit, the level of consumer and business confidence, the cost of raw materials and the rate of unemployment.

The global economic recession in 2008 and in the first part of 2009 had a negative impact on the principal investment holdings. Currently, the weak economic situation in Europe and Italy elicits a great deal of uncertainty over the industrial and economic future of the eurozone; concerns persist regarding the overall global stability of the region and the suitability of the euro as a single currency. In particular, considerable attention is being given to the sovereign debt of some countries in the European Union and their ability to cope with future financial commitments regardless of the actions taken by individual governments and the European and international monetary authorities to meet debt obligations and the risk of default. 

In general, the sectors in which the principal investment holdings operate have historically been subject to highly cyclical demand and tend to reflect the overall performance of the economy, in certain cases even amplifying the effects of economic trends. Given the difficulty of predicting the magnitude and duration of economic cycles, there can be no assurances as to future trends in the demand for or supply of products and services sold by them in any of the markets in which they operate.

Moreover, the markets in which the principal companies operate are exposed to variations in energy and raw material prices or a possible reduction in infrastructure investments.

Accordingly, particular circumstances could have a material adverse effect on the earnings and/or financial position and business prospects of the investment holdings.

RISKS ASSOCIATED WITH EXOR’S ACTIVITIES

EXOR carries out investment activities which involve typical risks such as high exposure to certain sectors or investments, difficulties in identifying new investment opportunities that meet the characteristics of the Company's objectives or difficulties in disposing of investments owing to changes in general economic conditions. The potential difficulties connected with making new investments such as unexpected costs or liabilities could have an adverse effect on the Company's earnings and financial position.
The ability to access capital markets or other forms of financing and the related costs are dependent, among other things, on the Company's credit rating.

Any downgrade by the rating agencies could limit the Company's ability to access capital markets and increase the cost of capital, with a consequent adverse effect on its earnings and financial position.
Standard & Poor's has confirmed EXOR's long-term and short-term debt ratings (respectively, BBB+ and A-2) modifying the outlook from negative to stable.

EXOR's policy and that of the companies in the Holdings System is to keep liquidity available in demand or short-term deposits and readily negotiable money market instruments, bonds and equity securities, allocating such investments over an appropriate number of counterparties, with the principal purpose of having investments which can readily be converted into cash. The counterparties are chosen according to their creditworthiness and reliability.
However, in consideration of the current international financial market situation, market conditions which might negatively affect the normal operations of financial transactions cannot be excluded.

EXOR's earnings not only depend on the market value of its principal investment holdings but also on the dividends they pay and, in the end, reflect their earnings and financial performance and investment and dividend payment policies. A worsening of the financial market conditions and the earnings of the principal investment holdings could affect EXOR's earnings and cash flows.

EXOR operates through its investments in subsidiaries and associates in Agricultural and Construction Equipment (Fiat Industrial Group), in the automobile market (Fiat Group), in real estate services (C&W Group), in real estate (Almacantar Group), in paper (Sequana Group), in tourism (Alpitour Group) and in professional football (Juventus Football Club). As a result, EXOR is exposed to risks typical of the markets and industries in which such subsidiaries and associates operate.

At the same date, EXOR also holds an investment in SGS (15% of capital) for an equivalent amount of €1,501 million, equal to 21.9% of EXOR’s investment portfolio. Accordingly, EXOR is exposed to risks typical of the market in which such company operates.

At December 31, 2011, the investments in Fiat Industrial (30.45% of ordinary share capital, 30.09% of preferred share capital and 18.15% of savings share capital) and in Fiat (30.47% of ordinary share capital, 30.09% of preferred share capital and 14.08% of savings share capital) represented, respectively, 34.9% and 18.9% of the current value of EXOR's investment portfolio, calculated on the basis of the NAV (Net Asset Value) method described on page 5.

Therefore, the performance of the Fiat Industrial Group and the Fiat Group has a very significant impact on EXOR's earnings and financial position.

EXOR and its subsidiaries and associates are exposed to fluctuations in currency and interest rates and use financial hedging instruments, compatible with the risk management policies adopted by each of them. Despite these hedging transactions, sudden fluctuations in currency or interest rates could have an adverse effect on earnings and financial position.
The subsidiaries and associates are generally exposed to credit risk which is managed by specific operating procedures. Given its activities, EXOR is not significantly exposed to such risk.
EXOR and its subsidiaries and associates are exposed to risks connected with the outcome of pending litigation for which they set aside, if appropriate, specific risk provisions. However, negative effects on the earnings and financial position of EXOR and/or its subsidiaries and associates connected with such risks cannot be excluded.

The following paragraphs indicate the main specific risks and uncertainties of the companies in consolidation (Fiat Industrial Group, Fiat Group, C&W Group, Juventus Football Club and Alpitour Group).

FIAT INDUSTRIAL GROUP

Fiat Industrial Group – Risks connected with global financial markets and general economic conditions

The Group’s earnings and financial position may be influenced by various macroeconomic factors – including increases or decreases in gross domestic product, the level of consumer and business confidence, changes in interest rates on consumer and business credit, energy prices, the cost of commodities or other raw materials – which exist in the various countries in which it operates.

For example, the on-going effects of the global economic recession that began in 2008, including the eurozone crisis, continue to have a negative impact on the earnings of companies within the Group. Weak economic conditions resulted in a significant decline in demand for most of the products produced by the Group. Demand in the capital goods sector, in particular, is highly correlated to the economic cycle and can be subject to even greater levels of volatility. Disruption in global financial markets or any continuation of economic recession could ultimately affect the industrial development of many businesses, including those of the Group.

In Europe, despite measures taken by several governments, international and supranational organizations and monetary authorities to provide financial assistance to eurozone member states of the European Union in economic difficulty and to face the possibility of default by certain European countries on their sovereign debt obligations, concerns persist regarding the debt burden of certain eurozone countries and their ability to meet future financial obligations, the overall stability of the euro and the suitability of the euro as a single currency (or, in more extreme circumstances, the possible dissolution of the euro entirely), given the diverse economic and political circumstances in individual eurozone member states. Such potential developments could adversely affect the businesses and operations of the Group. Although the Group considers dissolution of the euro and disruption of the European Monetary Union a highly unlikely scenario, and although the Group’s diversified product portfolio and international presence lessens its dependence on a single market and exposure to economic conditions or political instability in any one country or region, its businesses are nonetheless sensitive to changes in economic conditions. Accordingly, the present global credit and financial crisis, as well as the failure of European and international rescue packages could have a material adverse effect on the Group’s business prospects, earnings and/or financial position.

