Risk management

Inwido defines risk as something that can affect Inwido’s achievement of targets negatively. Risk is a natural part of all business operations, but can be managed and it is the responsibility of Group management to ensure that risks are identified and managed. In turn, this requires an effective and structured risk management process. The overall objective of Inwido’s risk management is to ensure a systematic approach to identifying risks and ensuring that they are managed from an early stage. The objective is also to make risk management a natural part of day-to-day operations by engendering a culture of risk awareness among all employees and a knowledge of how to manage risks to achieve business objectives.

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Financial risks

Financial credit risks

Risks

Credit risks in financial management relate primarily to the probability of financial losses resulting from counterparties’ incapacity to meet contractual obligations arising from financial transactions or instruments.

Management/Exposure

Financial credit risks are limited by engaging counterparties with a high credit rating who chiefly participate in the Group’s mid-term and longterm financing. In 2018, no credit losses were incurred as a consequence of investments in cash equivalents or financial instruments

Currency risks

Risks

Transaction exposure

The Group is exposed to currency risk in the form of transaction exposures arising through purchases and sales of goods and services in currencies other than each Group company’s local currency.

Translation exposure

When subsidiaries’ balance sheets in local currency are translated into SEK, a translation difference arises as a consequence of the current year being translated at a different closing rate than the previous year. The income statement is translated at the average exchange rate for the year while the balance sheet is translated at the exchange rate as per 31 December. The translation exposure forms the risk represented by the translation difference as the change in shareholders’ equity.

Management/Exposure

The Group applies a finance policy adopted by the Board of Directors. Transaction exposure shall primarily be minimized through internal measures such as matching of flows and choice of invoicing currency. Currency clauses can be used if contractually transparent and possible to follow up, ensuring that the Group is not exposed to any hidden currency risks. Secondarily, currency risks are to be mitigated by means of financial instruments. Currency hedging is arranged with maturities of up to 12 months and is based on the latest estimates available. Currency hedges must meet the following conditions with an accuracy of about +/– 20 percentage points: Contracted future payments for non-current assets in foreign currency may be secured up to the full cost. No hedging is required if the net exposure to any single currency is less than the equivalent of 1 MEUR annually.

Translation exposure

The Group does not hedge this risk. An annual analysis is made of the translation exposure trend and the related risks. See Note 2, Inwido Annual Report 2017.

Interest rate risk

Risks

Interest rate risk represents how changes in market interest rates affect cash flow and the Group’s earnings, as well as the value of financial instruments.

Management/Exposure

The management of the Group’s interest exposure is centralized, meaning that the central finance function is responsible for identifying and managing this exposure in accordance with the finance policy adopted by the Board of Directors. Inwido strives to achieve a good spread of interest rate maturity to avoid large loan volumes being subject to interest rate renegotiation at the same time. Inwido’s short-term interest rate exposure (aggregated positions with a remaining weighted average length <1 year) shall be between 50 and 80 percent of the total debt portfolio excluding short-term seasonal debt. The average period of fixed interest on the Group’s gross borrowing, including the effects of interest rate derivatives, may not exceed three years.

Financing and liquidity risks

Risks

Financing and liquidity risks represent the risk that it will be difficult or costly to refinance loans reaching maturity or that it will not be possible to meet payment obligations due to insufficient liquidity or difficulties in obtaining external financing

Management/Exposure

Inwido seeks to achieve good planning and foresight with regard to funding issues with the objective of Inwido always being offered cost-effective financing on favourable market terms for comparable borrowers. To safeguard adequate payment capacity, Inwido’s objective is to secure sufficient liquidity or credit facilities. The Group’s debt/equity ratio and forecasts of its liquidity are followed up on an on-going basis. See Note 2, Inwido Annual Report 2018.

Operational risks

Human capital risk

Risks

It is important for Inwido to be able to attract and retain qualified employees. The loss of key individuals could negatively affect the Group’s earning capacity.

Management/Exposure

Inwido works actively to safeguard regeneration and identify future leaders. Senior executives are regularly assessed to identify needs vis-à-vis on-going in-service training and competence development. In addition to applying a market-based salary structure, Inwido also uses various forms of incentives for key individuals within the Group.

Refund and product liability risks

Risks

Inwido could incur expenses in correcting faults in delivered products and, in certain cases installation, and could be found liable for damages to individuals or property.

Management/Exposure

Inwido seeks to limit these risks by following locally adapted procedures for quality assurance and through extensive testing of the Group’s products. In 2018, warranty costs incurred as a consequence of complaints amounted to approximately 2.1 percent (1.8) of net sales.

Risk of losses on trade and other receivables

Risks

The risk that the Group’s customers fail to meet their payment obligations for accounts receivable constitutes a customer credit risk.

