Risk and risk management

Indutrade is exposed to a number of risks that could have a more or less significant impact on the Group. The risks are generally defined as factors affecting Indutrade’s ability to achieve set objectives.

Many of the risks described could affect the company both positively and negatively. This means that if the risk has a favorable outcome, or the risk is counteracted by effective risk management, the target fulfilment could be better than expected. Thus, risks also entail opportunities for Indutrade. Some examples are business cycles, customer behaviors and fluctuations in the market price.

Indutrade operates in 28 countries, on four continents, through mor than  200 companies. This spread, combined with a wide range of customers in various sectors and a large number of suppliers in various areas of technology, reduces the business risks.

 

Changes in the economy

Risk: Indutrade’s business is dependent on customers’ purchases and investments, and is affected by changes in the economy.

Risk management: The effect of economic fluctuations in specific sectors and geographic markets is mitigated by the Company’s involvement in many different sectors and geographic markets. In addition, the diversification of sales among OEM components, consumables, maintenance products, investment goods and service has a balancing effect.

Outsourcing of operations

Risk: Outsourcing of industrial production to low-cost countries takes place in markets in which Indutrade is active.

Risk management: Outsourcing has had a limited impact on Indutrade, since the Group has chosen to focus on customers with a recurring need in industries with a high degree of automation and/or large initial investments.

Competition from low-cost countries

Risk: An increase in products from low-cost countries can be seen in Indutrade’s markets.

Risk management: To counter the effects of this competition, Indutrade offers products and services with a high-tech content, a high level of service and qualified technical advice. In addition, Indutrade strives to establish close partnerships with customers by becoming involved early in the planning and development stage, where the Group’s employees can contribute with their expertise about various processes, who not tend to outsource.

Operational risk

Risk: The Group’s operations are conducted with two main focuses: trading companies with industrial technology sales, and companies that manufacture their own products. For the companies involved in trading, there is the risk of an agency relationship being terminated. This could occur, for example, in

connection with a structural change at the supplier level.

Risk management: Termination of an agency relationship is a natural occurrence in an agency company’s operations, and the organisation has experience in dealing with this. Indutrade has some 100 trading companies with a few main agencies per company, complemented by a number of smaller agencies. Because of the large number of agencies, no individual agency accounts for a decisive economic risk from the Group’s perspective. The risk associated with major customers deciding to bypass the agency level and trade directly with the producers is limited, since customers place great value on the technical expertise, availability and delivery reliability provided by an inventory-holding local technology sales company such as Indutrade. Indutrade’s companies also provide aftermarket services such as servicing.

Changes at the supplier level

Risk: There is always a risk of suppliers leaving a partnership with a technology sales company to set up their own sales operation. Consolidation among manufacturers is one trend in the market that points to this.

Risk management: Indutrade mitigates this risk by choosing suppliers who view a partnership with Indutrade as the most profitable sales method. Stable supplier relationships are one of the parameters that are assessed prior to Indutrade’s acquisition of a company. To ensure that an acquired company does not lose its product agency agreements, its primary suppliers must give their consent to the acquisition.

Changes at the supplier level

Risk: There is always a risk of suppliers leaving a partnership with a technology sales company to set up their own sales operation.Consolidation among manufacturers is one trend in the market that points to this.

Risk management: Indutrade mitigates this risk by choosing suppliers who view a partnership with Indutrade as the most profitable sales method. Stable supplier relationships are one of the parameters that are assessed prior to Indutrade’s acquisition of a company. To ensure that an acquired company does not lose its product agency agreements, its primary suppliers must give their consent to the acquisition.

Key person dependence

Risk: The risk of losing experienced employees is elevated in connection with company acquisitions.

Risk management: Consequently, Indutrade’s acquisition strategy entails ensuring that the target company’s key employees are motivated to continue running the company after the acquisition. To attract and retain key personnel, Indutrade conducts continuous competence development and special management development programmes.

Funding risk

Risk: By funding risk is meant the risk that funding of the Group’s capital requirement will be impeded or become more costly.

Risk management: Funding risk is mitigated as far as possible by ensuring that the Company has a maturity structure that creates conditions to take necessary alternative actions to raise capital should this be necessary. Indutrade takes a central approach to the Group’s funding. In principle, all external funding is conducted by the Parent Company, which then funds the Group’s subsidiaries, both in and outside Sweden, in local currency.

Interest rate risk

Risk: By interest rate risk is meant the risk that unfavourable changes in interest rates will have an excessive impact on the Group’s net financial expense and earnings.

Risk management: Indutrade strives to achieve an even spread of fixed-interest maturities to avoid a situation where large loan volumes will be subject to a new level of fixed interest at the same point in time.

Currency risk

Risk: By currency risk is meant the risk of unfavourable movements in exchange rates affecting consolidated earnings and equity measured in SEK:

• Transaction exposure arises as a result of the Group having incoming and outgoing payments in foreign currencies.

• Translation exposure arises as a result of the Group, via its foreign subsidiaries, having net investments in foreign currencies.

Risk management: The Indutrade Group’s transaction exposure arises, for example, when subsidiaries import products for sale in the domestic market. Exchange rate effects are eliminated as far as possible by using currency clauses in customer contracts and by buying and selling in the same currency. In certain cases, forward contracts are used. The Group has a translation risk when translating the accounts of foreign subsidiaries to the Group currency, SEK. This type of currency risk is not hedged at present.