svenska
中文(中华人民共和国)
Risk Management
As a Group with operations in different parts of the world, Gränges is exposed to various risks and uncertainties. Gränges’ risk management process entails to identify, assess, and reduce risks related to the Group’s business and operations
Gränges works actively with risk management to monitor and minimize risks in a structured and proactive manner. Gränges’ Group Management team is responsible for making an annual risk review, including identifying and quantifying risks as well as making plans for how to mitigate them.
A systematic approach to risk management enables Gränges to maintain focus on its core business and its customers while spending less time on dealing with unwanted situations. Gränges promotes a risk awareness culture where employees are encouraged to speak up and pro pose improvements and actions to mitigate risks. Transparency is fundamental for dealing effectively with risks.
A summary of Gränges’ main risks - market, operational and financial risks – can be found below or read more in the
Annual Report 2023
Market risks
Market risks are managed and controlled by the corporate functions and by the regions in accordance with established guidelines and procedures.
Risk description and consequence
With its global production footprint and customer base, Gränges is exposed to macro and regulatory risks which could affect the political and economic environments within and between these countries. Such risks relate to external impact that could change the dynamics of the demand for Gränges’ products or affect Gränges ability to meet demand for its products. Examples of external impact that could disrupt demand or otherwise affect Gränges ability to meet its customers’ needs in short and long term are; general economic slowdown, cost inflation, pandemic, war, other force majeure event, access to labour, political priorities, trade barriers, sanctions, protectionism, environmental legislations etc. Changes in macro and regulations could result in financial losses and/or cause other harm to the company or its customers. Changes could on the other hand also act to the benefit of Gränges.
Risk mitigating activities
- Continuous monitoring: Gränges continuously monitors legislative and regulatory developments in different markets, and proactively assess external risks and opportunities that may influence the company’s strategy and operations.
- Global presence: Gränges’ presence in three regions balances the shift in demand throughout the economic cycle and it adds flexibility to transfer production and re-route supply flows if macro or regulatory changes should have a negative impact on the current setup.
- Diversified portfolio: A diversified product portfolio reduces Gränges’ cyclicality and reduces the company’s dependence on a specific industry should macro or regulatory changes cause disruption.
- Contingency and mitigating plans: Gränges’ contingency and mitigating plans were activated in 2020 due to COVID-19 outbreak. Since 2020, measures have been taken to mitigate the negative impact of COVID-19 pandemic and to adapt the operations to the new market situation. Gränges’ highest priority is to ensure the health and safety of the employees, customers and other stakeholders while maintaining continuity and developing the business.
- Attractive workplace: Gränges strives to offer good working conditions and interesting career development opportunities to attract, develop and retain qualified employees. The company runs a structured recruitment process to ensure the company hires competent and skilled employees.
Risk description and consequence
Commercial risks are primarily related to Gränges relations towards customers and external market competition which can have a direct negative impact on the financial performance. Example of such risks are customer relations, reputation and brand, contract risk, pricing, competition and substitution, quality, technology and R&D, as well as M&A and partnerships. The most evident consequences from realized commercial risks are loss of ability to obtain new customers, suppliers and partners as well as to maintain such existing relationships. The risk of worsened customer relations through negative publicity has increased with the many information and media channels available, making it more difficult for Gränges to control how the company is perceived in the markets compared to relevant competitors.
Risk mitigating activities
- Global customer satisfaction surveys: Gränges conducts customer satisfaction surveys globally to track customers’ perceptions of the company and its products.
- Customer collaboration: Gränges works closely with customers in product development for future applications to ensure a continued high quality and adherence to customer requirements.
- Operational excellence programmes: Gränges ensures high-quality products and efficient production processes through its programmes for lean operations.
- Competitive cost level: Gränges works on maintaining a low cost level based on its global presence which enables competitive pricing.
- Research and innovation: Extensive R&I enable Gränges to continue to develop advanced materials and solutions to meet new demands.
- Strategy for partnerships and acquisitions: Gränges adheres to an established process for finding and executing acquisitions as well as partnerships, validated through several historical corporate transactions.
