Financial risks

The ability to finance a high level of current operations and obtain the necessary guarantees

Completion of the Group’s projects requires:

  • an adequate level of financing of current operations;
  • the issue of bank and insurance guarantees in the interest of the client in the various stages of the life of a project (bid bonds, advance payment bonds, performance bonds, retention money bonds and warranty bonds) and parent company guarantees.

Current operations are usually financed through advance payments and stage payments made by the client.

The ability to obtain guarantees at economic cost depends on the issuer’s assessment of the Group’s profitability, capital strength and financial capacity and is usually associated with various assessment ratios including the analysis of the Group’s profitability, capital strength and financial capacity, the analysis of project risk, its experience and its competitive positioning in its sector. Ansaldo STS believes that it complies with the analytical requisites.
At 31 December 2010 the Group had guarantee exposure of EUR 2,314,756 (EUR 1,463,258 at 31 December 2009).

Should there be difficulties in negotiating sufficient financial conditions, delayed or interrupted payments and a worsening of the agreed payment terms, or if the ability to obtain guarantees at economic cost should be lost or reduced, there could be adverse effects on the Group’s business and its profit, capital and financial situation.

To mitigate these risks, our commercial and project management policies take financial needs into account, as well as our centralised management of treasury optimising the cash flow generated by Group entities, the Group’s profitability and financial soundness and monitoring of the indexes used to assess contracts at the offer stage.

Project Financing Transactions and PPP (public and private par tnership)

The market is increasingly oriented towards asking transportation system suppliers to draw up and manage a project finance scheme, involving private sources of finance as well.

These transactions involve several risks, e.g. deficiencies in the drafting and review of the tender documentation and inadequate assessment of the partners, which could expose the Group to inappropriate risks. Non-performance in the construction stage, especially in terms of lead times, and in operation and maintenance could trigger protection clauses and loss of return on, or of invested capital. These risks could have adverse effects on the Group’s profit, capital and financial situation.

To mitigate this risk, the Group’s offer process involves all relevant company departments and risk is assessed, as noted above, in the offer stage, including the assessment of project partners.