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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.

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

Demand for Gränges’ products and services depends on the general economic climate in the sectors in which it operates, which in turn is impacted by macroeconomic factors in the countries and regions where Gränges operates, including the growth rate of the global economy, currency fluctuations, tariffs and other global trade restrictions, commodity prices and inflation.

Light vehicle production is an important driver of Gränges’ sales as the automotive sector accounts for about half of Gränges’ total sales volume. The general activity within building and construction and climate changes are also important drivers, as about 25 per cent of Gränges’ sales go to the HVAC industry.

An increased focus on products’ sustainability performance is leading to changed market conditions, resulting in high expectations with respect to the ability to deliver sustainable product offerings. The electrification within the automotive sector requires new solutions and components for cooling and heating. Although Gränges is well positioned to benefit from this development there is a risk that other technologies will emerge over time and that Gränges’ current and future technology become outdated. If Gränges does not follow, develop and participate in the transition to a sustainable society, it could have a negative impact on the company’s reputation, or if Gränges does not manage to meet the demand for new products, it could adversely affect the company’s ability to win procurements and lead to reduced demand and decreased revenue and profits.

Changing market conditions and trends resulting, for example, from a changed external and security climate, outbreak of pandemics or infectious diseases, economic conditions, changed political priorities, new legislation as well as technical development and digitalization may lead to reduced demand for Gränges’ products and services. Reduced demand from customers and sectors to which Gränges offers its products and services could affect Gränges’ production levels, investment plans and financial ability.

In a recession, there is a risk that Gränges will find it difficult to maintain profitable price levels and in obtaining payment on time. A negative economic development and changes in customers’ purchasing behaviours may have a significant negative impact on Gränges’ operations, results and financial position.

Gränges may be affected by trade restrictions introduced by authorities in countries where it has operations, or countries where Gränges may operate in the future, and by sanctions or other measures by associations or organizations such as the EU and UN.

Risk mitigating activities

  • Global presence: Gränges’ global presence on three continents balances the shift in demand throughout the economic cycle.
  • Continuous monitoring: Gränges continuously monitors the development in different markets, and proactively assess external risks and opportunities that may influence the company’s strategy and operations.
  • Diversified portfolio: A more diversified product portfolio reduces Gränges’ cyclicality and reduces the company’s dependence on a single customer industry.
  • Research and innovation: Extensive R&I enables Gränges to continue to develop advanced materials and solutions to meet new demands.
  • Customer collaboration: Gränges works closely with customers in product development for future applications to ensure a continued high quality and adherence to customer requirements.
  • Global customer satisfaction surveys: Gränges conducts customer satisfaction surveys globally to track customers’ perceptions of the company and its products.
  • Contingency and mitigating plans: Gränges has contingency and mitigating plans in place, which have been activated in 2020 due to COVID-19. Gränges’ highest priority is to ensure the health and safety of the employees, customers and other stakeholders while maintaining continuity and developing the business. In 2020, measures have been taken to mitigate the negative impact of COVID-19 and to adapt the operations to the new market situation. Contingency plans were activated to secure business continuity, protect cash flow and reduce cost, which included postponed capital expenditure, a reinforced general savings programme and capacity adjustments through temporary site closures. Temporary layoffs and reduced working hours were implemented across the operations in accordance with local regulations. Regarding the risk for increased sick-leave and difficulties in managing the Group effectively in the event of key employees being ill, contingency plans were established and remote access to business-critical systems were secured.

Risk description and consequence

Supply chain risks mainly relate to social, environmental and ethical risks in Gränges’ supply chain. Mismanagement of these risks may lead to undesirable effects on the supply of input materials for Gränges. It can also lead to reputational losses.

Social supply chain 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. Health and safety risks are present throughout the value chain.

Environmental supply chain risks mainly occur in mining activities where there are risks related to water consumption, leakage, noise from heavy vehicles, air emissions, and significant alterations to the landscape due to open-pit mines. It can also contribute to biodiversity loss, increased carbon emissions, and soil erosion. Further, refining and smelting activities are energy- and water-intensive processes and much of the energy comes from hydroelectricity which is a renewable source but has other environmental and social impacts and risks.

