Risk and risk management
All business operation is associated with risks. Effective risk management can lead to opportunities and value creation, while risks that are not managed in the right way can lead to damage and loss.
The ability to identify, assess, manage and monitor risks is central to Ahlsell’s operations. Ahlsell assesses its risks in a short and long-term perspective. Ahlsell has established a framework and process for risk that include identification, analysis, categorisation and risk management. The Head of InternalControl is responsible for the Group’s overall risk process and reports to Group Management and the Board. The risks described below are the risks that are expected to have the most significant impact on Ahlsell.
- Economic trends
Activity in the building sector, comprising new construction projects, service and repairs, and renovation, maintenance and improvement (RMI), is the single most important driver of Ahlsell’s sales development. A weaker economy with a weaker construction sector has a negative impact on Ahlsell’s sales.
Risk management - Ahlsell operates in several geographic markets, with customers of varying sizes and in a number of industries. This makes Ahlsell less sensitive to changes in economic cycles.
- Growth through acquisitions
Acquisitions are a key part of Ahlsell’s growth strategy. The acquisition process can be subject to difficulties, both in terms of completing the acquisition and integrating the acquisition into the operations in order to achieve the expected synergies. Inadequately conducted acquisitions in which expected values are not achieved can have an adverse effect on Ahlsell.Risk management - Ahlsell has established a Group function that
continuously identifies, evaluates and completes acquisitions. Acquisitions are integrated under the leadership of the Integration Manager. Ahlsell's intangible assets are continuously reviewed and tested for impairment. An impairment loss is recognised as soon as there is an indication of impairment.
Warehouse and logistics
Ahlsell’s central warehouse is the hub of the entire Group’s distribution chain. If the central warehouse and distribution were disrupted in any way, Ahlsell would be adversely affected.
Risk management - Ahlsell continuously conducts maintenance and monitoring of the security of its logistics centres. The Group also works continuously to monitor its distribution chain to ensure that it is operating efficiently and has adequate capacity.
Ahlsell is highly dependent on an efficiently functioning IT environment. An impaired IT environment due to e.g. external IT attacks on Ahlsell or its IT providers would quickly have a negative impact on results.
Risk management - Ahlsell continuously conducts maintenance and monitoring of the security of its IT systems. The security of the systems is tested regularly. Ahlsell aims for long-term partnerships and agreements with all external suppliers.
- Information security
The ITIL (Information Technology Infrastructure Library) framework is used for changes in business critical systems and incident management.
Risk management - Ahlsell has high standards of information security, integrity and transparency, and we prioritise the protection and management of data in accordance with approved standards.
- Responsible sourcing
Ahlsell has a large number of suppliers, with manufacturing around the world. Ahlsell’s customers are placing ever increasing demands on Ahlsell and on Ahlsell’s suppliers’ responsibility. The suppliers undertake to follow Ahlsell’s code of conduct. If Ahlsell is lacking in the control of its suppliers, there is a risk that this will have a negative effect on Ahlsell’s reputation.
Risk management - To identify suppliers that are able to comply with the Code of Conduct, the supplier’s sustainability work is evaluated prior to signing an agreement. The results are monitored in various ways, such as on-site visits or updated evaluations.
- Business ethics
Upholding Ahlsell’s reputation is key to the success of its business. Ahlsell’s conduct in all situations, regardless of country or market, shall be characterised by responsibility and respect for customers, suppliers and other business partners. Actual or suspected unethical business practices can harm Ahlsell negatively.Risk management - Ahlsell has clear policies and guidelines for
good business ethics. Business ethics training, adapted to different categories of personnel, takes place continuously. Any departure from good business ethics is handled promptly by the responsible manager and the Head of Internal Control.
- Financial risks
Ahlsell is exposed to a number of financial risks in the course of its operations and financing activities. These are refinancing, interest rate, currency, credit and liquidity risks. For example, a negative development in the financial market, such as high interest rates, may have an adverse effect on Ahlsell.
Risk management - Ahlsell’s Financial policy describes how Ahlsell’s financial risks are to be managed. The policy stipulates that:
- The loan portfolio for each currency must reflect the Company’s forecast EBITDA or operating cash flow per currency.
- Ahlsell does not normally enter into any hedges linked to foreign currency purchases. However, the Group Treasurer and the CFO, have a mandate to do so if necessary.
- 20-50% of the Group's loan portfolio, including interest rate derivatives, must be at fixed interest rates.
- The Group's liquidity reserve must amount to at least 5% of the Group’s annual net sales.
- If an individual facility has less than 1 year to maturity, refinancing arrangements must have started. The average maturity of the Group’s facilities must be at least 1.5 years.
- Ahlsell's credit policy provides guidelines to ensure that sales are made to customers with appropriate credit backgrounds and that credit decisions are made by persons with the right authority.
The Ahlsell Group is taxed in the jurisdictions in which it operates and has subsidiaries. Ahlsell’s interpretation and assessment of the tax situation may be subject to tax audits and potential tax adjustment notices.
Risk management - Ahlsell has both local functions and a supporting Group function to enable correct management of taxes. Ahlsell always engages the services of third parties for complex tax matters.