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 attain 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 trend of the risk and the control measures taken to mitigate these risks.
Strategic and market risks | |||
|---|---|---|---|
| Market and macroeconomic trends | The risk of decreased customer demand and negative macroeconomic developments, 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 minimizes the impact of individual events. In the current macroeconomic situation, the risk has been assessed as remaining high, but the trend is expected to decline over the years ahead with indications of interest rate cuts. Although traditionally the renovation market has expanded when the economy declines. Systemair also seeks actively to capitalise on the growth that exists in markets that remain strong. In the longer term, major efforts are being made to improve the energy efficiency of buildings in several parts of the world, which reduces the risk of a major impact from a deterioration of 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 this trend has been rising. However, the risk of any impact on Systemair from further trade policy decisions is considered low. Existing customs duties and the like are continuously monitored to ensure that they are handled correctly. Longer term, Systemair takes an active role in several industry organisations in order to obtain information early and be able to influence future decisions. | |
| Competition | The risk of reduced sales and margins due, for example, to increased price competition. | With indications of interest rate cuts in several parts of the world economy, the risk trend is judged to be somewhat diminishing going forward. Systemair’s sales and product strategy is based on a market position in the upper-middle segment, where products, solutions and local market support add value in the overall customer process. Products and solutions are constantly evolving to create value where they make a difference. In addition, as part of developing our sales organisations, a value-based sales strategy is being implemented. | |
| Sustainability work | The risk that Systemair’s sustainability performance fails to live up to external expectations and current and future legal requirements. | Systemair’s sustainability strategy has been developed with stakeholder priorities in mind. In addition, priorities are kept updated through ongoing dialogue. Governance and monitoring of sustainability work improved during the year and will continue to evolve going forward. | |
| 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 global product liability insurance cover of SEK 200 million. Purchased materials are continuously subject to quality checks to ensure that our input materials are up to standard. Common information systems facilitate information sharing between companies and functions within the Group to ensure 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 operated a Public Affairs function tasked with informing the organisation in time regarding upcoming laws and regulations that affect our products. 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, drawing on Systemair’s long experience and expertise. Systemair identifies a slightly 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 adequate organisation in place to handle these requirements. | |
| Communication and branding | The risk of brand damage caused by | The majority of Systemair’s products are based on tried-and-tested technology that is continuously being refined, reducing the risk of products not living up to the brand promise. Employees undergo continuous training in products and related communications, and new employees receive training on Systemair as a company and our values. In addition, Systemair works constantly to maintain a responsible business both in-house vis-à-vis employees and externally in relation to customers and other key stakeholders, including society at large. | |
Financial risks | |||
|---|---|---|---|
| Foreign exchange risk - transaction exposure | Major transactions take place in currencies such as EUR, which represents a currency exposure. | Currency hedging is arranged at times for around 50 percent of the EUR/SEK exposure. An internal quarterly process is in place to analyse the need for price changes to customers to reflect changes in component prices and exchanges rates. | |
| Foreign exchange risk - translation exposure | Foreign assets and liabilities are translated to Swedish kronor on consolidation. | Major investments are often financed via borrowing in the same currency. | |
| Borrowing and interest rate risk | The risk that sharply changing conditions in the company’s market may create problems in raising new loans. Significantly lower interest rates may result in poorer 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 debt/equity ratio was reduced during the year through improved cash flow. There are indications that interest rates will be lowered going forward, further reducing risk. | |
| Credit and liquidity risk | The risk that a customer will be unable to fulfil his 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. The sale of Systemair’s A/C business has reduced the risk, as the business was concentrated in larger projects in southern Europe with fairly long credit periods. | |
| 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 results. |
Operational risks | |||
|---|---|---|---|
| Product availability | The risk of material and component shortages reducing product availability. | The overall risk is assessed as low with the trend unchanged going forward. War and geopolitical instability mean a slightly increased risk of supply problems for materials shipped through the Suez Canal. Systemair has proved to have a robust structure for managing the risk and this has been reinforced in recent years through review of critical materials, components and products to ensure their availability, for example by engaging in contracts with two suppliers for the same critical item. From a sales perspective, Systemair focuses actively on disseminating information about product availability and any delivery issues to our sales organisations to enable them to proactively offer the products that are available on time and at the same time meet the needs of our customers. | |
| Production facilities | The risk of serious disruption of production at Systemair’s production facilities. | Several aspects may affect production, including IT systems, employee-related issues and such that is beyond our control, such as natural disasters. To reduce the risk of disruption of production, all three aspects 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 to the Group’s IT systems. Disruptions in critical systems may have a major impact on day-to-day operations. | Systemair maintains continuous improvement in processes and systems for increased operating reliability. During the year, a migration of the ERP system to a cloud-based solution has started. In the short term this will entail a slightly increased risk of IT disruptions but in the long term will enhance security and availability. Necessary investments are being made in upgrading IT systems to keep them secure. IT Systems are regularly reviewed by in-house personnel and external auditors and consultants. Ongoing IT security training is provided to reduce the risk of employees falling victim to attacks such as phishing. | |
| Skills provision | The risk of not having the right skills in place and the effect this has on the organisation as a whole. | Most of Systemair’s manufacturing facilities are located outside the major cities where the bulk of the labour force is located. Over the past year, Systemair has invested, and will invest even more in HR-related activities going forward, in maintaining its attractiveness as an employer, as well as in delivering education and training in leadership as part of providing a workplace where employees thrive, can develop and want to stay. | |
| Work environment | The risk of serious work-related injury in Systemair’s operations. | In Systemair’s manufacturing facilities and warehouses, accidents that lead to injuries do occur, and we are naturally striving to make a zero vision a reality. In our day-to-day operations, we focus systematically on safety and health to proactively prevent injury. During the year, the number of injuries resulting in sick leave fell dramatically, largely because internal processes have been tightened and the focus on workplace safety has increased even more. |
Business ethics risks | |||
|---|---|---|---|
| Corruption | The risk of corruption or bribery. Systemair operates in the construction industry in a global context where in some countries the risk of corruption is considered high. | Through activities such as training and communicating its Code of Conduct, Systemair focuses actively on reducing the risk of corruption. A specific anti-corruption policy is in place, as well as a specific e-learning anti-corruption programme that is mandatory for all officials. | |
| Labour and human rights | The risk of violation of labour rights or human rights. In some countries where Systemair operates, there is a generally higher risk of violation of these rights. | Systemair stands up for fundamental rights and seeks to ensure that violations of human rights do not happen. This is partly done through training and communicating our Code of Conduct. In countries where there is a generally higher risk of violation of rights, Systemair has developed a process to more deeply analyse conditions, in order to reduce the risk of violating rights. | |
| Sanctions | The risk of breaching sanctions by doing business with sanctioned countries, companies or individuals. | Systemair focuses actively on its ethical business responsibilities and to prevent sanctions violations. A Responsible Sales Policy is in place and updated several times a year 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 for possible sanctions. | |