Management/Exposure

Inwido reduces counterparty risks relating to customers by applying the Group’s credit policy. Credit checks are performed on the Group’s customers with information regarding their financial status being obtained from various credit information agencies. The risk of credit losses is also limited through credit insurance, which covers the majority of Inwido’s insurable receivables. Bank guarantees or other sureties are required of customers with low credit ratings or insufficient credit history. Trade and other receivables are subjected to on-going age analysis. The assessment of credit risk is primarily managed by each subsidiary. As per the balance sheet date, there were no significant concentrations of customer credit exposures. See Note 2, Inwido Annual Report 2018.

Risk of operational interruptions

Risks

Inwido could be affected by operational interruptions due to equipment failure, fire, strikes or natural disasters, for example.

Management/Exposure

Together with its insurance advisors, Inwido conducts regular risk inspections of its production units. The results of these inspections are used to implement preventative measures to reduce the risk of disruptions and accidents in operations. Inwido is, to a certain extent, able to transfer production to other units, mainly within each respective market, in the event that a unit becomes inoperative. Inwido also strives to maintain well-functioning cooperation with local trade union organizations, thereby reducing the risk of conflicts and strikes.

Risk associated with product development

Risks

Inwido’s sustained earnings and competitive vigour is to some extent dependent on its capacity to develop and sell new innovative products and solutions demanded by customers. In recent years, market requirements have increased, including in terms of the products’ energy performance. Extensive and successful product development by competitors could entail risks in the form of weaker sales for Inwido, and that Inwido must invest significant additional amounts in its own product development in the future. Furthermore, companies currently working in adjacent fields may decide to establish themselves in Inwido’s area of operations.

Management/Exposure

Through Inwido’s strong market presence, shifts, trends and new requirements from customers and other stakeholders are caught, providing a basis for the focused, on-going development of the product portfolio. An important part of Inwido’s strategy is to develop new products in the areas it considers important for continued growth and to retain its market share. Among other things, Inwido prioritizes the development of new products for the connected home.

Business development risks

Risks

Risks associated with business development such as corporate acquisitions and the Group’s long-term strategic focus. In connection with acquisitions, there is a risk that business risks associated with the acquired companies arise. Establishing operations in new markets may also bring unexpected expenses for Inwido. In addition to company-specific and geographic risks, the acquired company’s relationships with key personnel, customers and suppliers may be adversely affected. There is also a risk that integration processes could take longer than expected, be more costly than anticipated and that expected synergies totally or partially fail to materialize. This may mean that the asset values attributable to the acquisitions (goodwill) cannot be realized and consequently that it may be necessary to recognize impairment in those values.

Management/Exposure

Inwido has developed procedures for the analysis, implementation, review and integration of acquisitions, including due diligence. Risks associated with the Group’s long-term planning are primarily addressed once a year when the Board adopts the Group’s strategic plan.

Corporate governance and policy risks

Risks

Risks associated with Group executives making decisions that do not agree with Inwido’s strategy, internal guidelines and policy documents. Furthermore, employees at Inwido and others with a close relation to Inwido, as well as its customers and suppliers, could commit acts that are unethical, illegal (for example, in violation of applicable corruption and bribery legislation) or that otherwise contravene applicable legislation and regulations or Inwido’s internal guidelines and policies. If Inwido’s internal controls and other measures to safeguard compliance with laws, regulations, internal guidelines and policy documents prove insufficient, Inwido’s reputation may be damaged and its operations, financial position and earnings could be negatively affected.

Management/Exposure

Inwido develops internal control procedures on an on-going basis. Examples include the division of duties between the Board and the President and CEO, reporting instructions and Inwido’s code of conduct.

Insurance risks

Risks

Insurance risk involves the expenses that Inwido could incur due to inadequate insurance cover for products, property, disruptions, liability, the environment, transport, life and pensions.

Management/Exposure

The Group applies a coordinated programme for insurance and secures insurance policies to the extent that this is considered commercially motivated. At the same time, continuous efforts are made to minimize risks in operations through proactive measures. Insurance cover is also maintained for Inwido’s senior executives and Board members. Inwido takes the view that its insurance protection is appropriate for the risks normally associated with its operations. There is naturally no guarantee that Inwido will not incur losses beyond the scope of its insurance cover.

Risk associated with IT systems

Risks

Inwido’s ability to effectively and securely manage sales and other businesscritical operations depends on Inwido’s IT systems and processes working well and without interruption. Such systems can be disrupted by, for example, software failures, computer viruses, hacking, sabotage and physical damage. Several different business systems are used within Inwido. Most of these are customized and do not intercommunicate, resulting in a certain degree of task duplication and an increased risk of error in connection with internal sales, for example. Customized business systems can also entail Inwido being dependent on external and internal key competencies and access to external expertise regarding the Group’s business systems being limited.