Fiat Industrial Group - Risks associated with financing requirements

The Group’s future performance will depend on, among other things, its ability to finance debt repayment obligations and planned investments from operating cash flow, available liquidity, the renewal or refinancing of existing bank loans and/or facilities and possible recourse to capital markets or other sources of financing. Although the Group has measures in place to ensure that adequate levels of working capital and liquidity are maintained, any declines in sales volumes could have a negative impact on the cash-generating capacity of its operating activities. The Group could, therefore, find itself in the position of having to seek additional financing and/or refinance existing debt, including in unfavorable market conditions with limited availability of funding and a general increase in funding costs. Any difficulty in obtaining financing could have a material adverse effect on the Group's business prospects, earnings and/or financial position.

Fiat Industrial Group - Risks associated with the credit rating of Fiat Industrial S.p.A.

On January 5, 2011, Moody’s Investors Service assigned Fiat Industrial S.p.A. a Ba1 Corporate Family Rating and a short-term “Not Prime” rating, with stable outlook. On February 24, 2011, Standard & Poor’s Rating Services confirmed Fiat Industrial’s long-term rating of BB+ with negative outlook, assigned on November 4, 2010, and a short-term rating of B.

The ability to access the capital markets or other forms of financing and the related costs are dependent, amongst other things, on the Group’s credit ratings. Any further downgrades could increase the Group’s cost of capital and potentially limit its access to sources of financing with a consequent material adverse effect on the Group’s business prospects, earnings and/or financial position.

Fiat Industrial Group - Risks associated with fluctuations in currency, interest and credit risk

The Group, which operates in numerous markets worldwide, is naturally exposed to market risks stemming from fluctuations in currency and interest rates. The exposure to currency risk is mainly linked to the difference in geographic distribution between the Group's manufacturing activities and its commercial activities, resulting in cash flows from exports denominated in currencies that differ from those associated with production activities.

The Group uses various forms of financing to cover funding requirements for its industrial activities and for financing customers and dealers. The Financial Services companies operate a matching policy to offset the impact of differences in rates of interest on the financed portfolio and related liabilities. Nevertheless, changes in interest rates can result in increases or decreases in revenues, finance costs and margins.

Consistent with its risk management policies, the Group seeks to manage currency and interest rate risk through the use of financial hedging instruments. Despite such hedges being in place, however, sudden fluctuations in currency or interest rates could have an adverse effect on the Group’s business prospects, earnings and/or financial position.
The Group's Financial Services activities are also subject to the risk of insolvency of dealers and end customers, as well as unfavorable economic conditions in markets where these activities are carried out, which the Group seeks to mitigate through credit policies applied to dealers and end customers.

Fiat Industrial Group - Risks associated with relationships with employees and suppliers

In many countries where the Group operates, Group employees are protected by various laws and/or collective labor agreements that guarantee them, through local and national representatives, the right of consultation on specific matters, including downsizing or closure of production activities and reductions in personnel. Laws and/or collective labor agreements applicable to the Group could impair its flexibility in reshaping and/or strategically repositioning its business activities. The Group’s ability to reduce personnel or implement other permanent or temporary redundancy measures is subject to government approvals and the agreement of the labor unions. Industrial action by employees could have an adverse impact on the Group’s business activities.

Furthermore, the Group purchases raw materials and components from a large number of suppliers and relies on services and products provided by companies outside the Group. Some of these companies are highly unionized. Close collaboration between a manufacturer and its suppliers is common in the industries in which the Group operates and although this offers economic benefits in terms of cost reduction, it also means that the Group is more reliant on its suppliers and is exposed to the possibility that difficulties, including of a financial nature, experienced by those suppliers (whether caused by internal or external factors) could have a material adverse effect on the Group's business prospects, earnings and/or financial position.

Fiat Industrial Group - Risk associated with increase in costs, disruption of supply or shortage of raw materials

Fiat Industrial uses a variety of raw materials in its business including steel, aluminum, lead, resin and copper, and precious metals such as platinum, palladium and rhodium. The prices for these raw materials fluctuate and at times in recent periods, prices have increased significantly in response to changing market conditions. Fiat Industrial seeks to manage this exposure, but it may not be successful in hedging these risks. Substantial increases in the prices for raw materials would increase the Group’s operating costs and could reduce profitability if the increased costs will not be offset by changes in product prices. In addition, certain raw materials are sourced only from a limited number of suppliers and from a limited number of countries. The Group cannot guarantee that it will be able to maintain arrangements with these suppliers that assure access to these raw materials, and in some cases this access may be affected by factors outside of Group’s control and the control of its suppliers. For instance, the recent earthquake and tsunami in Japan have negatively affected commodity markets, and any similar future event may have severe and unpredictable effects on the price of certain raw materials in the future. As with raw materials, the Group is also at risk for supply disruption and shortages in parts and components for use in its products.

Any interruption in the supply or any increase in the cost of raw materials, parts and components could negatively impact Group’s ability to achieve growth in product sales and improved profitability.

Fiat Industrial Group - Risks associated with management

The Group’s success is largely dependent on the ability of its senior executives and other members of management to effectively manage the Group and individual areas of business. The loss of any senior executive, manager or other key employee without an adequate replacement or the inability to attract and retain new, qualified personnel could therefore have an adverse effect on the Group’s business prospects, earnings and/or financial position.

Fiat Industrial Group - Risks associated with the high level of competition in the industries in which the Group operates

Substantially all of the Group’s revenues are generated in highly competitive sectors that include the production and distribution of agricultural and construction equipment, trucks and commercial vehicles, and related powertrain systems. The Group faces competition from other international manufacturers of trucks and commercial vehicles in Europe and Latin America and from global, regional and local agricultural and construction equipment manufacturers, distributors and component suppliers in Europe, North America and Latin America. These markets are highly competitive in terms of product quality, innovation, pricing, fuel economy, reliability, safety, customer service and financial services offered. Competition, particularly in pricing, has increased significantly in the Group’s areas of activity in recent years. Should the Group be unable to adapt effectively to external market conditions, this could have an adverse effect on its business prospects, earnings and/or financial position.

Fiat Industrial Group - Risks associated with selling in international markets and exposure to changes in local conditions

A significant portion of the Group’s existing activities are conducted and located outside of Italy and the Group expects that revenues from sales outside Italy – and, more generally, outside of the European Union – will account for an increasing portion of total revenues. The Group is subject to risks inherent to operating globally, including those related to:

  • exposure to local economic and political conditions;
  • import and/or export restrictions;
  • multiple tax regimes, including regulations relating to transfer pricing and withholding and other taxes on remittances and other payments to or from subsidiaries;
  • foreign investment and/or trade restrictions or requirements, foreign exchange controls and restrictions on repatriation of funds; and/or
  • the introduction of more stringent laws and regulations.

Unfavorable developments in any one of these areas (which may vary from country to country in which the Group operates) could have a material adverse effect on the Group’s business prospects, earnings and/or financial position.

