Risk & uncertainty factors

Elanders divides risks into business risks (customer concentration, operational risk, risks in operating expenses, contracts and disputes and employees), financial risks (currency, interest, financing/liquidity and credit risk) as well as circumstantial risks (pandemics, business cycle sensitivity, wars and conflicts and increased demands in a changing world).

Elanders encounters risks in operations daily, and normally these are within the Group’s control. Group Management’s close collaboration with the different group operations is a key factor in controlling these risks.

Customer concentration


Essential risks and uncertainty factors
The Group’s major customers are primarily active in the manufacturing industry and agreements with these customers normally run over two or three years. Elanders’ ten largest customers represent 46 (53) percent of net sales in 2022. Elanders has two customers whose sales exceed 10 percent of the Group’s net sales. In 2022, sales to the Group’s largest customer represent 14 (14) percent while sales to the next largest customer represent 12 (12) percent of the total net sales. Sales to these customers are made to several of their divisions, on several continents and is based on multiple stand-alone agreements.

What Elanders does
Elanders’ strategy is not only to be a supplier to our larger customers but to be a strategic partner who builds the basis for long-term business relations. Elanders has worked together with several of the Group’s largest customers for many years.


 

Operational risk


Essential risks and uncertainty factors
Elanders is dependent of IT-systems for production, logistics and sales. Disruptions or cyberattacks on the systems can mean disturbances and have a negative impact on the Group’s reputation, profitability and financial position. Otherwise, the risk that the Group will suffer a major stop in production is relatively small. There are now critical interdependencies between the units within the respective business area or between the business areas. There are only a few cases where there are no alternative suppliers of critical input goods.

What Elanders does
Elanders work to identify and prevent risks that can lead to disturbances in production. The work involves regular controls of the production sites where identified improvement areas are the basis for action plans. The Group also has business interruption insurance that covers the loss of margins for up to twelve months. Elanders also works continuously to ensure processes for follow-up and control regarding IT security in order to be able to meet increased threats to cyber security. Elanders has also developed training to increase employees’ awareness of IT security.


 

Risks in operating expenses


Essential risks and uncertainty factors
Elanders’ main operating costs are cost for goods for resale and other production material MSEK 3,342 (2,529), personnel costs MSEK 3,583 (2,789) and freight costs MSEK 3,522 (2,870). These categories represent 73 (73) percent of total operating costs in 2022.

What Elanders does
The Group does not see any direct risk that any of these costs will rise in the near future to such a degree that it would have a material effect on group results. Elanders has also the possibility within some agreements to pass on increased costs to the customers.


 

Contracts and disputes


Essential risks and uncertainty factors
In business daily operations can give rise to disputes.

What Elanders does
Elanders is not aware of any dispute that may have any significant effect on the Group’s financial position. The Group’s insurance program contains global liability insurance that covers general liability, product liability, crime fidelity, business interruption and limited protection against environmental damage. The Group also has liability insurance for members of the Board and officers.


 

Employees


Essential risks and uncertainty factors
Elanders needs access to competent and committed employees. Competition in the labor market is fierce, and there are high demands on the companies’ ability to attract, develop and retain competent abilities as well as to ensure the availability of good leaders in order to achieve the Group’s operational and strategic goals. Achieving expectations from employees today requires a strong focus on areas such as leadership, opportunities for influence, work environment, sustainability, human rights, the Group’s culture and values and more.

What Elanders does
To attract the right workforce, Elanders works to be an attractive employer and to prioritize the well-being of our employees. The Group strives to offer a modern, inspiring and safe working environment, which is done by focusing on good leadership, transparency and respect for each other. Elanders also strives to be at the forefront regarding sustainability issues, which is important both strategically and to attract the new generation of employees.

For more information regarding the financial risks, please see note 24 in the consolidated financial statements, pages 84-85, in Elanders’ Annual and Sustainability Report 2022.

The external factors that have and may have the greatest impact on Elanders operations are the ongoing pandemic, the global economy and the war in Ukraine. Since these factors are outside of Elanders’ control the Group continuously work to adjust operations to meet the new conditions.

Pandemics


Essential risks and uncertainty factors
Global outbreaks of pandemics, such as the ongoing COVID-19 pandemic, can bring widespread disruptions in many countries, among them many of Elanders’ most important markets. There is a risk that COVID-19 can continue to impact financial activities, and there is great uncertainty surrounding it. If it should continue or worsen, there is a risk that the Group’s operations will be negatively affected as demand for the Group’s services and products may decrease. No one knows how long the pandemic will continue or how it will develop. Nor is it possible to predict how long the crisis measures and infection control restrictions implemented in different countries will continue or what further steps might be taken.

What Elanders does
Elanders’ first priority is to protect our employees and their surroundings as much as possible against the spread of the infection. Measures have been taken to protect our employees and the guidelines and recommendations of the respective authorities are followed. In order to soften any effects from lower demand from customers, we are keeping in close touch and working together with our customers and other partners. To a certain extent Elanders can adapt operations to changes in demand through furloughs, fewer temps and by making adjustments in costs.


 

Business cycle sensitivity


Essential risks and uncertainty factors
The most tangible business cycle sensitivity is in group operations that supply our customers in the manufacturing industry, particularly in automotive and consumer electronics. Sales to customers in foodstuffs, cosmetics, pharmaceuticals and the public sector as well as to consumers are less affected by the general economic situation.

What Elanders does
We work consciously to reduce the influence of business cycles by increasing sales to customers in less sensitive trades and customer groups as well as by increasing the geographic spread of sales. In most cases, the expansions in supply chain management do not involve significant investments in fixed assets and lease agreements are signed to match the customer contracts. A large part of the running costs in new projects are variable and can be adjusted in case of volumes changes.


 

Wars and conflicts


Essential risks and uncertainty factors
Wars, conflicts and other political unrest can have a devastating effect on the world around us. When it occurs in areas the Group operates in, it also has a direct impact on Elanders’ operations and the countries in which the Group operates. The Group has been affected in many ways since Russia invaded Ukraine in February 2022. Some of the Group’s customers have subcontractors in Ukraine and Russia. These customers have therefore started to have some problems with their supply chain. At the same time, inflation has increased sharply and an energy crisis has emerged.

There is still a great deal of uncertainty about how long the war will last and the extent of it. It is therefore difficult to predict the exact impact in the coming year. Increased sanctions and an increased scope of the war could have a significant impact on the Group’s operations.

What Elanders does
Elanders follows the course of events closely and works with various action plans for the various possible scenarios that may arise.

The political unrest in general also affect us in the long term in how and where Elanders choose to do business. The Group currently has no operations in Ukraine and previously had only one sales office in Russia, that the Group chose to close when the war started.

Various parts of the Group help with humanitarian support on the ground in Europe, both for the employees affected and the refugee wave that is expected to continue.


 

Increased demands in a changing world


Essential risks and uncertainty factors
The need for drastically reduced emissions and transparency of companies’ negative impact on the environment is driving new regulations in regions where Elanders operates. Customers may demand new types of logistics solutions. Increased demands to quickly adapt to new technologies create increased needs for investments and financial resources to carry out shifts and phase out old technology.

What Elanders does
Elanders is following the development closely and maintains a continuous dialogue with customers and other stakeholders. New technology is continuously evaluated.

Generated positive cash flows going forward create the conditions needed for investment in new technology. Should additional funding be required, discussion will be held with shareholders or other external financiers.

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