Risk description and consequence
Supply chain risks include critical suppliers’ failure to deliver quality or material to Gränges, sustainability risks in the value chain as well as legal risks. Gränges’ products use large amounts of input materials. Insufficient supply or inadequate quality of products delivered would imply that Gränges cannot produce certain products at the quality expected from customers. Also, reductions or shutdowns of larger suppliers could impact Gränges’ ability to manufacture and deliver products. Social risks and human rights violations are mainly related to indigenous rights in the extraction, mining and smelting activities. Extractive activities also carry a risk of forced and child labour, although there are few reports of this in aluminium mining. Environmental risks mainly occur in mining activities where there are risks related to e.g. biodiversity loss, leakage and air emissions. Further, refining and smelting activities are energy- and water intensive processes. Corruption risks are mainly linked to mining approvals, regardless of the country’s level of economic development or political system. Mismanagement of these risks may lead to undesirable effects on operational and financial results such as increased costs, delayed deliveries, and possible claims from customers. It can also lead to reputational losses.
Risk mitigating activities
- Supplier agreements: Gränges has agreements with suppliers in each market to ensure deliveries based on estimated volumes.
- Own production: Gränges has own cast houses in the production facilities which makes the company less sensitive to supply issues regarding for example aluminium slabs.
- Responsible Sourcing Policy: All sites are to operate a local responsible sourcing programme covering its significant suppliers. The programme is used as a platform to enforce sustainable practices, ensure continuous improvement, develop collaboration, and build supplier relationships.
- Supplier Code of Conduct: Significant suppliers are requested to sign Gränges Supplier Code of Conduct. By signing, suppliers declare to observe applicable laws and regulations, including the principles of the UN Global Compact, and to promote the implementation of these principles in their own supply chains.
- Sustainability risk screening and desktop assessments: Significant suppliers are annually screened in a desktop tool for potential environmental, social and corruption risks. Suppliers identified to have a potential medium or high sustainability risk are required to complete an evidence-based and third-party verified desktop sustainability assessment.
- Follow-up and engagement: The results from the desktop assessments are integrated into the local supplier review procedures, e.g. supplier scorecards, discussions and on-site visits, as applicable locally. The company also conducts on-site supplier audits depending on suppliers’ strategic importance and performance.
Operational risks
Operational risks are managed and controlled by the corporate functions and by the regions in accordance with established guidelines and procedures.
Risk description and consequence
Production risks are connected to critical machine (both hardware or software) breakdowns as well as major incidents such as a fire or explosion, occurring in the production sites. Critical machine breakdowns could give rise to production stoppages, preventing or making it more difficult for Gränges to meet its commitments to its customers. Unplanned stoppages in production facilities could also result in defective products or products of inferior quality. Power failures or cuts could lead to breakage in the coils in the cold-rolling process, resulting in the need to discard the coils, or could lead to sparks, which increases the risk of fire.
Risk mitigating activities
- Maintenance plans and machinery: Gränges has maintenance plans to manage critical machinery. The company also ensures access to spare parts and service staff to continually maintain critical machinery. Furthermore, Gränges has invested in state-of-the-art fire protection systems and customary insurance policies.
- Fire protection: Gränges works diligently with internal and external resources to strengthen its fire protection programmes, including equipment upgrades, training etc. Gränges also continues to work closely with relevant city fire departments at each facility to stage fire drills, improve response times, and define clear points of contact in case of an emergency.
Risk description and consequence
Health and safety risks mainly relate to incidents or accidents in the cast house or rolling mills, which can cause damage on fingers, hands, feet and legs. Other risks are exposure to chemicals and risk of fire, which can be hazardous to employees’ health. Also, employees and other individuals may be injured if the implementation of safety procedures is unsuccessful or inefficient. Unsafe workplaces can lead to increased employee turnover as well as higher operating costs and production interruptions. Safety and health incidents can also lead to reputational damages for the company. The facilities may be interrupted if Gränges fails to implement safety processes or if implemented processes are not efficient and, if they are not remedied quickly and time-efficiently, could prevent normal execution of the work. Each of the above can result in financial losses, which could have a negative impact on Gränges’ operations, reputation, financial position or results.
Risk mitigating activities
- Global EHS Policy: Gränges EHS Policy covers principles regarding safety and environmental performance. All employees and contracted workers are required to follow the policy.
- Safety certifications: Gränges aims to have all its sites certified in accordance with ISO 45001 safety management standards. The site in Shanghai is certified against this standard and the sites in US, Konin and Finspång are preparing for certifications.
- Daily monitoring and management: Gränges has strict safety routines and continuously invests in safety measures to prevent and mitigate workplace accidents and injuries. A 5S system has been implemented to ensure a clean, orderly and safe work environment.
- Incident reporting: Gränges focuses on preventing workplace injuries and ensuring safe behaviour.