Corruption risks are mainly linked to mining approvals, regardless of the country’s level of economic development or political system. A few countries in Gränges’ supply chain are deemed to have a higher risk for corruption, according to Transparency International’s Corruption Perceptions Index for 2020.

Risk mitigating activities

  • Supplier Code of Conduct: Gränges has a Supplier Code of Conduct which all significant suppliers are requested to sign. The intention is to increase awareness and improve transparency of responsible and sustainable business practices in Gränges’ supply chain. By signing, suppliers declare to observe all applicable laws and regulations, including the ten 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 depending on the purchasing category and country of origin. Suppliers identified to have a potential medium or high sustainability risk are thereafter required to complete an evidence-based and third-party verified desktop sustainability assessment so that Gränges can better understand their performance and risk profile. Gränges currently works with Ecovadis to conduct such assessments.

  • Follow-up and engagement: 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. Such audits mainly focus

Risk description and consequence

Reputation and customer relationships risks mainly relate to Gränges’ dependence on its reputation and brand to obtain new customers, suppliers and partners and to maintain such existing relationships.

Gränges’ reputation and brand are above all dependent on the reliability and quality of its products and services. Reduced product quality and customer service are also examples of factors that affect the trust placed in Gränges by customers and consequently Gränges’ reputation and brand.

Deficient quality in Gränges’ products could lead to recalls from end-customers and result in significant costs if insurance policies are not sufficient or cannot be sufficiently utilized. If Gränges’ products and services are not in compliance with laws, regulations or decisions by authorities, or if they cause harm to person and property, there is a risk that a customer may choose to end the relationship with Gränges.

The risk of negative publicity and negative opinions has increased with the many information and media channels available, making it more difficult for Gränges to control how its brand is perceived in the markets. A loss of reputation due to negative publicity about Gränges’ business could result in the loss of customers and reduced profits.

Extensive negative publicity on regulatory or legal proceedings, violations of laws or regulations, failure to meet important contractual obligations or deadlines, could damage Gränges’ reputation and brand and undermine customers’ and other stakeholders’ trust in Gränges.

Risk mitigating activities

  • Refer to risk mitigating activities in operational and financial risks.

 

Risk description 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. Long-term changes to market prices will eventually affect Gränges’ operating profit if changes are not automatically 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, either via direct combustion or via induction. 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. Energy prices have historically varied and may continue to vary significantly 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.

Gränges’ ability to manufacture products may be temporarily affected by disruptions in energy deliveries. Such disruptions may also arise due to loss of energy supply agreements or if Gränges fails to enter into new energy supply agreements on commercially acceptable terms.

Natural disasters and similar events could affect the energy grid and disrupt the energy supply to Gränges’ production facilities.

Risk mitigating activities

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

Risk description and consequence

Political risks relate mainly to changes in trade legislation or sanctions against individual organizations or countries where Gränges or its supply chain has operations or market activities, as well as sanctions or other measures by unions or organizations such as the EU and the UN.

Gränges’ production sites are located in Sweden, Poland, France, China and the US, and its customers are located in around 40 countries. Markets and operations are affected by the political and economic environments within and between these countries. Political risks affect Gränges’ ability to meet the demands of its customers. Such influencing factors may limit the company’s operations, delay or prevent planned investments or otherwise affect Gränges’ ability to meet its customers’ needs in the short and long term, and thereby affect Gränges’ operations and financial results.

Risk mitigating activities

  • Continuous monitoring: Gränges closely monitors political risks, particularly regarding legislation for cross-border trade.
  • Flexible production set-up: Gränges has production sites on three continents which implies a flexibility to transfer production and re-route supply flows should political changes have a negative impact on the current setup.

