Production Risks Maintaining Lectra’s R&D and production in France has enabled the Group to meet three challenges, namely: to compete with the low-cost products of its international competitors that had relocated to China and those of its Asian competitors; to boost its competitiveness in the face of a persistently weak U.S. dollar against the euro; and, ﬁnally, to boost its margins. The decision has also served to protect its intellectual property. This risk-protection strategy was made possible only through innovation. The Group intends to keep its R&D and production in France. A substantial portion of the manufacturing of the equipment the company markets is subcontracted, with Lectra providing only the research, development, ﬁnal assembly, and testing of the equipment that it produces and sells. The technical, logistic, or ﬁnancial failure on the part of an important subcontractor could result in delays or defects in equipment shipped by the company to its customers. To reduce this risk to a minimum, subcontractors undergo technological, industrial, and ﬁnancial scrutiny of their situation and performance, prior to selection and then continuously. The assessment is then updated at regular intervals, the frequency depending on the criticality of the product supplied by the subcontractor. Moreover, the Group may face global shortages of certain components or parts used in the manufacture or maintenance of its products. This risk of a supply chain breakdown could affect its capacity to fulﬁll customers’ orders. This is reviewed continuously, and buffer inventories are maintained of the parts and components concerned, depending on the likely risk of shortage. There is little risk of the Group being unable to respond to a rapid growth in sales of CAD/CAM equipment and shipments of spare parts and consumables, since the Bordeaux-Cestas (France) manufacturing site has sufﬁcient capacity to increase its output by 50% with no major new investment and around 50 additional staff members. It should be borne in mind that the economic value of the land and buildings comprising the Bordeaux-Cestas site currently exceeds its historical cost of €10.9 million,
but that the site ﬁgures in the statement of ﬁnancial position for a net value of €4.2 million only. Therefore there is no risk of an impairment charge.
4.3. Market Risks