Risk Management

As a group with operations in different parts of the world, Gränges is exposed to various risks and uncertainties. Gränges’ risk management aims to identify, assess, and reduce risks related to the Group’s business and operations.

Market risks

Market risks are managed and controlled by the corporate functions and operating units in accordance with established guidelines and procedures.

Description of Risk

1. Changes in the automotive market
About half of Gränges’ sales volume goes to suppliers in the automotive industry. Vehicle production depends on a number of external factors such as the global economy, interest rates, consumer behaviour, taxes, and legislation. During an economic downturn, the automotive industry normally sees a decline in production, which reduces demand for aluminium products used in vehicles.

2. Technology becomes outdated
Gränges’ advanced aluminium products and technological leadership is a result of a long-term commitment to research and innovation, and a close cooperation with customers to develop new products and solutions. It is a risk that the technology becomes outdated and Gränges loses its leadership.


Risk management

1. Diversification and adaptability
Gränges is a global company operating in all major regions. The worldwide presence reduces risks of an economic downturn in individual markets. Gränges has a diversified product portfolio and about half of sales are to other niche markets in the industry, including stationary heat exchangers, transformers, and food packaging. The aim is to continue to increase sales to other markets than the automotive industry.

2. Extensive R&I
Research and innovation is a core element of Gränges’ strategy, and Gränges continues to increase its efforts in this area. To be able to meet future market demands, in-depth research work is combined with innovation. Gränges supports its customers in product development for future applications such as electrical vehicles, and invests to secure competence and advanced technology suited for next-generation materials.

Description of Risk

Maintaining customer focus and providing the right products at the right time to customers are key success factors for Gränges. Dissatisfied customers can adversely affect the company’s profitability and market share, and may also pose a reputational risk.


Risk management

Gränges upholds good relationships with customers to proactively meet their demands. Additionally, the company regularly conducts global customer satisfaction surveys. This tracks customers’ perceptions of Gränges’ products and services. Results from the studies are reviewed internally and results in actions to develop Gränges’ internal processes and specific customer relationships.

Description of Risk

1. Ethical, environmental and social risks
Ethical risks are related to bribes and other types of corruption. Environmental risks are mainly connected to environmental permits and the potential lack of compliance. Labour law risks in the supply chain include unfair working conditions. In certain regions there is a risk of child labour.

2. Supply of slabs and other materials
Gränges depends on the supply of commodities, mainly aluminium. Insufficient supply means that Gränges cannot produce end products. In the future, depending on chosen end designs, special material types may be more difficult to source due to their special characteristics.


Risk management

1. Supplier Declaration and audits
To ensure that suppliers have zero tolerance of corruption, have reasonable working conditions, good workplace health and safety standards, and respect human rights and the environment, suppliers must sign and follow Gränges’ Supplier Declaration. This means that suppliers pledge to observe all applicable laws and regulations, including the 10 principles of the UN Global Compact. Furthermore, Gränges aims to regularly audit its strategic suppliers.

2. Supply management
Gränges enters into agreements with suppliers in each ­market to ensure deliveries on the basis of estimated volumes. Gränges has its own cast house in the production facilities, making it less sensitive to supply issues regarding for example slabs.

Description of Risk

Energy price risks relate largely to changes in energy prices that can adversely affect Gränges’ operating profit. Gränges is mainly exposed to price changes in electricity and natural gas, but the price of other energy commodities may also affects Gränges’ operating profit directly and indirectly.


Risk management

Gränges uses hedging and delivery agreements to secure future energy supply and price. Financial hedges and physical fixed-price contracts may be used up to two years before delivery.

Description of Risk

Gränges has operations in Sweden, China and the US and serves customers in around 50 countries. Markets and operations are affected by the political and economic environments of these countries. Political changes could interfere with the company’s supply chain, production, or market activities, and affect the ability to meet the demands of Gränges’ customers.


Risk management

Political risks in Sweden are limited and easy to monitor, while political risks in China and in the US are closely monitored particularly regarding cross-border trade.


Operational risks

Operational risks are managed and controlled by the corporate functions and operating units in accordance with established guidelines and procedures.