Risk description and consequence

Climate risks include transition risks such as changes in environmental policy or legislation to incentivize improved energy efficiency and reduced climate impacts. Such changes could lead to higher costs for Gränges, including higher energy prices and increased need for investments in lower-emissions technology. Other transition climate risks include shifting customer and consumer preferences towards products carrying a lower climate impact, which can reduce demand for Gränges’ aluminium products.

Risk mitigating activities

  • Continuous monitoring: Gränges closely monitors changes in environmental policy and legislation.

  • Climate strategy: Gränges works actively to take product stewardship and reduce climate impact along its value chain. The company has set ambitious 2025 climate targets to reduce the impacts of its own operations, purchased energy as well as purchased materials.

  • Eco-responsible innovation: Gränges works to incorporate sustainability aspects into product development with a focus on products’ full life-cycle performance.

  • Product life-cycle sustainability performance: Gränges works to leverage the advantages of aluminium and develop sustainable product offerings which can improve customers’ and end-users’ climate and sustainability performance from both an operational and product perspective. To enable customers to understand, evaluate and compare Gränges’ products from a sustainability perspective, Gränges has also set a target that 80 per cent of its products should have third-party verified sustainability information available by 2025, starting with the carbon footprint.


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 disruption risks mainly relate to Gränges’ dependence on sufficient input materials, such as primary aluminium, recycled aluminium, alloying elements and indirect materials. Insufficient supply would imply that Gränges cannot produce certain products.

Production risks are also connected to critical machine breakdowns or calamities such as a fire, which could damage equipment.

Gränges may also be affected if suppliers suffer from financial or operational difficulties, if they raise their prices or are unable to deliver as agreed. Incorrect, delayed or missed deliveries from suppliers could lead to delays or shortcomings in Gränges’ products. Reductions or closures by larger suppliers could impact Gränges’ ability to manufacture and deliver products. If any of these risks were to be realized, it could result in increased costs, delayed deliveries and possible claims from customers.

Damage to suppliers’ and Gränges’ production plants, caused, for example, by stoppages, disruptions in any part of the production process, such as breakdowns, access to spare parts, weather conditions, geographical conditions, labour conflicts, terror activities, natural disasters, fire and pandemics, could have negative consequences. These negative consequences could consist of direct damage to property, but could also 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 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

  • 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.

  • 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.

Risk description and consequence

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

Risk maitigating activities

  • Operational excellence programmes: Gränges ensures highquality products and efficient production processes through its programmes for lean operations.

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 leak of hazardous substances.

Emissions to air, in terms of carbon dioxide, nitrogen oxides and particulate matter, 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, nonfinancial, as well as regulatory repercussions.

In line with the Aqueduct Water Risk Atlas developed by the World Resources Institute, Gränges’ operations are located in areas with various water risks. The production sites in Finspång and Newport are situated in areas with low-to-medium risk, whereas the Huntingdon and Salisbury facilities are in medium-to-high risk areas. The plant in Shanghai is situated in a high-risk area.

Mismanagement of water risks can lead to water shortage and/or bad water quality; however, no water source is currently considered to be significantly affected by the water withdrawal or discharge from Gränges’ operations.

Risk mitigating activities

  • Daily monitoring and management: Gränges monitors and manages emissions to air as part of the daily operations. Compliance is a prerequisite for Gränges’ continued license to operate. 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 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 a part of daily operations. Key risks are raised to the regional management teams and mitigation activities are implemented accordingly. Measures to mitigate environmental risks are also integrated in investment and maintenance routines. Gränges takes a precautionary approach to environmental risks.

  • Environmental management certifications: Gränges aims to have all its sites certified in accordance with ISO 14001 (environmental management) and ISO 50001 (energy management) certification standards. The sites in Finspång and Shanghai are certified against both standards. The sites in Americas are preparing for both certifications and in 2020 the Huntingdon site achieved ISO 14001 certification.

  • Local water management plans: Gränges has set a 2025 target to develop and implement local water management plans in all its sites and in 2020 two sites launched local plans including local targets and actions to address water-related impacts.