- Safety training: Gränges arranges safety training for all employees at least once a year. Targeted safety training is also carried out for specific safety aspects.
- Best practice sharing: Gränges shares safety experiences and best practices through internal cross assessments and safety meetings.
Risk description and consequence
Employee risks are mainly related to lack of access to and difficulty to attract and retain qualified and skilled employees, due to high competition on the labour market. Gränges operates in a traditional industry where competition for qualified employees is high. Job opportunities are located outside metropolitan areas which tends to reduce the number of available qualified candidates. There are also risks relating to not having a diverse workforce as this is a prerequisite for a productive and innovative organization. If Gränges fails to attract, develop, retain and motivate qualified personnel needed in the business, it would make it more difficult for the company to deliver goods and services in accordance with customers’ expectations. As a result, it could lead to significant future loss of revenue, increased costs and lack of diversity, which may have a significant negative impact on Gränges’ operations, earnings and financial position
Risk mitigating activities
- Attractive workplace: Gränges strives to offer good working conditions and interesting career development opportunities to attract, develop and retain qualified employees.
- Structured recruitment process: The company runs a structured recruitment process to ensure the company hires competent and skilled employees. All else being equal, individuals from underrepresented groups are given recruitment priority.
- Leadership development: Gränges conducts regular performance and development discussions to ensure motivated and engaged employees. The company also works actively with training opportunities, talent management and succession planning as well as strengthening the corporate culture and core values.
- Local diversity plans: Gränges supports an inclusive work environment which leverages employees’ different perspectives, experiences, and ideas. Trainings are regularly held on the importance of inclusion and having a diversified workplace.
- Health and wellbeing: Gränges offers its employees occupational and non-occupational health services including access to occupational health care, regular health checks and access to medical care.
Risk description and consequence
Environmental risks are mainly related to emissions to water, soil and air or releases of environmentally hazardous substances resulting from incidents and accidents in Gränges’ production facilities, such as fire, oil spill, or leakages. Other environmental risks are related to natural resource scarcity. Such events may have financial, non-financial, as well as in some cases, regulatory repercussions. Climate transition risks include emerging regulation to incentivize reduced carbon emissions as well as carbon pricing mechanisms which could lead to higher costs for Gränges, e.g. increased costs in carbon taxes. Other transition risks include shifting customer and consumer preferences towards products carrying a lower climate impact, which could reduce the demand for Gränges’ products. Climate physical risks are mainly related to acute physical risks with increased severity and frequency of extreme weather events. This could disturb not only direct operations but also the infrastructure supporting the production, including electricity supply and transportation. The potential financial consequences may include decreased revenue from reduced sales volumes and increased costs to repair potential dagames at the sites.
Risk mitigating activities
- Global EHS Policy: Gränges EHS Policy covers principles regarding safety and environmental performance. All employees and contracted workers are required to follow the policy.
- Environmental management certifications: Gränges aims to have all its sites certified in accordance with the ISO 14001 (environmental management) and ISO 50001 (energy management) standards. All sites are certified against ISO 14001. The sites in Finspång, Saint-Avold, Shanghai and Salisbury are certified against ISO 50001.
- Daily monitoring and management of emissions: Gränges monitors and manages emissions to air as part of the daily operations. Local authorities continually monitor compliance to ensure that emissions of nitrogen oxides, sulphur dioxide, particulate matter, volatile organic compounds (VOC) and, in some regions, oil emissions, are within permissible limits.
- Incident reporting: Gränges’ employees report environmental risk observations in site-specific incident management systems. Risks are managed in accordance with standardized routines and integrated as part of daily operations. Key risks are raised to the regional management teams and mitigation activities are implemented accordingly. Gränges takes a precautionary approach to environmental risks.
- Ambitious climate agenda: Gränges works actively to take product stewardship and reduce climate impact along its value chain.
- Continuous monitoring of legislation: Gränges closely monitors changes in environmental policy and legislation.
- Emergency planning: Emergency planning and preparations are integrated in management systems, maintained at the site level including assessment of emergency situations and crisis management action plans.
Risk description and consequence
Gränges operates in many different markets, with local laws and rules. It can sometimes be challenging as complex market conditions can lead to situations where employees are uncertain how to act. Misconduct, fraud, violation of laws and regulations and internal policies, or other improper acts carried out by Gränges’ employees, representatives or partners could have an adverse effect on Gränges’ business, reputation, profit and financial position. Such action could involve a breach of applicable regulations on e.g. public procurement, secrecy, contractual costs, internal control of financial reporting, the environment and trade. Risk of corruption and bribery exists in some markets where Gränges conducts business. Corruption can prevent economic development, distort competition, lead to increased costs and destroy confidence, reputation and brand.