Management/Exposure

Inwido is gradually working to centralize the Group’s IT-related systems and functions, and to gradually replace industry-specific and company-specific business systems with more general and shared business systems. Among other things, this is intended to enhance operational and data security, and to reduce vulnerability in access to internal and external systems expertise.

Risk associated with suppliers

Risks

Inwido’s products consist of components from several different suppliers. To be able to manufacture, sell and deliver products, Inwido is dependent on external suppliers meeting agreed requirements regarding volumes, quality and delivery times for example. Deliveries from suppliers that are inaccurate, delayed or that fail to materialize may mean, in turn, that Inwido’s deliveries are delayed or must be cancelled, or are deficient or incorrect. Inwido does not have full insight into its suppliers’ operations and consequently it has only a limited capacity to ascertain that its efforts to ensure that suppliers operate in a sustainable and responsible way have an impact. Therefore, Inwido is also exposed to the risk that suppliers act in a manner that could harm Inwido’s reputation and brands.

Management/Exposure

Inwido has close partnerships with leading suppliers within each component group and also reduces the risk of a possible dependence by sourcing through alternative suppliers. Furthermore, Inwido has pre-established contingency plans for the most critical supplies of components, and these plans are reviewed annually. To safeguard supply and to increase its control of the value chain, the Inwido Group also includes a number of companies that produce sealed window panes and fittings and refine aluminium profiles. Inwido is committed to responsible business and has the ambition that this approach should permeate the entire value chain. As part of this, Inwido requires all major suppliers to acquaint themselves with and sign Inwido’s code of conduct for business partners.

External risks

Market risk

Risk

Demand for Inwido’s products is affected by activity in the housing market and overall consumer confidence, among other factors. The new building market is more cyclical than the renovation market. In a general economic downturn with lower building activity, demand for Inwido’s products and services could decrease. Political decisions can also influence customer demand independently of economic trends (see Political decisions below).

Hantering/Exponering

Inwido maintains a presence in a large number of countries and in different market segments, thereby balancing, to a certain extent, various country-specific risks. In addition, most of Inwido’s sales take place in the less cyclical consumer market. Inwido’s operations are also affected favourably by the debate on climate change and increasing demands for energyefficient housing, which are not particularly affected by economic trends.

Competition

Risk

Inwido operates in markets that primarily comprise a large number of local competitors but that also include companies that operate internationally.

Hantering/Exponering

Inwido is Europe’s largest supplier of windows and a leading door supplier, with a strong market position in most of its markets. Inwido’s size allows it to derive economies of scale and benefit from best practices in areas including purchasing, product development, production and processes. Inwido constantly strives to meet customer needs with new, innovative, energy-efficient and attractively designed products. This is one of the most important prerequisites for the Group’s future competitiveness.

Prices for raw materials

Risk

Inwido relies on ongoing deliveries of wood, glass, aluminium, fittings, etc. Inadequate supply could entail increased expenses and, in certain cases, disrupted production. Normally, there is a certain displacement between purchase and sales price adjustments due to agreements entered with suppliers and customers. Altered price levels affect Inwido’s purchasing prices with a delay of up to six months.

Hantering/Exponering

Inwido has built up its relations with key suppliers over many years. Inwido’s central purchasing organization coordinates purchases of the major material categories. By centralizing its purchasing, Inwido is able to enhance its negotiating position and cut expenses for materials.

Political decisions

Risk

Political decisions can affect demand positively or negatively. Political decisions include changes in tax legislation in countries where Inwido operates. Changes in taxation and subsidies for homes and residential building can, in the long term, affect demand for Inwido’s products and services. In addition, changed standards and regulations regarding residential building can impose requirements for changes in the product range in specific markets.

Hantering/Exponering

The Group mostly operates in countries where the risk of political decisions that would drastically change its market conditions is judged to be relatively low. In addition, Inwido is active in local industrial organizations that often provide Inwido with early insight into external changes that may affect its business operations.

Risk of legal disputes

Risk

Political decisions can affect demand positively or negatively. Political decisions include changes in tax legislation in countries where Inwido operates. Changes in taxation and subsidies for homes and residential building can, in the long term, affect demand for Inwido’s products and services. In addition, changed standards and regulations regarding residential building can impose requirements for changes in the product range in specific markets.

Hantering/Exponering

The Group mostly operates in countries where the risk of political decisions that would drastically change its market conditions is judged to be relatively low. In addition, Inwido is active in local industrial organizations that often provide Inwido with early insight into external changes that may affect its business operations.

Tax risks

Risk

Inwido conducts operations in several countries. Operations, including the implementation of transactions between Group companies, are conducted in accordance with Inwido’s interpretation of applicable tax laws, tax agreements and other regulations in the area of tax law and the requirements of the relevant tax authorities. It is not certain that Inwido’s interpretation of the aforementioned laws, agreements, other regulations and requirements is correct in all regards.

Hantering/Exponering

Inwido works according to the guidelines in the Group’s internal pricing policy.