Risk and risk management

Acquisition model
Acquisitions are an essential part of the Group's business model and growth.
If Indutrade does not succeed in carrying out acquisitions at the same pace as before, the Group's reputation or financial development could be jeopardized.

Acquisition process
It is important that the acquisition process and especially the due diligence prior to every acquisition is both thorough and efficient, covering all aspects, including legal, financial and sustainability. If Indutrade is unable to maintain the quality of the acquisition process, its reputation or financial development could be jeopardized.

Weak development in newly acquired companies
If companies with significant problems are acquired due to a deficient evaluation process or unforeseen events, such as their financial earnings capacity or important sustainability aspects, there is a risk that the financial development of the Group will suffer.

Mitigating activities
Gradual strengthening of acquisition resources centrally and in the business areas.

Structured efforts to identify acquisition candidates via the internal network.

Stepwise increase of the geographic scope into new countries that have a similar culture and values.

Well-­established acquisition process that is run by individuals with many years of extensive experience, where companies are evaluated from a variety of perspectives, both quantitative and qualitative.

A new board is appointed in all newly acquired companies and they are immediately introduced into Indutrade's financial and sustainability­ related processes.

Shared risk with the sellers through acquisition agreements with earn-­out payments.

Scalability
Indutrade's continued success is dependent on a well balanced and adapted Group structure and there being sufficient resources with relevant expertise on the boards of subsidiaries, as well as at the Group and business area levels in order to be able to support the development and monitoring of our companies.

Weak development in larger companies
Indutrade owns a few larger companies whose financial performance affects the Group's development to a somewhat greater extent. Problems in these companies could negatively impact the Group’s financial position and earnings.

Mitigating activities
Annual review of the board composition at all companies.

Long­term competence and resource plans for all business areas and recurring development programmes.

Active board work at all subsidiaries based on a Group­-wide framework.

Group­-wide Code of Conduct and policies for all significant areas.

Regular training and information that is disseminated via Indutrade Portal (the Group's communications portal).

An external whistleblower system has been set up and is available to all of Indutrade’s subsidiaries.

Monthly financial follow­-up of all companies and continuous sustainability monitoring.

Reporting errors
Significant accounting or reporting errors could impact the quality of published financial statements and eventually even lead to more monitoring by authorities and the stock exchange, as well as damage to Indutrade’s reputation.

Disruptions in accounting systems
There is a risk that unexpected disruptions in critical systems occur whereby companies are not able to report their figures. It could also result in an inability to conduct certain operations over a period of time, or in the worst case, not being able to conduct them at all.

Mitigating activities
Indutrade’s business model is to have many smaller and medium­-sized companies, many of which are less complex technical trading companies. It is a model that reduces the risk of the Group being significantly impacted by errors or disruptions from any single company.

Well-­established routines for financial reporting with many quality checks throughout the process.

Regular training sessions at both the business area and Group level.

Head office and major company hubs (groups of companies at the same location)
IT incidents at Indutrade's Head Office or at one of the major company hubs could result in a loss of critical data or one or more of the IT systems in some way becoming unusable.

Mitigating activities
Special monitoring and action plans for the Head Office and major company hubs.

Digital training on IT security.

Access to funding
Major disruptions in the Nordic credit market or problems in the banking sector could make it difficult, impossible or significantly more expensive to fund the Group's capital needs.

Interest rate 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.

Mitigating activities
Indutrade has a central approach to the Group's financing where, in principle, all external borrowing is handled by the Parent Company, with internal funding of the subsidiaries.

Indutrade has well­-established relationships with several Nordic financial institutions as well as an official credit rating from a globally recognized rating institute.

Striving to maintain a balanced maturity structure for the external debt, a good liquidity reserve, and diversified borrowing.

Ongoing and frequent monitoring of the interest rate situation and continuous evaluation of the need to expand loans with fixed interest rates or secure the interest rate with interest rate swaps.

Head offices and major company hubs
Internal or external fraud attempts at the Head Office or a major company hub could result in serious financial damage or damage to Indutrade’s reputation.

Mitigating activities
Group­-wide Code of Conduct.

Special monitoring of IT security at the Head Office and major company hubs.