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. Another risk is exposure to chemicals, which can be hazardous to employees’ health. There is also a risk of fire which can lead to explosion or breakdown in a production facility.

Employees and other individuals may be injured if the implementation of safety procedures is unsuccessful or inefficient. Unsafe workplaces can also lead to increased employee turnover as well as higher operating costs and production interruptions, which in turn could result in increased costs for Gränges. 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

  • Daily monitoring and management: Gränges has strict safety routines and continuously invests in safety measures to prevent and mitigate workplace accidents and injuries.

  • Incident reporting: Gränges focuses on preventing workplace injuries and ensuring safe behaviour. Job safety analysis is carried out and all incidents and accidents are registered and classified in incident reporting systems. A 5S system has been implemented in all sites to ensure a clean, orderly and safe work environment.

  • Global EHS Policy: Gränges has a group-wide EHS Policy which all employees and contracted workers are required to follow. The policy includes clear principles related to occupational safety and health.

  • Safety certifications: Gränges aims to have all its sites certified in accordance with the OHSAS 18001 (ISO 45001 from 2021) safety management standards. The site in Shanghai is certified against OHSAS 18001 and the sites in Americas and Finspång are preparing for ISO 45001 certifications.

  • 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 practice through internal cross assessments, safety meetings and intranet communication. The company also shares information with external companies through industry associations.

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 fierce competition on the labour market. Gränges operates in the traditional industry where competition for qualified employees is high, jobs are located outside metropolitan areas and the overall competence may be limited. 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 Group to deliver goods and services in accordance with customers’ expectations. There is also a risk that this will 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. The company runs a structured recruitment process to ensure the company hires competent and skilled employees.

  • 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. In the recruitment process, all else being equal, individuals from underrepresented groups are given recruitment priority. Gränges regularly trains its employees on the importance of inclusion and having a diversified workplace.

  • Health and wellbeing initiatives: Gränges offers its employees occupational and non-occupational health services. Examples include access to occupational health care, regular health checks and access to medical care at licensed medical providers.

Risk description and consequence

Operating in a global business environment can sometimes be challenging as complex market conditions can lead to situations where employees are uncertain how to act. 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. Violations of anti-corruption legislation can result in extensive fines and other sanctions of a criminal, civil or administrative nature and that Gränges is excluded from participating in public procurement proceedings for extended periods of time. It could also have a material adverse effect on Gränges’ reputation, operations, results and financial position. Corruption-related incidents or accusations against suppliers, distributors and other partners with whom Gränges has a business relationship could, even if Gränges is not involved, lead to negative publicity, risk damaging Gränges’ reputation.

Risk mitigating activities

  • UN Global Compact membership: Gränges supports international standards on human rights, labour conditions, the environment and anti-corruption, including but not limited to the UN Global Compact and its set of ten principles.

  • Code of Conduct: Gränges is committed to operating in accordance with responsible, ethical and sound business principles, and in compliance with all applicable laws and regulations. The company has a group-wide Code of Conduct which employees and board members, as well as temporary staff, must follow. All employees should annually conduct training in the Code of Conduct.

  • Anti-Corruption Policy: Gränges also has a group-wide Anti-Corruption Policy which all Gränges’ employees and board members must adhere to. These individuals must also 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. All white-collar employees should annually conduct training in anti-corruption. The company will always act rapidly, stringently and vigorously upon discovering corruption or other unethical behaviour.

  • Whistleblower function: Gränges has a Whistleblower function which is managed by an external company and can be accessed online or via telephone. Through the function, employees and external business partners can report irregularities or concerns of misconduct anonymously.

Risk description 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.