Risk mitigating activities
- Code of Conduct: Gränges Code of Conduct outlines ethical principles and gives guidance to employees on how to act and conduct business. All employees and board members, as well as temporary staff, must follow the principles and all employees should annually conduct training in the Code of Conduct.
- Anti-Corruption Policy: Gränges Anti-Corruption Policy outlines principles and efforts to prevent bribery and other types of corruption. All Gränges’ employees and board members must adhere to the policy and all white-collar employees should annually conduct training in anti-corruption.
- Whistleblower function: Gränges has a Whistleblower Function which is managed by an external company and can be accessed online or via telephone.
- Continuous monitoring and management: Gränges continuously monitors legislative and regulatory developments through external partners, and through membership in various industry organizations.
- Communication and training: Gränges regularly informs its employees of relevant changes that the company must follow. The company also trains relevant employees to ensure good knowledge and understanding of legal risks and requirements.
Risk description and consequence
IT risks relate to disruptions in important IT systems or the digital infrastructure, which could have a direct impact on production, financial reporting and other important business processes. Gränges is therefore exposed to risk relating to interruptions and disruptions in its IT infrastructure caused by computer viruses, power failure, human or technical errors, sabotage, weather or nature-related events, or problems caused by failures in care and maintenance. IT attacks, errors or damage to IT systems, operational disruptions and incorrect or faulty deliveries of IT services from Gränges’ IT providers leading to extensive production stoppages could have a material adverse effect on Gränges’ business. It could lead to inability to deliver products or services in time to customers or other stakeholders, which could lead to financial and reputational losses. Errors in the handling of financial systems could affect the company’s financial reporting. The risk of unauthorized intrusion into Gränges’ systems may result in financial losses and other damage. Failure to adequately restrict access to information may result in unauthorized knowledge or use of confidential information.
Risk mitigating activities
- Information Security Policy: Gränges has an established Group Information Security Policy which all employees and contractors must adhere to.
- IT security management: Gränges has implemented processes to handle IT security and to mitigate risks related to incidents. These processes are continuously improved according to the latest best practice. The IT environment is proactively monitored, and abnormal patterns are acted upon.
- Regular audits: Gränges conducts yearly audits to identify IT security risks, covering internal and external perspectives. These risks are raised to Group Management and mitigation activities are implemented accordingly.
- Communication and training: Gränges conducts mandatory yearly training and informs its employees and contractors continuously to create information and cyber security awareness and understanding.
Financial risks
Financial risks are managed in accordance with Gränges’ Financial Management Policy. Gränges uses derivatives and other financial instruments to reduce financial risks.
Risk description and consequence
Currency risk arises when Gränges sales is denominated in other currencies than the costs. Sales contracts are mainly denominated in USD, EUR and CNY, depending on where the customers are located while costs are mainly in USD, CNY, PLN and SEK. Changes in foreign exchange rates have an impact on Gränges’ income statement, balance sheet, and cash flow. Over time, changes in foreign exchange rates may also affect the company’s long-term competitiveness and earnings capacity.
Risk mitigating activities
- Financial Management Policy: Gränges has a Financial Management Policy which regulates the company’s management of foreign exchange risk.
- Financial instruments: Gränges uses financial instruments, mostly forward contracts, to reduce the company’s exposure to changes in foreign exchange rates. Gränges is hedging currency exposure in part up to 24 months depending on currency.
Risk description and consequence
Commodity price risk is primarily related to the price of aluminium, which is Gränges’ single most important input factor and largest expense. Besides aluminium, Gränges is also using various alloying metals in the production, such as Manganese, Magnesium, Silicon etc., although in significantly lower volumes. Price changes in aluminium and alloying metals can have a negative impact on Gränges operating profit in case these are not transferred to the customers. Aluminium is a standardized, exchange traded commodity. Gränges uses the market prices set on the London Metal Exchange and Shanghai Futures Exchange as basis both for purchases and sales. In addition to the global metal prices, there are also regional premiums that reflect the local availability of material which also affect the commodity price exposure.
Risk mitigating activities
- Metal Management Policy: Gränges has a Metal Management Policy which regulates the Groups management of metal price risk. The principle is that metal price risk should be passed on to customers and Gränges shall minimize the open exposure that occurs due to time lag or other imbalances.