Description of Risk

Quality and efficiency risks are mainly connected to defective products and insufficient process stability, and often due to unplanned stoppages at plants.


Risk management

To ensure high-quality products and efficient production ­processes, Gränges has ongoing programmes for operational excellence and is continually upgrading and maintaining ­production equipment.

Description of Risk

Critical machine breakdowns or calamities (such as fire) risk to damage equipment.


Risk management

Gränges follows proven maintenance plans for critical machinery and ensures access to spare parts and service staff to ­continually maintain critical machinery. Gränges has invested in state-of-the-art fire protection systems and has extensive insurance policies in place.

Description of Risk

Cast houses and rolling mills are work environments that impose significant health and safety risks. Examples of such risks are finger, hand, foot, and leg injuries. Also, production personnel risk being exposed to chemicals that are hazardous to health. Strict safety routines may never be bypassed or assigned a lower priority. If the implementation of safety procedures is unsuccessful or inefficient, employees and other individuals may be injured. Unsafe workplaces can also lead to increased employee turnover as well as higher operating costs. Injuries can lead to production interruptions, which could result in financial costs for Gränges.


Risk management

Gränges has strict safety routines and continually invests in various safety measures to prevent accidents at plants. Regular safety training is held for all employees and targeted safety training is carried out for specific safety issues. Employees work according to the Environmental, Health and Safety Policy. Gränges performs chemical substance hazard analysis and regularly substitutes chemicals to reduce exposure to personnel. Internal cross audits are carried out regularly at the various production sites to further improve the work environment and health and safety, enhance operational integration, and work according to best practice. Improved health and safety is also part of Gränges’ operational excellence ­programme, to work for continous improvements.

Description of Risk

Environmental risks relate to emissions to water, soil and air or releases of environmentally hazardous substances resulting from incidents and accidents, such as fire, oil spill, or leak of hazardous substances. Such events may have financial, non-­financial, and regulatory repercussions.


Risk management

Environmental risks are reported as risk observations in local incident management systems at plants. Risks are managed in accordance with a set routine and integrated as a part of daily operations. Key risks are raised to the regional management team and mitigation measures are implemented accordingly. Measures to mitigate environmental risks are also integrated in investment and maintenance routines.

Description of Risk

1.Critical competence and talent
Gränges operates in a specialized niche where experience and knowledge of the company’s markets, customers, and production are key factors for the company’s success. Competent, engaged, and innovative employees with solid knowledge provide the foundation to develop and manufacture high-quality products. Losing key employees can negatively affect Gränges’ possibilities of conducting and developing its operations 
and its ability to develop new products.

2. Diversity and gender equality
A workplace that is diverse and equal, and where all types of skills are used, is important in ensuring that Gränges maintains long-term competitiveness. Lack of gender equality and diversity may affect Gränges’ ability to reach its long-term goals.


Risk management

1. Attractive workplace
Gränges offers remuneration levels in line with market rates and conditions of employment necessary to recruit, develop, and retain key employees. Gränges conducts continual training to maintain top-level craftsmanship and leadership. Gränges works actively to strengthen its corporate culture and core values, which are important for employees to feel good, thrive, develop, and perform.

2. An inclusive approach
In recruitment processes, if all other factors are equal, the under-­represented gender will be prioritized. Leadership programmes include activities that support a more equal gender balance. Gränges provides flexible working arrangements so that employees can easily combine their work commitments with their family lives.

Description of Risk

Violations of the company’s internal policies, Anti-corruption Policy and Code of Conduct may adversely affect the company’s ­reputation and brand, and therefore earnings.


Risk management

All Gränges employees, board members, contracted consultants and others who act on Gränges’ behalf, must follow the Code of Conduct. Gränges employees and board members must also follow policies such as the Anti-corruption Policy and take reasonable steps to ensure that Gränges’ independent business partners, including suppliers, customers, and joint-venture partners, do not engage in corruption or other illegal or unethical activities related to their business with Gränges.

Employees regularly undergo training in the Code of Conduct and anti-corruption as well as the company’s core values. The Group’s internal communications support and develop this work. Gränges’ whistleblower function enables employees to report incidents anonymously.

