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 and consequence

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

Electrification of the automotive industry
The electrification of the automotive industry is accelerating and is driving demand for new solutions and components for cooling and heating. Although Gränges as technical leader in the industry is well positioned to benefit from this development there is a risk that other technologies will emerge over time and that Gränges’ current technology becomes outdated.


Risk management

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 the Group’s sales volume goes to other niche markets in the industry, including stationary heat exchangers, transformers, and food packaging that are less cyclical. The aim is to continue to increase sales to other markets than the automotive industry.

Extensive R&I
Research and innovation are core elements of Gränges’ strategy, and Gränges continues to increase the 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 the next generation of materials.

Description of risk and consequence

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 to track customers’ perceptions of Gränges’ products and services. Results from the studies are reviewed and lead to actions to develop Gränges’ internal processes and specific customer relationships.

Description of risk and consequence

Ethical, environmental and social risks
Ethical risks in the supply chain are related to bribery and other types of corruption. Among the countries that Gränges sources metal from, there are a few that, according to Transparency International’s Corruption Perceptions Index for 2018, are deemed to have a higher risk for corruption.
Environmental risks in the supply chain are mainly connected to environmental permits and the potential lack of compliance.
Labour law risks include unfair working conditions. In certain regions there is a risk of child labour.

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


Risk management

Supplier Code of Conduct, assessments, and audits
To ensure that suppliers have zero tolerance for corruption, provide reasonable working conditions, ensure good workplace health and safety standards, and respect human rights and the environment, significant suppliers must sign and follow Gränges’ Supplier Code of Conduct. Suppliers thereby declare to observe all applicable laws and regulations, including the ten principles of the UN Global Compact.
Furthermore, Gränges aims to periodically conduct supplier assessments and audits of its strategic suppliers to make sure they adhere to the company’s sustainability requirements.

Supply management
Gränges enters into agreements with suppliers in each market to ensure deliveries based on 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 and consequence

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 affect Gränges’ operating profit directly and indirectly


Risk management

Gränges uses hedging and delivery agreements to secure future energy prices and supply. Financial hedges and physical fixedprice contracts may be used up to two years before delivery. Long term changes to market prices will eventually affect Gränges operating profit if changes are not transferred to the customers.

Description of risk and consequence

Gränges has its primary operations in Sweden, China, and the US, and customers in around 40 countries. Markets and operations are affected by the political and economic environments within and between these countries. Political changes and changes in for instance trade legislation or sanctions against individual countries or organizations 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 are closely monitored, particularly regarding legislation for cross-border trade. As a global company with production facilities on three continents, Gränges has some flexibility to transfer production and re-route supply flows should political changes have a negative impact on the current setup.

Gränges’ end-customer markets consist primarily of the global automotive industry and the HVAC industry in North America. Gränges’ sales of rolled aluminium products to the automotive industry is correlated with the production of light vehicles. Demand on the HVAC market is driven by factors such as construction investments, new regulations for energy efficiency and climate impact, and are usually higher during summer months as there is more demand for cooling systems then. Major annual maintenance work in Gränges’ production facilities mainly occurs in the fourth quarter. Overall, seasonal factors mean that the fourth quarter usually is the weakest and the second quarter is the strongest.


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 and consequence

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

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-theart fire protection systems and has extensive insurance policies in place.

Description of risk and consequence

Health and safety risks
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

Using a risk-based approach
Gränges has strict safety routines and continually invests in various safety measures to prevent and mitigate workplace injuries. Employees work according to the global EHS Policy.
Safety risks are reported as risk observations in local incident management systems at the production facilities.
Regular job safety analysis and comprehensive safety training is arranged for all employees at least once a year, and targeted safety training is carried out for specific safety aspects. Safety aspects are also integrated into Gränges’ operational excellence programme GPS, with the aim to improve the workplace environment through structural and systematic reduction and elimination of the many small hazards at origin.
Internal cross assessments are carried out every six months at the production sites to share knowledge and best practice, harmonize work processes and cooperate to develop improvement plans. Knowledge is also shared with other companies through industry associations.

Description of risk and consequence

Emissions to water, soil, or air
Environmental risks are related 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.
Emissions to air, in terms of carbon dioxide, nitrogen oxides and dust, come from burning fossil fuels and particularly natural gas and liquefied petroleum gas.
Emissions of oil are linked to cold rolling operations in which oil is used to cool down the mill and lubricate the interface between the rolls and the material.
Such events may have financial, non-financial, and regulatory repercussions.