Fiat Industrial Group - Risks associated with environmental and other government regulation

The Group’s products and activities are subject to numerous environmental laws and regulations (local, national and international) which are becoming increasingly stringent in many countries in which it operates (particularly in the European Union). Such regulations govern, among other things, products – with requirements for emissions of polluting gases, reduced fuel consumption and safety becoming increasingly stricter – and industrial plants – with requirements for emissions, treatment of waste and water and prohibitions on soil contamination becoming increasingly stricter. To comply with such regulations, the Group employs considerable resources and expects it will continue to incur substantial costs in the future.

In addition, government initiatives to stimulate consumer demand for products sold by the Group, such as changes in tax treatment or purchase incentives for new vehicles, can substantially influence the timing and level of revenues. The size and duration of such government measures is unpredictable and outside of the Group’s control. Any adverse change in government policy relating to those measures could have a material adverse effect on the Group’s business prospects, operating results and/or financial position.

Fiat Industrial Group - Risks associated with the ability to offer innovative products

The success of the Group's businesses depends on their ability to maintain or increase share in existing markets and/or to expand into new markets through the development of innovative, high-quality products that provide adequate profitability. In particular, the failure to develop and offer innovative products that compare favorably to those of the Group’s principal competitors in terms of price, quality, functionality and features, or delays in bringing strategic new products to market, could result in reduced market share, having a material adverse effect on the Group's business prospects, earnings and/or financial position.

Fiat Industrial Group - Risks associated with operating in emerging markets

The Group operates in a number of emerging markets, both directly (e.g., Brazil, Argentina and India) and through joint ventures and other cooperation agreements (e.g., Turkey, China and Russia). The Group’s exposure to these countries has increased in recent years, as has the number and importance of such joint ventures and cooperation agreements. Economic and political developments in these markets, including economic crises or political instability, have had and could in future have a material adverse effect on the Group's business prospects, earnings and/or financial position.

Fiat Industrial Group - Risks associated with the capital goods market

More than other sectors, producers in the capital goods sector, such as CNH and Iveco are subject to:

  • the condition of financial markets, in particular, the ability to access the securitization market and prevailing interest rates in that market. In North America, in particular, CNH makes considerable use of asset-backed securitization to fund financing offered to dealers and end customers. Negative conditions in the financial markets, and the asset-backed securitization market in particular, could have a significant impact on the Group's business prospects, earnings and/or financial position;
  • cyclicality, which can cause sudden declines in demand, with negative effects on inventory levels and product pricing, both new and used. In general, demand in the capital goods sector is highly correlated to the economic cycle and can be subject to even greater levels of volatility.

Fiat Industrial Group - Risks associated with the agricultural and construction equipment markets

Performance of the agricultural equipment market is influenced, in particular, by factors such as:

  • the price of agricultural commodities and the relative level of inventories;
  • the profitability of agricultural enterprises;
  • the demand for food products;
  • agricultural policies, including aid and subsidies to agricultural enterprises, provided by major governments and/or supranational organizations.

In addition, unfavorable climactic conditions, especially during the spring, a particularly important period for generating sales orders, could have a negative impact on the decision to buy agricultural equipment and, consequently, on the Group’s revenues.

Performance of the construction equipment market is influenced, in particular, by factors such as:

  • public infrastructure spending;
  • new residential/non-residential construction.

The above factors can significantly influence the demand for agricultural and construction equipment and, consequently, the Group's financial results.

FIAT GROUP

Following is a brief description of main risks and uncertainties that could potentially have a significant impact on the activities of Fiat S.p.A and its subsidiaries, that since June 2011 include Chrysler. Other risks and uncertainties, which are currently unforeseeable or considered to be unlikely, could also have a significant influence on the operating performance, financial position and future prospects of Fiat Group

Fiat Group - Risks associated with global financial markets and general economic conditions

The Group’s earnings and financial position may be influenced by various macroeconomic factors – including increases or decreases in gross domestic product, the level of consumer and business confidence, changes in interest rates on consumer and business credit, energy prices, the cost of commodities or other raw materials and the rate of unemployment – within the various countries in which it operates.

For example, the global economic recession in 2008 and the first half of 2009 had a negative impact on the Group’s earnings. Weak economic conditions resulted in a significant decline in demand for most of the Group’s products. The current economic weakness in the eurozone, including Italy, casts serious uncertainty on the possible evolution of the economic activity in this region in the foreseeable future. In Europe, despite the measures taken by several governments, international and supranational organizations and monetary authorities to provide financial assistance to euro area member states of the European Union in economic difficulty and to face the possibility of default by certain European countries on their sovereign debt obligations, concerns persist regarding the debt burden of certain eurozone countries and their ability to meet future financial obligations, the overall stability of the euro and the suitability of the euro as a single currency (or, in more extreme circumstances, the possible dissolution of the euro entirely), given the diverse economic and political circumstances in individual member states of the eurozone. These potential developments could adversely affect the businesses and operations of the Group.

Following the acquisition of control of Chrysler in 2011, nearly 45% of Group’s on-going revenues are generated in the NAFTA region. Substantially all of Chrysler’s vehicles sales occur in North America (U.S. and Canada). Although Chrysler is seeking to increase the proportion of its vehicle sales outside of North America (directly or through Fiat), it anticipates that its results of operations will continue to depend substantially on vehicle sales in the principal North American markets, particularly the U.S. Any significant deterioration in the economic conditions in the U.S. and/or Canada may consequently adversely affect Fiat Group’s result of operations, financial position and cash flows.

In general, the sector in which the Group operates has historically been subject to highly cyclical demand and tends to reflect the overall performance of the economy, in certain cases even amplifying the effects of economic trends. Given the difficulty in predicting the magnitude and duration of economic cycles, there can be no assurances as to future trends in the demand for or supply of products sold by the Group in any of the markets in which it operates.

Additionally, even in the absence of slow growth or recession, other economic circumstances – such as increases in energy prices, fluctuations in prices of raw materials or contractions in infrastructure spending – could have negative consequences for the industry in which the Group operates and, together with the other factors referred to previously, could have a material adverse effect on the Group’s business prospects, earnings and/or financial position.

Fiat Group - Risks associated with the high level of competitionand cyclicality of the automobile industry

Substantially all of the Group’s revenues are generated in the automobile industry, which is highly competitive and encompasses the production and distribution of passenger cars, light commercial vehicles and the related components and production systems. The Group faces competition from other international passenger car and light commercial vehicle manufacturers and distributors and components suppliers in Europe, North and Latin America. These markets are highly competitive in terms of product quality, innovation, pricing, fuel economy, reliability, safety, customer service and financial services offered.
Competition, particularly in pricing, has increased significantly in the Group’s industry sector in recent years. In addition, partly as a result of the contraction in demand for automobiles, global production capacity for the car industry significantly exceeds current demand. This overcapacity, combined with high levels of competition and weakness of major economies, could intensify pricing pressures.

