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Risk management

Systemair’s business involves risks that to a varying extent may adversely affect the Group. These risks may in the short and the long term affect the Company’s ability to achieve set goals according to the Company’s business plan.

Systemair operates a risk management process that involves key functions and Group Management to ensure that risks are managed appropriately.

A summary of Systemair’s risks is presented below, along with the risk control measures taken to mitigate these risks. The summary shows the trend of risk and the level of risk on a scale of 1 to 10, where 1 is no risk and 10 is very high risk. The level of risk is a balance of probability and actual impact.

Strategic and market risks
Market and macroeconomic trends The risk of weaker customer demand and negative macroeconomic growth, together with a decline in the general economy. For example, the risk of a contraction in new construction due to higher interest rates, stock market performance, political decisions and the like.   Systemair’s global positioning provides a broad spread of risk that minimises the impact of individual macroeconomic events. The risk lessened slightly compared to the previous year. Traditionally, the renovation market expands when the general economy weakens. Systemair is working actively on various growth initiatives to enable the Company to grow faster than the market. In the longer term, strong forces are in play, driving energy efficiency in buildings in many parts of the world. This is reducing the risk of major impact from a deterioration in the macroeconomic situation.
Trade policy and geopoliticts The risk of reduced customer demand arising from trade policy decisions, tariffs and geopolitical instability.   The risk of geopolitical instability is regarded as generally high and showing a rising trend. Introduction of tariffs and similar trade barriers is under continuous surveillance in an effort to minimise any negative impact on Systemair’s sales and profitability. From a longer term product perspective, Systemair takes an active role through leading positions in several industry organisations to gain information early and to be able to influence future decisions.
Product liability

The risk that existing and newly developed products do not meet requirements and specified quality, performance and safety levels.

 Systemair tests and quality assures all its products. The Company maintains comprehensive global product liability insurance cover. Materials purchased are subject to ongoing quality checks to ensure that the components we are using are up to standard. Group-wide information systems facilitate information- sharing between companies and functions in the Group so that the latest information is available where it is needed. Quality, performance and product safety are high priorities at Systemair.
Compliance with product
requirements

The risk of Systemair lacking or losing important certifications, or the absence of proper documentation, resulting in reduced sales.

 For several years, Systemair has had a Public Affairs function tasked with informing the organisation in good time regarding upcoming laws and regulations that affect our products. Drawing on our long experience and expertise, the function also actively strives to influence futurelegislation and regulations to the benefit of the industry as a whole and the actors in the value chain. Systemair identifies a rising trend for new certifications, regulations and generally increasing documentation requirements that could affect smaller players in the industry in particular, while larger players such as Systemair have an adequately sized organisation in place to handle such requirements.

 Financial risks

      
Foreign exchange risk - transaction exposure  Major transactions are made in currencies such as EUR, which represents a currency exposure.   Currency hedging is arranged for periods to cover around 50 percent of the EUR/SEK exposure. An internal quarterly process is in place and established to analyse the need for price changes to customers, in response to changes in component prices and exchanges rates. The trend of risk is increasing slightly as Systemair expands in markets outside Europe. To mitigate the risk, Systemair is investing in developing the Group’s finance function.
Foreign exchange risk - translation exposure Foreign assets and liabilities are translated to Swedish kronor on consolidation.   Major investments are normally financed by borrowing in the currency concerned.
Borrowing and interest rate risk The risk that sharply changing circumstances in a company’s market give rise to problems in raising new loans. Significantly lower interest rates may lead to weaker earnings for the Group.   Financial risk management is discussed regularly by the Audit Committee and the Board. Financing in the Group has for the most part been centralised within the Parent Company. The risk level has been lowered as Systemair’s gearing is low and government interest rates were reduced during the year.
 Credit and liquidity risk The risk that a customer will be unable to fulfil its payment obligations.   Strict credit policies are applied and there is no major concentration of credit risk. Systemair works actively on improving routines and processes for creditworthiness assessment andpayment. During the year, a financial export policy was developed with clearer guidelines to reduce the risk of credit losses in export markets.
Business combinations In the case of acquisitions, a risk is attached to the valuation of the targets relative to the object selected. Integrating acquired businesses can be a complex and demanding process. There is no guarantee that an acquisition will be successful, even if Systemair has long experience in the field. Annual impairment tests are applied to acquired goodwill. If the carrying amounts are not considered justified in such tests, an impairment loss may be recognised, which will affect the Group’s earnings. The due diligence process in procurement is continuously developed to assess and manage risks.

Operational risks

      
Product availability The risk of not being able to provide requested products at the right time, and in the quantity and quality required.   The risk is assessed as low overall, with the trend likely to remain unchanged going forward. Wars and geopolitical instability continue to pose a logistical risk in terms of incoming materials. Systemair strives continuously to minimise risks regarding production materials, for example by having agreements with two suppliers for the same critical product. Systemair uses Sales and Operations Planning (S&OP), where key functions take part in regular meetings for more proactive adaptation of the business to both opportunities and challenges in the customer and supplier chain.
Production facilities The risk of serious disruption of production at Systemair’s production facilities.   Production may be affected by several factors, including infrastructure-related problems, personnel issues and events that are beyond our control, such as natural disasters. To reduce the risk of disruption of production, all three factors are actively addressed. In addition, Systemair maintains insurance cover and emergency response plans, including crisis management plans, drills and communication plans, which are updated annually. Fire protection is assessed and upgraded on an ongoing basis.
IT infrastructure The risk of serious disruption in the Group’s IT systems. Disruptions in critical systems may have a major impact on day-to-day operations.   Systemair continuously works on improving processes and systems to increase operating reliability. The Company’s project to migrate the ERP system to a cloud-based solution is progressing as planned, with a slightly higher risk of IT disruption short term. In the long run, a cloud-based solution will enhance security and availability. Essential investments are made on an ongoing basis to upgrade IT systems to assure security. IT Systems are regularly reviewed by in-house personnel, as well as by external auditors and consultants. Training in IT security is provided to reduce the risk of employees falling victim to attacks such as phishing.

 Business ethics risks
 Corruption The risk of corruption or bribery. Systemair works in the construction industry on a global front, where the risk of corruption is considered high in some of the countries where we operate.   Via activities such as training, workshops and information about the Company’s Code of Conduct, Systemair focuses actively on reducing the risk of corruption. An Anti-Corruption Policy is in place, as well as a specific online anti-corruption programme that is mandatory for all company officials. With increasing growth and presence in countries with a generally higher risk of corruption, the risk is still regarded as medium.
Sanctions The risk of sanction breaches by doing business with sanctioned countries, companies or individuals.   Systemair focuses actively on its responsibilities for ethical business and on preventing breaches of sanctions. A Responsible Sales Policy is in place, and updated as needed, to ensure that Systemair acts in a responsible way and keeps up with the latest information on sanctions. When establishing new business relationships, the Company also conducts a screening process regarding any sanctions.