Risk and risk management
Key risks relating to the Company and its business include:
Risks relating general economic conditions and other macro conditions that the Company cannot control.
Ahlsell’s results of operations are materially affected by conditions in the Nordic economies, and the demand for the Group’s products and services can be significantly lower in an economic downturn. Demand for Ahlsell’s products and services depends in particular on spending in repair, maintenance and improvement (“RMI”), industrial and infrastructure markets in the Nordic region, and the residential and commercial construction in the region, and a prolonged period of slow growth or economic contraction may reduce demand for Ahlsell’s products and services.
Risks relating to failure in or breach of the Group’s operational or information security systems, or those of its third party service providers.
Ahlsell is dependent on technical systems for collecting, processing and communicating information securely, monitoring its inventory and efficiently tracking its operational and financial performance on a real-time basis. External providers are responsible for the administration and maintenance of all Ahlsell’s central IT systems. Serious errors or longer periods of downtime in business critical information systems can cause delivery problems, inventory management issues or limit Ahlsell’s ability to receive and process orders or invoice customers.
Risks relating to damage or closures of its warehousing and distribution facilities or issues that arise with its third party partners.
Ahlsell relies on a number of warehousing and distribution facilities, including its central warehouses in Hallsberg (Sweden), Gardermoen (Norway) and Hyvinkää (Finland), and a component of Ahlsell’s strategy is to consolidate facilities where practicable and offer next day delivery from its warehouses. If any of these facilities are destroyed or closed for any reason, which could include storms, floods, other natural disasters, riots, labour stoppages and strikes, fires, sabotage, acts of terrorism or government action, or the stock or equipment in the facilities is significantly damaged, Ahlsell is likely to face setbacks in its ability to distribute its products. Ahlsell may also face problems with the technologies used in the warehousing and distribution facilities, such as automated storage systems, which could have a material adverse effect on Ahlsell’s business, results of operations and financial condition.
Risks relating to difficulties in completing acquisitions, integrating acquired businesses and achieving anticipated synergies.
Acquisitions play a key role in the fulfilment of Ahlsell’s growth strategy. Ahlsell regularly identifies and evaluates acquisition opportunities. Although Ahlsell has not currently entered into binding agreements with respect to any potential acquisitions, Ahlsell intends to acquire, on an ongoing basis, additional businesses that it expects to complement or augment Ahlsell’s existing operations. Suitable acquisition candidates may not be identified in the future or Ahlsell may not be able to finance such acquisitions on favourable terms.
Risks relating to the Company’s reliance on third party suppliers.
Ahlsell’s ability to offer a wide variety of products to its customers is dependent upon Ahlsell’s ability to obtain adequate product supply from manufacturers or other suppliers at attractive prices. The loss of, or substantial decrease in the availability of, products from Ahlsell’s suppliers, or the loss of a key supplier, could adversely impact Ahlsell’s financial condition, results of operations and cash flows. In addition, supply interruptions could arise from shortages of raw materials, labour disputes (involving Ahlsell’s employees or consultants as well as the employees or consultants of Ahlsell’s partners) or weather conditions affecting products or shipments, transportation disruptions or other factors beyond Ahlsell’s control. Short-term and long-term disruptions in Ahlsell’s supply chain would result in a need to maintain higher inventory levels as Ahlsell replaces similar products, a higher cost of product and ultimately a decrease in its net sales and profitability.