Risk and sensitivity
Risks and uncertainty factors
Elanders divides risks into circumstantial risks (the future of printed matter, business cycle sensitivity), financial risks (currency, interest, financing and credit risk) as well as business risks (customer concentration, operational risk, risks in operating expenses, contracts and disputes). For more detailed information than given below, as well as a sensitivity analysis, please see note 19 to the Group financial reports.
Circumstantial risks
Elanders believes printed matter will continue to grow on a global level as a bearer of information in coming decades although to a lesser degree in the foreseeable future. Growth will mainly take place in Eastern Europe, South America and Asia and in packaging as well as digital print where Elanders is well positioned. However, volumes are expected to shrink on mature markets such as North America and Western Europe and primarily in offset production. Elanders works constantly on making the best of our global presence, broadening our offer with packaging, offering production in countries with lower costs as well as developing solutions for the automated ordering of digital print.
The greatest business cycle sensitivity is primarily connected to supplying customers concentrated on consumer markets such as vehicles and electronics. Elanders works continuously to broaden our customer base and increase volumes to industries that are less sensitive to changes in business cycles such the food, cosmetics and pharmaceuticals industries as well as educational printers and the public sector.
As far as competition is concerned Elanders is one of the few players in the world that can provide global deliveries to international customers through its own organization. This is one of the most important platforms for the Group’s competitiveness in the future.
Financial risks
The currency risk in the Group primarily comes from transactions in other currencies than the companies’ local currency and the conversion of net results and net assets from our foreign subsidiaries. Elanders’ net influx of foreign currency is mainly in EUR, CNY, USD, GBP and PLN. In part the Group handles currency risks by hedging transactions, accounts payables and liabilities that are in foreign currency. Exposure regarding changes in interest levels stems mainly from Group interest-bearing loans with floating interest rates. Outstanding debt is mostly in SEK and EUR. In 2011 Elanders hedged the interest level for MSEK 300 of Group debt. The hedge matures on 30 september 2014.
Elanders is dependent on receiving financing via credit institutes and the Group’s goal is to always have more than one party willing to offer financing on market terms. Currently the Group has credit contracts with two Swedish banks that cover operational financing. The contracts run until September 2012 and negotiations for new contracts will begin in the spring of 2012. The Group’s policy specifies a liquidity buffer of MSEK 100. On 31 December 2011 the liquidity buffer amounted to MSEK 266.
The Group is exposed to credit risks through the risk that a counterparty cannot meet its obligations. The most crucial financial credit risk for the Group arises when investing surplus liquidity and trading exchange derivative instruments. This risk is limited through the sole usage of well-known financial institutions. Although the commercial credit risk is spread out over many different customers it is concentrated to a few. These customers are for the most part large, listed companies that have good credit ratings. The Group also has credit insurance that covers bad debt losses from insured customers.
Business risks
None of Elanders’ customers generate more than 7 percent of net sales. The ten largest customers represented less than 36 (33) percent of its net sales. Elanders’ strategy is to be more than a supplier of printed matter. We also serve customers with information and printed matter logistics, thereby creating customer value which makes Elanders more a strategic partner than a pure supplier. This approach builds the basis for long-term business relations.
The risk that the Group will suffer a major stop in operations is minimal since the Group has similar production capacity in several production units and since it is rare that there are no alternative suppliers of input goods. The Group also has a business interruption insurance that covers loss of margins caused by a stop in production of up to twelve months.
The most significant operating cost is personnel which makes up around 31 (32) percent of operating costs and the Group works to continually improve the health of its employees. Paper costs are next and make up approximately 21 (18) percent of operating costs. Elanders protects itself as is customary against price fluctuations through a paper price clause in contracts with our customers. Costs for outwork are 13 (15) percent of operation costs. Elanders sees no direct risk connected to substantial cost hikes in outwork as there is a price press on most markets the Group operates in. Costs for other resources are not individually large enough for price fluctuations to have a significant effect on the Group.
Elanders believes there are no disputes that will have any significant consequences for the Group’s financial position. The Group’s insurance program contains global liability insurance, product liability, crime fidelity, business interruption and limited protection against environmental damage.
Last updated:
10/21/2010
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