Fiat has a relatively high proportion of fixed costs and may have significant limitations on the ability to reduce fixed costs by closing facilities and/or reducing labor expenses. Fiat’s competitors may respond to these conditions by attempting to make their vehicles more attractive or less expensive to customers by adding vehicle enhancements, providing subsidized financing or leasing programs, offering option package discounts, price rebates or other sales incentives, or by reducing vehicle prices in certain markets. In addition, manufacturers in countries which have lower production costs have announced that they intend to export lower-cost automobiles to established markets. These actions have had, and could continue to have, a negative impact on Fiat’s vehicle pricing, market share, and operating results. Offering desirable vehicles that appeal to customers can mitigate the risks of stiffer price competition, while offer of vehicles that are perceived to be less desirable (whether in terms of price, quality, styling, safety, or other attributes) can exacerbate these risks.

In the Automobiles business, sales to end customers are cyclical and subject to changes in the general condition of the economy, the readiness of end customers to buy and their ability to obtain financing and the possible introduction of measures by governments to stimulate demand. The sector is also subject to constant renewal of the product offering through frequent launches of new models. A negative trend in the automobiles business could have a material adverse impact on the business prospects, earnings and/or financial position of the Fiat Group.
Should the Group be unable to adapt effectively to external market conditions, this could have a material adverse effect on its business prospects, earnings and/or financial position.

Fiat Group - Risks associated with the ability to offer innovative products

The success of the Group's businesses depends, among other things, on their ability to maintain or increase their share in existing markets and/or to expand into new markets through the development of innovative, high-quality products that provide adequate profitability. In particular, a failure to develop and offer innovative products that compare favorably to those of the Group’s principal competitors in terms of price, quality, functionality and features, or delays in bringing strategic new models to market, could result in reduced market share, having material adverse effects on the Group's business prospects, earnings and/or financial position.

Fiat Group - Risks associated with the policy of targeted industrial alliances

The Group has engaged in the past, and may engage in the future, in significant corporate transactions such as mergers, acquisitions, joint ventures and restructurings, the success of which is difficult to predict. There can be no assurance that any such significant corporate transaction which might occur in the future will not encounter administrative, technical, industrial, operational, regulatory, political, financial or other difficulties (including difficulties related to control and coordination among different shareholders or business partners) and thus fail to produce the benefits expected of it. The failure of any significant strategic alliance, joint venture, merger or similar transaction could have an adverse effect on the Group’s business prospects, earnings and/or financial position.

Fiat Group – Risks associated with the alliance with Chrysler

The acquisition of a controlling interest in Chrysler and the related alliance is intended to provide both Fiat and Chrysler with a number of long-term benefits, including sharing new vehicle platforms and powertrain technologies, as well as procurement benefits, management services and global distribution opportunities. The alliance is also intended to facilitate both parties penetration in several international markets where the companies’ products would be attractive to consumers, but where one of the parties does not have significant penetration.
The ability to realize the benefits of the alliance is critical for Fiat and Chrysler to compete with their competitors. If the parties are unable to convert the opportunities presented by the alliance into long-term commercial benefits, either by improving sales of our vehicles and service parts, reducing costs or both, the Group’s financial condition and results of operations will be materially adversely affected.

Additionally, any adverse development in the Chrysler investment and the related alliance could have a material adverse effect on the Group’s business prospects, financial condition and results of operations. Therefore, if the investment and the related alliance do not bring their intended benefits or changes in circumstances at Fiat or Chrysler occur, there may be a material adverse effect on the Group’s business prospects, financial condition and results of operations.

Fiat Group - Risks associated with selling in international markets and exposure to changes in local conditions

The Group is subject to risks inherent to operating globally, including those related to:

  • exposure to local economic and political conditions;
  • import and/or export restrictions;
  • multiple tax regimes, including regulations relating to transfer pricing and withholding and other taxes on remittances and other payments to or from subsidiaries;
  • foreign investment and/or trade restrictions or requirements, foreign exchange controls and restrictions on repatriation of funds; and/or
  • the introduction of more stringent laws and regulations.

Unfavorable developments in any one of these areas (which may vary from country to country in which the Group operates) could have a material adverse effect on the Group’s business prospects, earnings and/or financial position.

Fiat Group - Risks associated with operating in emerging markets

The Group operates in a number of emerging markets, both directly (e.g., Brazil and Argentina) and through joint ventures and other cooperation agreements (e.g., Turkey, India, China and Russia). The Group’s exposure to these countries has increased in recent years, as have the number and importance of such joint ventures and cooperation agreements. Economic and political developments in emerging markets, including economic crises or political instability, have had and could in the future have material adverse effects on the Group's business prospects, earnings and/or financial position.

Fiat Group - Risks associated with relationships with employees and suppliers

In many countries where the Group operates, Group employees are protected by various laws and/or collective labor agreements that guarantee them, through local and national representatives, the right of consultation on specific matters, including downsizing or closure of production units and reductions in personnel. The laws and/or collective labor agreements applicable to the Group could impair its flexibility in reshaping and/or strategically repositioning its business activities. The Group’s ability to reduce personnel or implement other permanent or temporary redundancy measures may be subject to government approvals and the agreement of the labor unions. Industrial action by employees could have an adverse impact on the Group’s business activities.

Furthermore, the Group purchases raw materials and components from a large number of suppliers and relies on services and products provided by companies outside the Group. Some of these companies are highly unionized. Close collaboration between a manufacturer and its suppliers is common in the industries in which the Group operates and although this offers economic benefits in terms of cost reduction, it also means that the Group is reliant on its suppliers and is exposed to the possibility that difficulties, including those of a financial nature, experienced by those suppliers (whether caused by internal or external factors) could have a material adverse effect on the Group's business prospects, earnings and/or financial position.

Fiat Group - Risk associated with increase in costs, disruption of supply or shortage of raw materials

Fiat uses a variety of raw materials in its business including steel, aluminum, lead, resin and copper, and precious metals such as platinum, palladium and rhodium. The prices for these raw materials fluctuate and at times in recent periods, these commodity prices have increased significantly in response to changing market conditions. Fiat seeks to manage this exposure, but it may not be successful in hedging these risks. Substantial increases in the prices for raw materials would increase the Group’s operating costs and could reduce profitability if the increased costs will not be offset by changes in vehicle prices. In addition, certain raw materials are sourced only from a limited number of suppliers and from a limited number of countries. The Group cannot guarantee that it will be able to maintain arrangements with these suppliers that assure access to these raw materials, and in some cases this access may be affected by factors outside of Group’s control and the control of its suppliers. For instance, the recent earthquake and tsunami in Japan have negatively affected commodity markets, and any similar event may have severe and unpredictable effects on the price of certain raw materials in the future. As with raw materials, the Group is also at risk for supply disruption and shortages in parts and components for use in its vehicles.

Any interruption in the supply or any increase in the cost of raw materials, parts and components could negatively impact Group’s ability to achieve growth in vehicle sales and improved profitability.

