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.

At year-end 2018 Indutrade conducted business through more than 200 companies in 30 countries on four continents. This diversification of risk along with a large number of customers in a wide range of industries and a large number of suppliers in various technology areas limits 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 Group’s involvement in many different sectors, segments and geographic markets. Thanks to its decentralized business model, the Group is easily able to adapt by making quick decisions at the local level. 

Changes at the supplier level

Risk: There is always a risk of suppliers leaving a partnership with one of Indutrade’s technology sales companies to set up their own sales operations or collaborate with a different distributor. 

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. Because of the large overall number of agencies, no individual agency accounts for a predominant economic risk from the Group’s perspective. 

Digitalisation

Risk: Digitalisation creates many opportunities, such as producers more easily being able to reach their end customers. That, in turn, could result in more competition and downward pressure on prices for Indutrade’s technology sales companies.

Risk management: Indutrade’s companies have extensive knowledge of products and applications, thereby adding much value in the supplier chain. The aim is also to continue developing this expertise and offerings so that it is possible to retain competitive advantages.

Funding risk

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

Risk management: To mitigate funding risk, the Group strives to maintain a balanced maturity structure, a good liquidity reserve, and diversified borrowing. This creates a preparedness to take necessary alternative actions to raise capital, should this be necessary. Indutrade manages the Group's funding needs centrally. Essentially all external funding is conducted by the Parent Company, which then funds the Group’s subsidiaries in local currency. 

Interest rate risk

Risk: Interest rate risk is the risk that unfavourable changes in interest rates will have a significant impact on the Group’s net financial items and earnings. 

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

Changes in global trade regulations

Risk: Changes in domestic or international import/export regulations on various types of products could result in higher costs or other difficulties for Indutrade's companies. 

Risk management: Indutrade's companies are active in a wide variety of market segments and geographic locations. As such, the Group’s exposure to any one particular area is relatively low. The companies with operations at more high-risk geographic locations work proactively with many activities to minimize the impact of regulation changes.

Compliance with trade regulations

Risk: Corruption or other violations of trade regulations or international sanctions could result in Indutrade incurring fines or becoming subject to various types of sanctions. Indutrade's reputation and competitiveness could be damaged in such situations.

Risk management: Trainings are held for the relevant target groups in order to increase awareness and knowledge of external regulations and internal policies. Risk analyses are also carried out regularly to identify business flows associated with risk. Companies doing business in regions where there are risks have implemented special routines to ensure compliance with regulations. 

Currency risk

Risk: Currency risk is the risk of unfavourable movements in exchange rates affecting consolidated profit 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 through currency clauses in customer contracts and by buying and selling in the same currency. In certain cases, forward contracts are used. The Group is exposed to a translation risk associated with translation of the accounts of foreign subsidiaries to the Group currency, SEK. This type of currency risk is not hedged at present.

Sustainability governance

Risk: If the company fails to identify significant sustainability risks or deficiencies in its management of identified risks, Indutrade could incur fines or become subject to various types of sanctions. 

Risk management: Indutrade’s business area directors have ongoing formal and informal meetings with all companies to follow up on progress. Group-wide trainings and workshops are also held to ensure that all of the significant sustainability risks are covered. 

Acquisition process

Risk: If a company is acquired with substantial problems (such as earnings capacity or sustainability issues), Indutrade’s reputation or financial performance could be damaged.

Risk management: Acquisitions are carried out by employees who have a great deal of experience with the support of legal and financial expertise. Thorough due diligence is always a central component of the acquisition process, thereby minimizing the risks associated with acquisitions. Potential acquisitions are evaluated on many aspects, both quantitative and qualitative.