Risk management

Standardized routines and daily monitoring
Environmental risks are reported as risk observations in local incident management systems at plants. Risks are managed in accordance with a standardized 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.
Emissions are monitored and managed as part of daily operations. Compliance is a prerequisite for Gränges’ continued licence to operate.
Local authorities continually monitor compliance to ensure that emissions are within limits. Emissions of nitrogen oxides, sulphur dioxide, dust, volatile organic compounds (VOC) and in some regions, oil emissions, are regulated by legislation.
Gränges includes the precautionary principle in environmental risk assessments.

Description of risk and consequence

Talent attraction and employee retention
Gränges operates in a specialized niche where experience and knowledge of the company’s markets, customers, and production are critical for the company’s success. Competent, committed, and engaged employees form the foundation on which Gränges can be innovative and competitive.
Losing key employees can negatively affect Gränges’ possibilities of conducting and developing its operations, and its ability to develop new products. It can also lead to significant cost implications.

Diversity and equality
Gränges believes that diversity is a competitive advantage and that employees with different backgrounds and experiences make Gränges a more innovative, profitable and productive organization. Lack of diversity and equality may affect Gränges’ ability to reach its long-term targets.


Risk management

Attractive workplace and leadership development
To attract and retain skilled employees, Gränges works actively to strengthen its employer brand. Gränges also offers remuneration levels in line with market rates and conditions of employment necessary to recruit, develop, and retain key employees.
To ensure that employees are motivated and engaged, Gränges conducts regular performance and development discussions. To develop the leadership that is needed, the company works actively with training opportunities, talent management and succession planning as well as strengthening the corporate culture and core values.
Gränges also works proactively to promote health and wellbeing through initiatives such as flexible work options and occupational health care.

An inclusive approach
In the recruitment process, all else being equal, individuals from underrepresented groups are given recruitment priority. Gränges also works to make sure that diversity is incorporated into the onboarding process as well as into the process of putting together teams. The company also regularly trains its employees in the Code of Conduct, which covers the inclusion and diversity perspective.

Description of risk and consequence

Violations of the company’s ethical business principles as described in its Code of Conduct and Anti-Corruption Policy, may adversely affect the company’s reputation and brand, and therefore earnings.


Risk management

Gränges is committed to operating in accordance with responsible, ethical and sound business principles, and in compliance with all applicable laws and regulations.
All Gränges employees and board members, as well as temporary staff such as independent contractors and consultants, intermediaries or others acting on behalf of Gränges, 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. Gränges has set a long-term target that 100 per cent of all employees are annually trained in the Code of Conduct and that 100 per cent of all applicable employees are annually trained in anti-corruption.
Gränges’ whistleblower function enables employees and external business partners to report irregularities or concerns of misconduct anonymously. The function is open 24 hours a day and seven days a week.

Description of risk and consequence

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.

Gränges’ end-customer markets consist primarily of the global automotive industry and the HVAC industry in North America. Gränges’ sales of rolled aluminium products to the automotive industry is correlated with the production of light vehicles. Demand on the HVAC market is driven by factors such as construction investments, new regulations for energy efficiency and climate impact, and are usually higher during summer months as there is more demand for cooling systems then. Major annual maintenance work in Gränges’ production facilities mainly occurs in the fourth quarter. Overall, seasonal factors mean that the fourth quarter usually is the weakest and the second quarter is the strongest.


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 and consequence

Gränges Group sales are primarily generated outside of Sweden. Sales contracts are mainly denoted in USD, EUR and CNY, depending on where the customers are located. Changes in foreign exchange rates have an impact on Gränges’ income statement, balance sheets, and cash flow.
Over time, changes in foreign exchange rates may 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 regarding 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 and consequence

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, through the agreements with customers and suppliers. Typically there is 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 that the company is not affected by changes in the price of aluminium. Financial instruments are used to manage the commodity price risk, that can arise if there is a lag between the aluminium procurement date and the sale of the finished product. Gränges takes no positions for speculative purposes.

Description of risk and consequence

Gränges’ interest rate risk mainly relates to the Group’s interestbearing 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 total size of the interest-bearing debt.


Risk management

Gränges’ borrowings are mainly in SEK and USD 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 2018 no interest rate swaps were used to prolong the duration.

Description of risk and consequence

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. The liquidity risk is affected by for example Gränges’ future commitments, available cash and available credit lines.


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. The Financial Management Policy regulates a minimum level for available liquidity, including committed credit facilities from banks. Excess liquidity is managed by the Group’s treasury function.

Description of risk and consequence

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 criteria. The credit risk on financial counterparties is managed by choosing counterparties with a good credit rating, by limiting the actual exposure, and by agreements such as ISDA agreements.