Fiat Group - Risks associated with environmental and other government regulation

The Group’s products and activities are subject to numerous environmental laws and regulations (local, national and international) which are becoming increasingly stringent in many countries in which it operates (particularly in the European Union). Such regulations govern, among other things, products – with requirements relating to emissions of polluting gases, reduced fuel consumption and safety becoming increasingly strict – and industrial plants – with requirements for emissions, treatment of waste and water and prohibitions on soil contamination. In order to comply with such laws and regulations, the Group employs considerable resources and expects it will continue to incur substantial costs in the future.

In addition, government initiatives to stimulate consumer demand for products sold by the Group, such as changes in tax treatment or purchase incentives for new vehicles, can substantially influence the timing and level of revenues. The size and duration of such government measures are unpredictable and outside of the Group’s control. Any adverse change in government policy relating to those measures could have material adverse effects on the Group’s business prospects, earnings and/or financial position.

Fiat Group - Risks associated with management

The Group’s success is largely dependent on the ability of its senior executives and other members of management to effectively manage the Group and individual areas of business. The loss of any senior executive, manager or other key employees without an adequate replacement or the inability to attract, retain and incentivize senior executive managers, other key employees or new qualified personnel could therefore have a material adverse effect on the Group’s business prospects, earnings and/or financial position.

Fiat Group - Risks associated with financing requirements

The Group’s future performance will depend on, among other things, its ability to finance debt repayment obligations and planned investments from operating cash flow, available liquidity, the renewal or refinancing of existing bank loans and/or facilities and possible recourse to capital markets or other sources of financing. Although the Group has measures in place that are designed to ensure levels of working capital and liquidity are maintained, further declines in sales volumes could have a negative impact on the cash-generating capacity of its operating activities. The Group could, therefore, find itself in the position of having to seek additional financing and/or having to refinance existing debt, including in unfavorable market conditions with limited availability of funding and a general increase in funding costs. Any difficulty in obtaining financing could have material adverse effects on the Group's business prospects, earnings and/or financial position.

Fiat Group - Risks associated with Fiat indebtedness as a result of the acquisition of Chrysler’s control

Even after the acquisition of control by Fiat, Chrysler continues to manage financial matters, including funding and cash management, separately. Additionally, Fiat has not provided guarantees or security or undertaken any other similar commitment in relation to any financial obligation of Chrysler, nor does it have any commitment to provide funding to Chrysler in the future.

In any case, certain bonds issued by Fiat include provisions that may be affected by circumstances related to Chrysler. In particular these bonds include cross-default clauses which may accelerate Fiat’s obligation to repay its bonds in the event that a “material subsidiary” of Fiat fails to pay certain debt obligations on maturity or is otherwise subject to an acceleration in the maturity of any of those obligations. As a result of Fiat’s acquisition of control over Chrysler, Chrysler Group LLC is a “material subsidiary” and certain of its subsidiaries may become material subsidiaries of Fiat within the meaning of those bonds. Therefore, the cross-default provision could require early repayment of the Fiat bonds in the event Chrysler’s debt obligations are accelerated or are not repaid at maturity. There can be no assurance that the obligation to accelerate the repayment by Chrysler of its debts will not arise or that it will be able to pay its debt obligations when due at maturity.

Fiat Group - Risks associated with Fiat’s credit rating

The ability to access the capital markets or other forms of financing and the related costs are dependent, amongst other things, on the Group’s credit ratings. Following downgrades by the major rating agencies in the first quarter of 2009 and during 2011, Fiat is currently rated below investment grade, with ratings on its long-term debt of Ba2 (Ba3 for senior unsecured bonds) from Moody’s Investors Service Inc., BB with Credit Watch Negative from Standard & Poor’s Ratings Services (a subsidiary of The McGraw-Hill Companies, Inc.), and BB from Fitch Ratings Ltd., the outlook is negative in all three cases. The rating agencies review their ratings at least annually and, as such, the assignment of new ratings to Fiat during 2012 cannot be excluded. It is not currently possible to predict the timing or outcome of any rating review. Any further downgrades would increase Fiat’s cost of capital and potentially limit its access to sources of financing with a consequent material adverse effect on Fiat’s business prospects, financial condition and/or results of operations.

Chrysler has been assigned a corporate credit rating of B2 (with a positive outlook) by Moody’s Investor Service and B+ (with a stable outlook) by Standard & Poor’s. Because Chrysler is more highly leveraged and has a lower corporate credit rating than Fiat, it is possible that consolidation of Chrysler’s financial information into Fiat’s financial information could result in a rating review of Fiat and potentially a lower credit rating.

Fiat Group - Risks associated with restrictions arising out from Chrysler’s debt instruments

In connection with the refinancing transactions finalized at the end of May 2011, Chrysler entered into a credit agreement for the senior secured credit facilities (including a revolving facility) and an indenture for two series of secured senior notes. These debt instruments include covenants that restrict Chrysler’s ability to make certain distributions, prepay other debt, encumber assets, incur additional indebtedness, engage in certain business combinations, or undertake various other business activities.

The credit agreement governing the senior secured credit facility and the indenture governing the secured senior notes contain restrictive covenants that limit Chrysler’s ability to, among other things:

  • incur or guarantee additional secured indebtedness;
  • pay dividends or make distributions or purchase or redeem capital stock;
  • make certain other restricted payments;
  • incur liens;
  • sell assets;
  • enter into sale and lease-back transactions;
  • enter into transactions with affiliates (as defined in the relevant contractual documents), including Fiat; and
  • effect a consolidation, amalgamation or certain merger or change of control (except for the acquisition of control by Fiat).

These restrictive covenants could have an adverse effect on Chrysler’s business by limiting its ability to take advantage of financing, mergers and acquisitions, joint ventures or other corporate opportunities. In addition, the Senior Credit Facilities contain, and future indebtedness may contain, other and more restrictive covenants and also prohibit Chrysler from prepaying certain of their indebtedness. The Senior Credit Facilities require Chrysler to maintain borrowing base collateral coverage and a liquidity threshold. A breach of any of these covenants or restrictions could result in an event of default on the indebtedness and any of the other indebtedness of Chrysler or result in cross-default under certain of its indebtedness.

Furthermore, the indenture governing the VEBA Trust Note limits the ability of Chrysler’s subsidiaries to incur debt.

If Chrysler is unable to comply with all of these covenants, it may be in default, which could result in the acceleration of its outstanding indebtedness and foreclosure on mortgaged properties. In this case, Chrysler may not be able to repay its debt and it is unlikely that it would be able to borrow sufficient additional funds. In any case, even if new financing is made available to Chrysler in such circumstances, it may not be available on acceptable terms.

In addition, compliance with certain of these covenants could restrict Chrysler’s ability to take certain actions that its management believes are in Chrysler’s best long-term interests.

Should Chrysler be unable to undertake strategic initiatives due to the covenants provided for by the above instruments, Fiat business prospects, financial condition and/or results of operations could be harmed.

