Risks and uncertainties
Addtech uses risk management at both a strategic and operational level. Risk management involves identifying, measuring and preventing risks from occurring, and continually making improvements in order to reduce potential risks. Our risk management focuses on business risks, financial risks and other potential material risks, such as legal risks. Assessments of the operation's risk take place in all units. The Addtech Group has internal policies and instructions that give the responsible managers tools with which to identify and follow up the progress of operations and to detect deviations that could become risks. The level of risk is monitored via monthly reports, in which managers describe developments in their respective units. In these monthly reports, 'warning flags' about negative deviations are raised or risks are identified.
Addtech's profit and financial position, as well as its strategic position, are affected by various internal factors within Addtech's control and various external factors over which Addtech has limited influence. Addtech's most significant risks are the state of the economy combined with structural changes and competition.
In addition, Addtech is affected by financial risks such as transaction exposure, translation exposure, financing risk, interest rate risk and credit and counterparty risk. See Note 3 for a more detailed description of how Addtech manages financial risks.
Risk/description |
MANAGEMENT BY ADDTECH |
Economic fluctuations |
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Addtech's sales performance depends on demand from customers and their willingness to invest, which in turn are linked to customers' confidence in economic growth. A significant percentage of sales track the performance of the Nordic manufacturing industry. General economic performance and willingness to invest in the medical sector, research and healthcare as well as infrastructure is also of great significance to the Group. |
Addtech's focus on niche markets and effort in every order it receives to offer value added means Addtech is less sensitive to fluctuations in specific fields, sectors and geographic regions that experience major economic fluctuations. Addtech takes a systematic approach to developing businesses that are less dependent on the performance of the Nordic manufacturing industry. Addtech's significant sales of technical service, support and consumables to the aftermarket, as well as to healthcare and research laboratories, reduce the risk of fluctuations in the economy in individual industries having a major impact on the Group. |
Structural changes in customers' operations |
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Addtech's customers are exposed to tough competition, which leads to mergers, closures and the relocation of industrial production to low-cost countries. This involves risks as well as opportunities, because a contract manufacturer could choose other suppliers, or new business opportunities could materialise. |
Addtech is constantly endeavouring to become more competitive by developing and delivering greater value added for customers. Acquisitions of new companies strengthen and develop the businesses by adding niches that are of interest. Addtech is also building on its Nordic presence, which combined with its financial strength and a broad service and production offering makes Addtech an attractive partner for many global suppliers serving the Nordic market. |
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| Heightened internationalisation in the past ten years has resulted in the relocation of parts of high-volume production from the Nordic countries and increased competition from low-cost countries. |
Addtech's companies have focused on the low- and medium-volume segment as it is in these segments that we can offer customers value added. Production in these segments largely remains in the Nordic countries and Europe. Clear value added and the uniqueness of Addtech's offering to customers help counter competition on price and also provide Addtech with the opportunity to supply customers outside its domestic markets. The Group's exposure to a large number of industries and the fact that no single customer accounts for more than two percent of consolidated sales also reduce the impact of individual companies potentially deciding to relocate abroad. |
Competitive situation |
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| Change and consolidation among companies in the technology trading industry are constantly altering the competitive situation. Economy of scale can lead to pricing pressure, while rapid technological change can undermine our offering. |
Addtech's strategy aims to achieve market-leading positions in specific niches by offering products and services for which price is not the sole deciding factor. To keep up with technological developments, our companies need to be innovative and participate in these developments. Working closely with both suppliers and customers develops our expertise and we remain a competitive player on our markets. |
Environment |
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The Addtech Group's companies are primarily involved in technology trading, so our operations have a limited direct environmental impact. Active environmental efforts are made in the Group with the aim of reducing the Group's impact on the environment. The combined environmental impact of the products that our companies provide also includes production operations at our suppliers, the transport of products and the way in which our customers use the products. Despite this, under the relevant environmental legislation there is always a risk that, through its corporate identification number, one of the Group's subsidiaries could be associated with a liability for historical environmental pollution. |
During the financial year the Group continued to conduct more
active sustainability work than in the past. This work started in
2010/2011 and we are now publishing our fourth sustainability
report. The Group's Code of Conduct includes all important issues
in the environment, human rights, labour conditions, and
corruption. |
employees |
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| Employees are Addtech's main resource and most important means of being a competitive business. Our employees are business professionals with high technological expertise. Understanding customers' businesses is crucial and is the key to in-depth and close cooperation. Addtech's employee risks mainly involve the possibility of losing key members of staff and a lack of technically skilled and innovative business people. In addition, a lack of skilled managers can hinder the development of the business. |
Addtech's companies should be attractive employers that both develop capable employees and attract new employees. Employees should have good opportunities for personal development and Addtech takes a long-term approach on several levels aimed at increasing internal knowledge transfer, furthering the growth of employees and refining the corporate culture. Addtech Business School is key to developing Group employees, building common values and ensuring the supply of management staff. All employees undergo one or more stages in the business school, which constitutes a key platform from which to convey corporate culture, enhance business acumen and raise the degree of professionalism among employees. The Group conducts regular employee surveys. The purpose of these surveys is to find out how employees view the subsidiaries as employers, their work situation and what might potentially require further improvement and development in the individual companies and at Group level. In conjunction with acquisitions, the Group places particular emphasis on motivating and ensuring long-term commitment from key people in the acquired company. |
Acquisitions |
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Addtech's objective is to achieve long-term earnings growth of at least 15 percent a year. To achieve this we require a combination of organic growth and acquisitions. All acquisitions involve a risk and it is not always certain that all acquisitions will prove favourable. Costs attributable to acquisitions may therefore be higher than expected and positive effects of acquisitions may sometimes take longer to realise than expected. This means the Group runs the risk of paying too high a price for the results that the company will deliver. |
To ensure the success of our acquisitions, Addtech has well-established processes and structures for pricing and implementing the deals and integrating acquired companies into the Group effectively. |
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Goodwill arises when Addtech acquires businesses that are valued above the carrying amount. Goodwill is tested annually and if the goodwill is not deemed to have been correctly valued in such assessment, this may result in an impairment loss that would affect the Addtech Group's results. |
Acquired goodwill is tested annually for impairment in accordance with accounting rules on acquired goodwill. Goodwill testing takes place for each business unit. |
Financial risks |
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| Various financial risks arise in the business operations, such as transaction exposures and currency translation exposure, as well as credit risk relating to customers. In addition, the overall Group is affected by financial risks such as financing risk, interest rate risk and credit and counterparty risk. |
Addtech strives for structured and efficient management of the financial risks that arise in operations, in accordance with the financial policy adopted by the Board of Directors. The policy stipulates goals and risks in the financial operations, and how they are to be managed. The financial policy expresses the goal of minimising and controlling financial risks. The policy defines and identifies the financial risks that arise at Addtech and how responsibility for managing these risks is distributed in the organisation. |