Internal control routines to prevent and discover irregularities and fraud. The routines are followed up and reviewed annually.

External whistleblower system.

Sustainability data and communication
If Indutrade lacks the ability to demonstrate overall progress in important sustainability areas or how sustainability work is carried out by the companies, there is a risk of investors and other stakeholders having less trust in Indutrade.

Mitigating activities
Group­-wide framework for systematic sustainability work.

Reporting of important sustainability data from all companies with consolidation at the business area and Group level.

Continuous training, workshops and network meetings on sustainability.

Continuous risk and materiality analyses at the business area and Group level for a variety of sustainability areas.

The companies’ sustainability work and risks are monitored and discussed each year by their boards.

Transaction and translation exposure
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.

Mitigating activities
Exchange rate effects are eliminated as far as possible through currency clauses in customer contracts and by selling in the same currency as purchasing. In certain cases, forward contracts are used.

Local IT incidents
Errors in the companies' IT systems could lead to operational disruptions, with both financial and customer­-related consequences as a result. Companies could also be exposed to disruptions in operations caused by cybercrime or other intrusions into their information systems that could lead to interruptions in ongoing operations and high costs.

Mitigating activities
Indutrade's decentralised business model with independent subsidiaries means that only a few companies share their IT platform and infrastructure. This means that the risk of a significant financial impact for the Group in the event of an IT incident is relatively limited.

Special training on IT security.

Mandatory self-­evaluation of IT security that all companies carry out and report to their respective boards.

Force majeure
A sudden disaster, such as war, natural disasters or pandemics, could occur and endanger the lives and health of our employees in a certain country or in a certain place.

Lack of expertise
There is a risk of one or more key people leaving one of the Group companies with short notice due to such things as stress, deficiencies in the work environment or career opportunities. If Indutrade is unsuccessful in recruiting a suitable replacement, it could have a negative impact on the company’s financial position and earnings.

Diversity and inclusion
Striving to increase diversity and inclusion is a strategically important area for our companies, as research shows that diverse groups perform better than homogeneous groups. Lack of diversity risks leading to less innovation and creativity as well as limited perspective in decision-­making and a less attractive workplace.

Mitigating activities
Indutrade's business model with many small and medium­-sized companies operating in a variety of industries, segments and geographic markets reduces the aggregated Group risk for events at individual companies or locations.

Annual structured review of the board, MD and management team for all companies with regard to expertise, composition and succession planning.

Measurement and follow-­up of the share of women on the company boards, executive management and in the role of MD.

Included in the due diligence process is a thorough review of the companies' key people aimed at identifying any needs for succession planning or reliance on a specific expertise.

Requirement for regular employee surveys at all companies.

External and internal fraud attempts
Internal and external fraud attempts linked to one or more companies could damage the company’s financial performance and reputation.

Mitigating activities
Indutrade’s business model, with many small and medium-­sized companies, reduces the risk that an incident at any single company will have a significant impact on the Group.

The Group­-wide Code of Conduct, with policy on zero tolerance for bribes and corruption.

Internal control routines aimed at preventing and discovering irregularities and fraud are monitored and reviewed on an annual basis.

Mandatory self­-evaluation of IT security that all companies carry out and report to their respective boards.

External whistleblower system.

Contract disputes
There is a risk of Indutrade’s companies winding up in disputes with customers, suppliers or other contracting parties concerning contractual obligations, which could result in serious financial damage or a risk of damaged reputation.

Regulatory compliance
The scope and complexity of laws and regulations is increasing in many areas, such as export controls and sanctions, and Indutrade’s decentralised model involves challenges in ensuring that all companies have the requisite information, expertise and support needed for regulatory compliance.

Mitigating activities
Indutrade’s business model, with many small and medium­-sized companies, reduces the risk, in many cases, that an incident at any single company will have a significant impact on the Group.

The attestation and approval rules for various types of contracts is established by each company’s board.

Group­-wide policy on export controls and sanctions, including requirements on annual risk analyses.

Web-­based information and training on export controls and sanctions are available on the Indutrade Portal (the Group's communications portal).

Recessions
Indutrade’s companies are dependent on customers' purchases and investments. Those operations are affected by cyclical changes in many different markets and by conditions in the global market, including geopolitical uncertainties. A deterioration in the markets where Indutrade operates could have a negative effect on the financial position and earnings.