Fiat Group - Risks associated with fluctuations in currency, interest and credit risk

The Group, which operates in numerous markets worldwide, is naturally exposed to market risks stemming from fluctuations in currency and interest rates. The exposure to currency risk is mainly linked to the difference in geographic location between the Group's manufacturing activities and its commercial activities, resulting in cash flows from exports denominated in currencies that differ from those associated with production activities.

The Group uses various forms of financing to cover funding requirements for its industrial activities and for financing customers and dealers. Moreover, liquidity for industrial activities was also principally invested in variable-rate or short-term financial instruments. The Financial Services companies normally operate a matching policy to offset the impact of differences in rates of interest on the financed portfolio and related liabilities. Nevertheless, changes in interest rates can result in increases or decreases in revenues, finance costs and margins.

Consistent with its risk management policies, the Group seeks to manage risks associated with fluctuations in currency and interest rates through the use of financial hedging instruments. Despite such hedges being in place, sudden fluctuations in currency or interest rates could have a material adverse effect on the Group’s business prospects, earnings and/or financial position.

The Group's Financial Services activities are also subject to the risk of insolvency of dealers and end customers, as well as unfavorable economic conditions in markets where these activities are carried out, which the Group seeks to mitigate through the credit approval policies applied to dealers and end customers.

Risks associated with the availability of adequate financing for Chrysler’s dealers and retail customers

In the United States and Canada, Chrysler’s dealers enter into wholesale financing arrangements to purchase vehicles from Chrysler and retail customers use a variety of finance and lease programs to acquire vehicles. Insufficient availability of financing to dealers and retail customers contributed to sharp declines in Chrysler’s vehicle sales during 2008, and was one of the key factors leading to Chrysler’s bankruptcy filing.

Chrysler’s lack of a captive finance company may increase the risk that dealers and retail customers will not have access to sufficient financing on acceptable terms and may adversely affect vehicle sales in the future. Furthermore, most of Chrysler’s competitors operate and control their own captive finance companies: as a result, they may be better able to implement financing programs designed principally to maximize vehicle sales in a manner that optimizes profitability for them and their captive finance companies on an aggregate basis. Since Chrysler’s ability to compete also depend on access to appropriate sources of financing for dealers and retail customers, its lack of a captive finance company could adversely affect its results of operations. In addition, unless financing arrangements other than for retail purchase continue to be developed and offered by banks to retail customers in Canada, Chrysler’s lack of a captive finance company could present a competitive disadvantage in Canada, since banks are restricted by law from providing retail lease financing in Canada.

In connection with the 2009 restructuring of the U.S. automotive industry, and with the assistance of the U.S. Treasury, Chrysler entered into an auto finance relationship with Ally Financial Inc. (hereafter “Ally”); the agreement with Ally extends through April 20, 2013, with automatic one year renewals unless either party elects not to renew. Ally historically was the captive finance company of General Motors Company, one of Chrysler’s main competitors.

Pursuant to this agreement, Ally is neither obligated to provide financing to dealers, nor is Ally required to fund a certain number of vehicle sales or leases for customers. On the other hand, Chrysler must offer all subvention programs to Ally, and it is required to ensure that Ally finances a specified minimum percentage of the units sold by Chrysler in North America under rate subvention programs in which it elects to participate.

Chrysler expects Ally to provide services comparable to those Ally provides to its other strategic business partners, including General Motors. Nevertheless, Chrysler’s ability to fully realize the value of their relationship with Ally may be adversely affected by a number of factors, including General Motors’ historic and ongoing relationship with Ally, and General Motors’ current equity ownership in Ally.

To the extent that Ally is unable or unwilling to provide sufficient financing at competitive rates to Chrysler’s dealers and retail customers, and dealers and retail customers do not otherwise have sufficient access to such financing. As a result, Chrysler’s vehicle sales and market share may suffer, which would adversely affect its and Fiat’s financial condition and/or results of operations.

Fiat Group - Risks associated with Chrysler’s pension plans

Chrysler’s defined benefit pension plans are currently underfunded and its pension funding obligations may increase significantly if investment performance of plan assets does not keep pace with increases in obligations. These funding obligations may increase based upon the future returns on the assets placed in trusts for these plans, the level of interest rates used to determine funding levels, the level of benefits provided for by the plans, investment decisions that do not achieve adequate returns and any changes in applicable law related to funding requirements.

Chrysler’s defined benefit pension plans currently hold significant investments in equity and fixed income securities, as well as investments in less liquid instruments such as private equity, real estate and hedge funds. Due to the complexity and magnitude of certain of their investments, additional risks may exist, including significant changes in investment policy, insufficient market capacity to complete a particular investment strategy, and an inherent divergence in objectives between the ability to manage risk in the short term and inability to quickly rebalance illiquid and long-term investments.

To determine the appropriate level of funding and contributions to Chrysler’s defined benefit pension plans, as well as the investment strategy for the plans, Chrysler is required to make various assumptions, including an expected rate of return on plan assets and a discount rate used to measure the obligations under the defined benefit pension plans. Interest rate increases generally will result in a decline in the value of fixed income securities while reducing the present value of the obligations. Conversely, interest rate decreases will increase the value of fixed income securities, partially offsetting the related increase in the present value of the obligations.

If the total values of the assets held by Chrysler’s defined benefit plans fall and/or the returns on these assets underperform the relevant assumptions, Chrysler pension expenses and contributions could increase and, as a result, could materially adversely affect the Group’s financial condition and/or results of operations. If Chrysler fails to make required minimum funding contributions, it could be subjected to reportable event disclosure to the Pension Benefit Guaranty Corporation, as well as interest and excise taxes calculated based upon the amount of funding deficiency.

If Fiat’s ownership in Chrysler were to exceed 80%, Fiat may become subject to certain US legal requirements making it secondarily responsible for any funding shortfall in certain of Chrysler’s pension plans in the event Chrysler were to become insolvent.  Chrysler’s organizational documents contain certain protections designed to ensure that Fiat will not inadvertently become subject to these obligations.

C&W Group

The following is a summary of the risks and uncertainties that could potentially have a significant impact on the activities of C&W Group, Inc. (C&W).  Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

C&W – Risk associated with general economic conditions

Periods of economic weakness or recession, significantly rising interest rates, declining employment levels, declining demand for commercial real estate, falling real estate values, or the public perception that any of these events may occur, may negatively affect the performance of some or all of our service lines.

C&W – Risks associated with adverse developments in the credit markets

Our Capital Markets service line is sensitive to credit cost and availability as well as marketplace liquidity. Disruptions in the credit markets may adversely affect our business of providing advisory services to owners, investors and occupiers of real estate in connection with the leasing, disposition and acquisition of property.