Description of Risk

Gränges operates in many different markets, with local laws and rules. Failure to keep abreast of legislative and regulatory requirements may cause financial liabilities or even loss of permits. If employees or individuals who work on Gränges’ behalf ­violate laws and rules, it could have negative consequences for Gränges. The company may be affected by events that damage confidence in the company, its operations, or employees, for example if environmental, quality, or ethical requirements are not met in the manner prescribed by Gränges.


Risk management

Gränges observes all applicable local and international laws and regulations. Gränges continually monitors legislative and regulatory developments through external partners, and through membership in various industrial organizations. The company’s employees are regularly informed of relevant changes that the company must follow. Gränges conducts in-house training of relevant personnel to ensure good knowledge and understanding of legal risks and requirements.


Financial risks

Financial risks are managed in accordance with Gränges’ Financial Management Policy. Gränges uses derivatives and other financial instruments to reduce financial risks.

Description of Risk

Gränges Group’s sales are primarily generated outside of Sweden. Sales contracts are mainly signed in US dollars, Euro and Chinese yuan, depending on where the customers are located. Changes in foreign exchange rates have an impact on Gränges’ income statements, balance sheets, and cash flow. Over time, changes in foreign exchange rates also affect the company’s long-term competitiveness and earning capacity.


Risk management

Gränges’ Financial Management Policy regulates the company’s management of foreign exchange risk. Gränges uses financial instruments, mostly forwards, to reduce the company’s exposure to changes in foreign exchange rates with regard to its commercial cash flows. Changes in exchange rates for firm commitments are managed in accordance with a model whereby the exposure with a duration of up to 18 months is hedged. Exposures relating to customer orders without firm commitments are partly hedged up to 24 months.

Description of Risk

Gränges procures large volumes of aluminium for the company’s production facilities in Sweden, China and the US. The price of aluminium is based on the trade price on the LME in London or SHFE in Shanghai. Gränges’ revenue model means that the cost of aluminium is passed on to the customer to the extent possible, through the agreements with customers and suppliers. Sometimes there can be a lag between the aluminium procurement date and the sale of the finished product, which means that Gränges is partially exposed to fluctuations in the price of aluminium.


Risk management

Gränges’ Metal Management Policy regulates the company’s management of commodity price risk. The goal is to balance the short and long position so the company is not affected by changes in the price of aluminium. Financial instruments are used to manage commodity price risk. Gränges takes no positions for speculative purposes.

Description of Risk

Gränges’ interest rate risk mainly relates to the Group’s interest-bearing liabilities. Changes in interest rates may affect the Group’s results and cash flow and/or the fair value of financial assets and liabilities. The actual interest rate risk also depends on the size of the interest-bearing debt.


Risk management

Gränges’ borrowings are mainly in Swedish Krona and US Dollar at floating interest rates. The duration of the interest-
bearing debt portfolio can be adjusted by longer interest periods or by interest rate swaps. The target for the duration of the interest bearing debt portfolio is regulated in the Financial Management Policy. In 2017 no interest rate swaps were used to prolong the duration.

Description of Risk

Liquidity risk is the risk that Gränges will not be able to meet its payment obligations. Cash flow from operations, which is affected by changes in working capital among other factors, is managed at group level. By monitoring liquidity flows in the short and long term, Gränges maintains good financial readiness.


Risk management

Gränges forecasts future payments and obligations for the next twelve months against incoming cash flows and avail­able credit facilities, including a strategic reserve. Excess liquidity is managed by the Group’s treasury function and can be invested at approved banks to mature within six months. The goal is to optimize the liquidity in the Group, and at the same time minimize liquidity risk.

Description of Risk

Credit risk is the risk that a counterparty does not meet its financial obligations towards Gränges. A credit risk can be related to for example trade receivables or financial counterparties.


Risk management

Gränges’ trade receivable exposure is managed and followed up continually in local credit committees. The need for provisions is tested every quarter, or when necessary, according to predefined criterias. The credit risk on financial counterparties is handled by choosing counterparties with a good credit rating, by limiting the actual exposure, and by agreements such as ISDA agreements.