Customer credit risk
There is a risk that the companies' customers do not fulfil their commitments, i.e., that they neglect to pay.

Relocations of production
Globalisation and/or regionalisation as well as rapid technological development are driving structural changes with customers. These types of changes could increase demand for the companies' products, but also result in a loss of customers due to mergers, closures and relocation to low-­cost countries.

Technology shifts
In many markets, progress with technology and changes in customer preferences are occurring. There is a risk that companies are too slow in their rate of developing, launching and marketing new products, which could have a negative impact on demand.

Mitigating activities
Indutrade's business model with a balanced diversification that comes with companies operating in many different industries, segments and geographic markets reduces the Group's overall sensitivity to economic fluctuations, exposure to individual customers or technologies. Many of Indutrade's companies are also exposed to segments with structural growth and a high percentage of companies offer products with a recurring sales pattern.

Full operational responsibility of the companies for their businesses including credit risk assessment of customers and routines for payments.

Decentralised governance model, which means that the companies belonging to the Group are easily able to adapt by making quick decisions at the local level.

Digitalisation
Digitalisation, involving higher access to information and rapid connections/ interaction, creates opportunities for producers to more easily reach their end customers. That, in turn, could result in more competition and downward pressure on prices for Indutrade's technical trading companies. Other consequences of digitalisation include more efficient production, shorter lead-times and higher quality.

Energy – access and prices
There is a risk that access to energy supply for our companies disappears or that prices increase dramatically due to, among other things, geopolitical tensions, regulations, climate change or local/global political decisions.

Mitigating activities
Indutrade's business model with many small and medium­-sized companies operating in a variety of industries, segments and geographic markets reduces the risk that problems with individual companies create significant financial problems for the Group as a whole.

Companies in the Indutrade Group have a high technical expertise and good knowledge of their customers' systems and processes, thereby adding appealing value in the supply chain.

The decentralised management model with full operational mandate and responsibility at each company provides good adaptability by making decisions quickly and close to the business.

Indutrade's structure with a large proportion of technical trading companies and only a few companies with more comprehensive production results in a relatively low energy requirement for the Group as a whole.

Disruptions in the supply chain
Rapid changes in the economy and general demand, or force majeure events could create disruptions in the global supply chains when the supply of components and products differs sharply from demand.

Dependency on key suppliers
There is a risk of individual suppliers leaving a partnership with one of Indutrade's technical trading companies to set up their own sales operations or collaborate with a different distributor. A few suppliers collaborate with several of Indutrade's companies and are thereby major, important partners for the Group as a whole.

Mitigating activities
Indutrade's structure with many small and medium­-sized companies operating in a variety of industries and geographic markets reduces the risk that problems in any single company significantly impact the Group as a whole.

The decentralised management model with full operational mandate and responsibility at each company provides good adaptability by making decisions quickly and close to the business.

Part of the due diligence process of acquisition candidates involves a thorough review of the suppliers to ensure continued stable and long­-term relationships.

There is an established relationship at the Group level with a few major suppliers that collaborate with several Indutrade companies.

Climate change
Climate change in the form of global warming could lead to economic risks, such as sharply increased energy costs for Indutrade's companies. Extreme weather events and natural disasters are other examples of risks that could affect our companies and their value chains. Changes in environmental legislation, taxes and demand could affect companies' sales of products and solutions, as well as the transport of goods.

Local sustainability issues/problems
There is a risk that sustainability­ related problems arise at one or more of the Group's companies or in the supply chains, for example linked to human rights or to products that in some way would prove to have a negative impact on people or the environment. In the long run, the problems may entail costs for handling and correction as well as damage the reputation of the company and even the Group as a whole.

Mitigating activities
Indutrade's structure with many small and medium­-sized companies operating in a variety of industries and geographic markets reduces the risk that problems in any single company significantly impact the Group as a whole.

All companies shall carry out materiality analyses to identify their own material sustainability priorities that they present to, and are then discussed by, their board.

Continuous risk analyses at business area and Group level from different sustainability perspectives to identify Group­-wide measures and companies with greater risk or in need of special support.