C&W – Risks associated with our “Credit Facility”

Our credit agreement imposes operating and other restrictions on C&W and many of its subsidiaries. These restrictions affect, and in many respects limit or prohibit, various activities including financing of ongoing operations, strategic acquisitions, investments, payment of dividends, distributions on or repurchases of capital stock.

C&W – Risks associated with the seasonality of our business

A significant portion of our revenue is seasonal, which can affect our ability to compare our financial condition and consolidated results of operations on a quarter-by-quarter basis. Historically, this seasonality has caused our revenue, operating income, net income and cash flows from operating activities to be lower in the first two quarters and higher in the third and fourth quarters of each year. The seasonality of our business makes it more difficult to determine during the course of the year whether planned results will be achieved, and thus to adjust to changes in conditions. 

 C&W – Risks associated with the impairment of our goodwill and other intangible assets

A significant and sustained decline in our future cash flows, a significant adverse change in the economic environment or slower revenue and EBITDA growth rates could result in the recognition of goodwill or other intangible asset impairment charges, which could materially adversely affect our results of operations.

C&W – Risks associated with non-U.S. dollar currency fluctuations

Our revenue from non-U.S. operations is denominated primarily in the local currency where the associated revenue was earned while the functional currency of C&W is the U.S. dollar. During 2011, approximately 39% of our gross revenue was transacted in non-U.S. currencies.  Over time, fluctuations in the value of the U.S. dollar relative to the other currencies in which we may generate earnings could adversely affect our business, financial condition and operating results.

C&W – Risks associated with litigation and damage to our professional reputation as a result of litigation allegations and negative publicity.

C&W and its licensed employees are subject to regulatory and other obligations. Failure to fulfill these obligations could subject us or our employees to litigation from parties for whom we provided services.   Some of these litigation risks may be mitigated by insurance we maintain in amounts we believe are appropriate.

C&W – Risks associated with significant competitors and potential future competitors, some of which may have greater financial and operational resources than we do

C&W competes across a variety of business disciplines within the commercial real estate services industry. Although many of its competitors are local or regional firms and are substantially smaller than C&W, some of these competitors are larger on a local or regional basis. We are also subject to competition from other large national and multi-national firms that have similar service competencies to ours. In general, there can be no assurance that we will be able to compete effectively, to maintain current fee levels or margins, or maintain or increase our market share.

C&W – Risks associated with operations in many jurisdictions with complex and varied tax regimes

C&W opera in paesi con regimi fiscali complessi e in continuo cambiamento. Questo determina un’aliquota d’imposta effettiva variabile. Eventuali controversie con le autorità fiscali e conseguenti potenziali richieste di pagamenti d’imposte potrebbero avere un effetto negativo sul risultato.

C&W – Risks associated with the failure to maintain and protect our intellectual property or the infringement of the intellectual property rights of third parties

Our business depends, in part, on our ability to identify and protect proprietary information and other intellectual property (such as our trademark, client lists and information, business methods and research).  Our inability to detect unauthorized use or take appropriate or timely steps to enforce our rights may have an adverse effect on our business.

Juventus Football Club

Juventus Football Club - Risks associated with general economic conditions (industry risk)

In the short term, Juventus’ earnings and financial position are not influenced significantly by overall economic conditions given that most of Juventus’ revenue items stem from long-term contracts. Nonetheless, if the weakness and uncertainty of the Italian and European economy should become long-term, the activities, strategies and prospects of Juventus Football Club may be adversely affected in particular as concerns radio and TV rights, sponsorships, revenues from the new Stadium and also sales activities targeted at team supporters.

Juventus Football Club - Risks associated with activities (strategies and operational process risk)

Players' registration rights represent Juventus Football Club’s factor of production. Sports activities are subject to risks connected to physical health and fitness. Injuries and accidents, therefore, can potentially have a significant impact at any time on Juventus Football Club’s earnings and financial position.

At the same time, given that the business also focuses on the commercial exploitation of the brand, trademark infringement by third parties is another risk Juventus Football Club faces. The arrival on the market of a large number of imitation goods bearing Juventus Football Club’s trademark or the occurrence of events that may impair the market value of the trademark would have an adverse effect on its earnings and financial position.

Finally, there are risks connected with supporter behavior which may result in fines, sanctions or other punishments being levied on Juventus Football Club and indirect damages to the club’s image which may lead to lower stadium turnout and lower merchandising sales.

Juventus Football Club - Risks associated with the Transfer Campaign (strategic process risk)

Juventus Football Club's earnings and financial position are significantly affected by the acquisitions and disposals made as part of Transfer Campaigns. Difficulty in correlating individual transactions to the development plan and to the annual sports management guidelines could potentially have an adverse impact on Juventus Football Club’s financial position and income statement. Moreover, having a squad of players that does not meet the technical and tactical requirements of the trainer and the strategic needs of the sporting director raises the risk of not being able to optimize the playing side, bringing unexpected or excessive costs (amortization charges, players' wages).

Juventus Football Club - Risks associated with failure to qualify for sports tournaments (strategic process risk)

Juventus Football Club’s earnings are significantly affected, both directly and indirectly, by the results achieved by the team in the various tournaments it takes part in, especially the UEFA Champions League. Direct entry to the tournament is currently assured to the top two ranking teams in the Serie A Championship, while the third-placed team has the opportunity of qualifying through a preliminary qualifying round. Failure to qualify for the tournament, even where due to a reduction in the number of participating teams, as well as failure to obtain UEFA licensing, would potentially have an adverse impact on Juventus Football Club’s earnings and financial position.

Juventus Football Club - Risks associated with the dependence on radio and television rights (strategic process risk)

Juventus Football Club’s revenues are closely tied to proceeds from the sale of radio and television rights, the terms and conditions of those rights, and how such rights are sold. New rules governing the ownership of broadcasting rights to sports events and the distribution of proceeds, applicable starting from the 2010/2011 financial year (introduced by Legislative Decree 9 of January 9, 2008) have reduced and may further reduce Juventus’ revenues, bringing a significant impact on Juventus’ earnings, financial position and cash flows.

Juventus Football Club - Risks associated with the sponsorship market (industry risk)

The current economic situation has had repercussions for sports sponsorships, as sponsors today prefer to shorten the time horizon of the promotional/advertising investments they undertake. The effect of this shift in the market in the short term has been to lower the proportion of long-term sponsorship revenues compared to the past. If the economic crisis should continue, growth in sponsorship revenues may fall below expectations, with possible consequent impacts on Juventus’ earnings, financial position and cash flows.

Juventus Football Club - Risks associated with the new Stadium investment (strategic and operational process risk)

Starting with the 2011/2012 season, Juventus became the first Serie A team to own its own stadium. This means that Juventus Football Club now has responsibility for the stadium with the consequent risks associated with the structure of the stadium and management of the surrounding public areas used for parking. Management of the new stadium and public parking areas during events may lead to unexpected costs, including due to damage or vandalism beyond Juventus' control. However, these are risks common to all football clubs.