- Natural hedge: Gränges uses matching price clauses in the contractual agreements of purchases and sales, to the extent possible, to reduce the metal exposure.
- Financial instruments: Gränges uses financial instruments to manage the metal price risks. Financial hedges are solely done to reduce exposure and not for the purpose of speculation.
Risk description and consequence
Energy price risks relate largely to changes in energy prices that can adversely affect Gränges’ operating profit. Long-term changes in market prices will eventually affect Gränges’ operating profit if these are not transferred to the customers. Both re-melting and casting of aluminium are energy-intensive processes and energy costs are Gränges’ third largest expense, after metal and personnel costs. Gränges primarily uses energy in the form of natural gas, electricity, and liquefied petroleum gas, and mainly uses energy in furnaces where aluminium is re-melted. Energy prices may vary as a result of political and economic factors outside Gränges’ control, such as access to and demand on local and regional markets, government regulations and the introduction of additional energy taxes.
Risk mitigating activities
- Hedging and delivery agreements: Gränges uses hedging and delivery agreements to secure future energy prices and supply.
- Energy reduction: Gränges is working actively to reduce energy consumption from own operations and thereby reduce the energy price exposure. Furthermore, Gränges is diversifying and optimizing the energy mix by reducing the dependence on natural gas. Gränges is also able to mitigate the effect of increased energy prices through pricing mechanisms in sales agreements.
Risk description and consequence
Gränges’ interest rate risk is primarily related to the Group’s interest-bearing liabilities. The majority of Gränges’ interest-bearing debt is denominated in SEK and USD and has floating interest rate. Changes in interest rates may affect the Group’s results and cash flow and/or the fair value of financial assets and liabilities.
Risk mitigating activities
- Financial Management Policy: Gränges has a Financial Management Policy which regulates the company’s management of interest rate risk and states the target for the duration of the interest-bearing debt portfolio.
- Duration of the interest-bearing debt portfolio: Gränges can adjust the duration of the interest-bearing debt portfolio either by changing interest terms in underlying agreements or by entering into interest rate swaps. In 2022, no interest rate swaps were used to prolong the duration.
- Continuous follow-up: Gränges monitors the development of interest rates and the impact that changes may have on the income statement. Sensitivity analysis are conducted on a regular basis.
Risk description and consequence
The liquidity risk is related to Gränges’ ability to meet all payment obligations. Cash flow from operations, future payment commitments, available cash and credit lines are factors that, among others, affect the liquidity risk. The liquidity risks are monitored on Group level.
Risk mitigting activities
- Financial Management Policy: Gränges has a Financial Management Policy which regulates a minimum level for available liquidity, including committed credit facilities from banks.
- Liquidity forecasts: Gränges forecasts future payments and obligations for the upcoming 12 months on a regular basis. This is compared with incoming cash flows, available credit facilities and a strategic reserve to assess the available liquidity during the coming 12 months. Excess liquidity is managed by the Group’s treasury function.
Risk description and consequence
Credit risks are related to counterparties not meeting its obligations towards Gränges. Credit risk can for instance be related to trade receivables or financial counterparties.
Risk mitigting activities
- Continuous follow-up: Gränges’ trade receivables exposure is managed and followed up continuously in local credit committees. The need for provisions is tested every quarter, or when necessary, according to pre-defined criteria.
- Credit ratings and agreements: Gränges manages credit risk on financial counterparties by choosing counterparties with a good credit rating, by limiting the actual exposure per counterparty and by using agreements such as ISDA Master Agreement.
Risk description and consequence
Refinancing risk is the risk that loans or other financing sources cannot be prolonged or replaced when necessary, or that new financing only can be achieved at a significantly higher cost.
Risk mitigating activities
- Financial Management Policy: Gränges has a Financial Management Policy which regulates the refinancing risk.
- Financial planning: Refinancing risk is limited through adequate financial planning, a robust financing strategy and a defined leverage target.
Risk description and consequence
Property damage is the risk of damage to Gränges production plants (i.e. buildings and other constructions), machinery, equipment, stock and any other property caused for example by fires, floodings, windstorms and other perils. The consequences of a property damage could be loss of production, increased costs and unexpected financing need, which in turn may lead to difficulties for Gränges to obtain sufficient financing at a reasonable cost.
Risk mitigating activities
- Insurance: Gränges has customary insurance policies in order to minimize the financial exposure in the event of property damage and business interruption.
