Operational risks

Operational risks

Increases in raw material and commodity prices can affect the company’s profitability depending on its ability to effectively mitigate the risk with operative actions and possibilities to pass on increases to customers. The magnitude of this risk is dependent on several factors, such as the demand for the company’s products, the negotiation power of major suppliers and customers, the company’s timely planning and management of sales prices as well as the availability of key raw materials. Managing this risk continues to be a top priority for the Group.

The risk related to commodity prices is managed by several complementing ways. The company has started a contract database project to provide a better platform for contract management, and has also collected more detailed data on risk exposures for the basis raw material price hedging. The company has also reorganized its legal support to business areas, where business area specific legal resources have been able to more effectively support them in contract management. Indexing and other contractual risk management methods are continuously improved.

The flexibility of the company’s production capacity and the possible measures to respond to unexpected or major changes in market demand continue to be one of the company’s main risk areas. During 2015 the company has been able to mitigate the risk by being able to spread production more evenly between the company’s production assets. New approvals from customers to supply products from multiple locations have been sought. The company has also been able to draw on capital expenditure to mitigate the issue.

Changes in environmental regulation, especially the European Union’s ruling on the use of formaldehyde, received attention in the risk assessment already in 2014. The company has been actively pursuing actions to reduce the exposure of employees to formaldehyde and it is in compliance with new environmental regulations.

Also other EHS (environment, health and safety) related risks were identified in the assessments. For example, natural disasters or accidents can cause interruptions in production as well as personal injuries. To counter these risks, the company maintains an optimal level of insurance, has necessary contingency plans in place and conducts health and safety audits. The company is in the process of implementing a behavioral based safety program in order to further mitigate the related issues.

Retaining key personnel was identified as a more important risk than previously. The aging and retiring of key personnel, as well as a slimmer organization mean that there are less possibilities for back-up arrangements than previously. The company’s HR management plan and Human Capital Review project cover the key aspects in managing the risk, e.g. necessary succession planning.

IT security risks were assessed to be an important risk for the company in the 2015 risk assessment. Breaches in IT security could lead to a loss of intellectual property and other sensitive data. The company has responded to the risk by conducting a separate IT security assessment including e.g. penetration tests, firewall and proxy reviews, and application security reviews. Also IT contingency planning was identified as a separate risk area, and actions to improve contingency planning and related service level agreements with suppliers has been started.

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