Juventus Football Club - Risks associated with funding requirements (industry risk)

Numerous factors affect Juventus’ financial position. These include the fulfillment of sports and business objectives, as well as trends in general economic conditions and in the markets in which Juventus Football Club operates.

Based on the Development Plan for the years 2011/2012 – 2015/2016 approved by the board of directors' meeting held on June 23, 2011 and the share issue proposed to back the Plan, Juventus intends to meet its funding requirement and planned investments from cash flows from operations and prudent use of bank credit facilities.

In accordance with its risk management policy, Juventus has credit facilities in place with a number of premier banking institutions to prevent cash flow shortages from arising. In addition to this, Juventus Football Club holds its cash and cash equivalents as demand deposits or short-term deposits with a suitable number of different banks, to ensure the prompt availability of the funds. Nevertheless, given the adverse situation of financial markets, the emergence of bank and money market situations that may interrupt normal financial transactions cannot be excluded and may give rise to cash flow shortages in the event that credit facilities were also restricted.

Juventus Football Club - Risks associated with fluctuations in interest rates and exchange rates (financial process risk)

Juventus uses various forms of funding to assure the cash flows needed for its business. These include credit lines for cash advances and credit commitments, financial leases, and special purpose loans for mid/long-term investments. Changes in interest rates can raise or lower the cost of servicing these loans. Juventus Football Club has decided to make use of financial instruments to hedge the risk of fluctuations in interest rates. Despite these hedges, sudden changes in interest rates could potentially have an adverse impact on Juventus Football Club’s financial position and income statement.

Juventus conducts almost all its purchase and sale transactions in Euro. As a result, it is not exposed in any significant way to the risk of exchange rate fluctuations.

Juventus Football Club - Risks associated with the outcome of pending litigation (compliance risk)

With the assistance of its legal advisors, Juventus constantly manages and monitors all pending litigation and, on the basis of the predicable outcome, when necessary, makes accruals in specific provisions.

On the basis of pending litigation, future negative effects, both significant and insignificant, on Juventus’ earnings, financial position and cash flows cannot be excluded.

ALPITOUR GROUP

Alpitour Group - General risks

The trend in demand for tourist packages is always acutely influenced by outside factors such as political risks (conflicts, institutional changes, unilateral acts of government and terrorism), the international economic situation, natural disasters and health scares (e.g. pandemics).

The international political situation, especially in situations of war and terrorist threats, could generate a contraction in demand for the Alpitour Group’s services. Areas located in developing countries or plagued by unstable political and social instability are clearly more exposed to this type of risk.

Another risk factor is caused by the ravages of weather such as tsunamis, hurricanes, earthquakes, volcanic eruptions as well as pandemics or epidemics which could cause a sharp decline in demand for tourism services to the affected destinations.

A negative international economic environment could significantly affect the propensity of clients to purchase tourist packages, leading them to place more emphasis on primary needs.

Alpitour Group - Risks typical of the tourism sector

The Alpitour Group (with the exception of incoming activities) operates mostly with Italian clientele in that the product offered features qualitative standards that mirror the expectations and needs of Italian demand. Therefore, the business is strongly influenced by domestic economic conditions, interest rates, taxes, uncertainty over future economic prospects and the shift towards other goods and services in spending choices. Moreover, the fall in consumption after the slowdown in economic growth may lead to a considerable decline in the number of passengers.

The style and habits of the Italian clientele mean that the earnings of the tourism sector are highly seasonal and for the most part revenues are concentrated in the summer season.

The typical activities of the Alpitour Group use services provided by third parties, mainly suppliers of air and hotel services and travel agencies, whether individual or part of networks. The risk that such services will not be rendered efficiently and without interruption may compromise the earnings of the Alpitour Group and damage its image.

The Alpitour Group, because of its vertical integration, its presence in all the links of the tourism chain, the diversification of key suppliers and specific sales policies aimed at sustaining demand in the low season, believes that it can manage and minimize such risks.

Alpitour Group - Risks relating to information technology processes

The tourism sector is firmly anchored to information technology processes which cover the entire business cycle starting from the booking system. The risk of the interruption, even temporarily, of information systems could cause difficulties in operations and in supplying services to clients

By continually updating and maintaining its systems and designing specific disaster recovery plans, as well as holding commercial contracts with leading suppliers of substitute technologies, the Alpitour Group has all the means necessary to monitor and meet such risks.

Alpitour Group - Financial risks

Alpitour Group is exposed to financial risks such as credit risk, liquidity risk, exchange rate risk, interest rate risk and fuel price fluctuations.

The exposure to credit risk is an innate risk of the Group’s activities and is mainly represented by the amount of trade receivables. The concentration of credit risk, however, is mitigated by the fact that exposure is spread over a large number of counterparties and customers, as well as by bank guarantees obtained to safeguard against greater exposure. Trade receivables are recognized in the financial statements net of writedowns calculated on the risk of non-fulfillment by the counterparties, determined by considering information available on the clients’ solvency and historical data.

The Alpitour Group is subject to liquidity risk which may arise as a result of difficulties in obtaining loans to support operating activities at the appropriate times. Cash flows, financing needs and the liquidity of the group companies are monitored and managed centrally by the group treasury function with the aim of ensuring an effective and efficient management of financial resources. In order to keep refinancing costs to a minimum and ensure that the necessary cash flows are obtained on a timely basis according to the group’s operating needs, the central treasury function secures sufficient credit lines.

The Alpitour Group is exposed to market risk from exchange rate fluctuations, especially the U.S. dollar, since it operates on an international level. The Alpitour Group uses loans and financing transactions to support its operating requirements. The change in interest rates may have an impact on earnings. The Alpitour Group, and, in particular, the tour operating division, based on the conditions in the contracts for the purchase of air transport services, is exposed to risks of fluctuation in fuel prices mainly in association with international political stability and other outside factors.

The Alpitour Group regularly assesses its exposure to the various types of risk and manages such risks through the use of traditional instruments and derivatives according to its management and control policy. This policy does not allow activities of a speculative nature and the use of derivatives is reserved for exposure to fluctuations in exchange rates, interest rates and fuel prices for hedging purposes.

Exposure to exchange rate risk on commercial transactions in foreign currency is hedged mainly by forward, forward knock-in and plain vanilla call option contracts. Exposure to interest rate risk on medium/long-term loans is mostly hedged by interest rate swaps and zero costs collars.

Finally, exposure to the risk of fluctuations in fuel prices is hedged by commodity swaps.

The counterparties of such contracts are leading Italian and international financial institutions with high ratings.

As regards the exchange rate risk and the price fluctuation risk of oil, according to the sales contract conditions of tourist packages, the organizers of the trip have the right to adjust the sales prices for the increase in the costs of the services generated by these two variables.

 

Commercial Register No.64236277 Legal notes | Credits