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. Addtech’s sales follow the trend for the production industry in the Nordics. Investments in healthcare, research, social services and infrastructure are also highly significant for the Group. |
Addtech's focus on various niche markets means Addtech is less sensitive to fluctuations in specific fields, sectors and geographic regions that experience major economic fluctuations. Furthermore, Addtech’s large proportion of sales of technical service, support and consumables reduces the impact of economic fluctuations from individual industries. Addtech works to develop businesses that are less dependent on the performance of the Nordic manufacturing industry. |
Structural changes in customers' operations |
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| Globalisation, digitisation and rapid technological development drive structural change in customers’ operations. The development exposes customers to tough competition, which increases demand for Addtech’s advanced services, but can also lead to Addtech’s customers disappearing through mergers, close-downs and relocations to low-cost countries.
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Structural changes are both a threat and an opportunity. Addtech’s focus on value-adding technology trading in the low and medium volume segment, where manufacturing still largely takes place in the Nordic countries and Europe, has so far constituted a form of protection against structural changes. As an additional way of managing the development, Addtech is reinforcing its Nordic presence, which – combined with financial strength and a broad range of products and services – makes Addtech an attractive partner for many global suppliers who address the Nordic market. Addtech also constantly strives to enhance its competitiveness. By acquiring new companies, Addtech complements and develops its operations with interesting niches. 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 Finally, the Group’s exposure to a large number of industries, and the fact that no customer accounts for more than 2 percent of the Group’s sales, constitute protection against adverse impact on profit. |
Competitive situation |
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Change and consolidation among companies in the technology trading industry affect competition. 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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Addtech is a technology trading company and in itself produces relatively limited environmental impact. More stringent environmental legislation may, however, affect the products sold by our companies, the transport of goods and the way in which our customers use the products. There is also always a slight risk of one of the Group’s subsidiaries, through its corporate ID number, being linked to responsibility for environmental pollution that occurred in the past. |
Active environmental work is performed in the Group with the aim of reducing the Group’s impact on the environment. 49 companies (47) have earned ISO 14001 or equivalent certification. The Group conducts operations requiring notification under the Swedish Environmental Code in five subsidiaries and conducts operations requiring a permit under this Code in three subsidiaries. The Group follows up its operations with a sustainability report, and the operations comply with a 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. Addtech’s employee risks concern the loss of key individuals, and the risk of lacking technically skilled and innovative business people. In addition, a lack of skilled managers can hinder the development of the business. |
Employees receive 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 attend courses run by the Addtech 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. |
Acquisitions |
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All acquisitions involve a risk and it is not always certain that all acquisitions will prove favourable. Costs attributable to acquisitions may be higher than expected, and positive impacts on profits may take longer time to realise than expected. The Group thereby runs the risk of paying an excessively high price for the profit that the company will deliver. |
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. 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 operations are acquired above their carrying amount. Goodwill risk arises when a business unit under-performs in relation to the assumptions that applied at the time of the goodwill valuation. If the company observes that goodwill (over-valuation) has arisen, the goodwill must be written down, which impacts the Group’s profits. | Our experience of acquiring and pricing companies as well as the large number of companies we acquire constitutes considerable risk diversification. Goodwill is tested annually, and if goodwill is not deemed to have been correctly valued in such an assessment, this may result in an impairment loss being recognised. |
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. |