Major risk factors

Automobile Distribution

D’Ieteren Auto’s activity is primarily based on close relations built during the last sixty years with the Volkswagen group and largely depending on the existence of import agreements between both parties. This close relationship also makes the results of D’Ieteren Auto dependent on the success of the models developed by the Volkswagen group. Furthermore, future developments of the European regulation concerning automobile distribution could potentially influence the competitive environment. The development of environmental standards or tax regulation on company cars could have a negative influence on volumes and mix of new vehicles sold. D’Ieteren Lease’s fleet represents an important asset of which the value is largely depending on the used car market development.

Car Rental

Given its extensive geographic coverage, Avis Europe’s business is subject to various risks inherent to international operations and also risks associated with the demand for its services, which in itself is highly seasonal, including disruption to air travel. The group and its licensees are subject to competition from a wide range of other operators both directly and via intermediaries and brokers, increasing the prevalence and intensity of price competition. Fleet costs, one of the most important elements in operating costs, largely depend on the buying conditions negotiated with car manufacturers and the selling conditions on the used car market and therefore depend on the car industry conditions in general. It is important for the activity to have access to the necessary funds in order to finance the fleet. Avis Europe has agreements with Avis Budget Group Inc. (ABG) for the use of the licences of the Avis and Budget brands in specified territories and for the provision of computer systems, marketing initiatives and customer referrals. Any adverse changes to the terms of these agreements or any deterioration in ABG or its business or in the relationship with ABG could have an adverse effect on the group’s financial condition and results of its operations. Significant risks would exist to the stability of the group’s business if access to primary insurance and/or reinsurance was constrained, denied or available only at increased costs that could not be passed on in increased prices.

Vehicle Glass

Belron operates in the vehicle glass repair and replacement (VGRR) market which is dependent on various factors notably weather conditions, changes in the vehicle park and driving speed. Weather extremes create peaks in demand which need to be managed through flexible operations whilst changes in vehicle technology or traffic speed result in changes in breakage rates and thereby overall market size.

The activity is also influenced by insurer decisions towards glass coverage and preferred suppliers. Changes in insurance coverage aff ect motorists’ propensity to act on damage despite the associated safety risk. Belron employs around 22,000 full time equivalents and makes a significant investment in training to insure all its staff is appropriately qualified to fulfil their roles throughout the business. In addition, Belron uses sophisticated information technology and centralised distribution facilities which are key to the business operation and represent key risk points. In addition to its organic operational activities, Belron is also an acquisitive company and accordingly faces the usual risks associated with buying and integrating businesses. Considering its leading position in most markets, Belron also faces the risk with regard to competition law.

Risks related to financial instruments are explained in note 38 of the consolidated financial statements of the annual report 2008.