Misconduct, fraud, violation of laws and regulations, or other improper acts carried out by Gränges’ employees, representatives or partners could have an adverse effect on Gränges’ business and reputation. Such action could involve a breach of applicable regulations on public procurement, secrecy, prohibition against bribes and other corruption, regulations on employee compensation and other contractual costs, regulations against lobbying or similar activity, regulations on internal control of financial reporting, laws and regulations on the environment, trade, competition and monopoly prevention and other applicable laws and regulations. If Gränges does not comply with applicable laws and regulations or if misconduct is committed, the company could be subject to penalties, fines or cancellation of or exclusion from agreements. This could adversely affect Gränges’ reputation, which would make it more difficult for the company to win procurements and lead to decreased revenue and profit.

Gränges is dependent on its employees, suppliers, distributors and other partners following the law and complying with regulations, internal steering documents and policies. Violation of or failure to comply with applicable laws and regulations could adversely affect Gränges’ business and reputation. Such action may, for example, include non-compliance with laws and regulations relating to public procurement and competition, money laundering, IT security and data protection, corporate governance, export controls and sanctions, IFRS and other regulations relating to accounting and financial reporting, the environment and work environment, business ethics and equal treatment.

Since Gränges’ business is global, it is complex and time-consuming to monitor and verify compliance with internal policies and codes of conduct throughout the organization. If Gränges’ employees, suppliers, distributors or other partners are in serious violation of existing law and internal and external policies, or in some way act in a manner that is not consistent with the level of business ethics and integrity that Gränges has undertaken to uphold, this could have material adverse effect on Gränges’ reputation, business, profits and financial position.

Risk mitigating activities

  • Continuous monitoring and management: Gränges continuously monitors legislative and regulatory developments through external partners, and through membership in various industrial organizations. The company observes all applicable local and international laws and regulations.

  • 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. These risks grow in an increasingly technically complex and interlinked world. Failure to adequately restrict access to information may result in unauthorized knowledge or use of confidential information.

The implementation of new business and production systems can lead to unexpected costs and take longer than expected. There is also a risk that new systems will prove to be inadequate or faulty. If Gränges’ business systems do not function satisfactorily, resulting in inefficiency and significant operational disruptions, this could have a material adverse effect on Gränges’ reputation and operations.

Risk mitigating activities

  • 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.

  • Information Security Policy: Gränges has an established Group Information Security Policy which all employees, including contractors and board members, must adhere to.

  • Communication and training: Gränges regularly informs and trains its employees 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 as the majority of the Gränges Group sales is denominated in other currencies than SEK, which is the consolidation currency of the Group. Sales contracts are mainly denominated 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 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 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.

Risk description and consequence

Gränges procures large quantities of aluminium in order to facilitate the production in the different regions. Aluminium is traded on the London Metal Exchange and Shanghai Futures Exchange. The market price is used as basis for both metal purchases and sales. In addition to the metal market price is also the metal premium, which affects the commodity price risk. This varies between the different regions. Price changes impact Gränges’ income statement, balance sheet and cash flow.

Risk mitigating activities

  • Metal Management Policy: Gränges has a Metal Management Policy which regulates the company’s management of commodity price risk. The goal is to balance the short and long positions so that the company is not affected by changes in the price of aluminium.

  • Financial instruments: The metal exposure is reduced by matching the pricing conditions of purchases and sales, when possible. Gränges also uses financial instruments to manage the commodity price risks. Hedges are only done to reduce risk, not for speculative purposes.

Risk description and consequence

Gränges’ interest rate risk is primarily related 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.

Risk mitigating activities

  • Floating interest rates: The majority of Gränges’ interest-bearing debt is denominated in SEK and USD and has floating interest rate.

  • Duration of the interest-bearing debt portfolio: Gränges can adjust the duration of the interest-bearing debt portfolio either by changing interest terms in credit agreements or by entering into interest rate swaps. The target for the duration of the interest-bearing debt portfolio is regulated in the Financial Management Policy. In 2020, no interest rate swaps were used to prolong the duration.

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 and are monitored on Group level.

Risk mitigating activities

  • Liquidity forecasts: Gränges forecasts future payments and obligations for the next 12 months against incoming cash flows and available credit facilities, including a strategic reserve. Excess liquidity is managed by the Group’s treasury function.

  • Financial Management Policy: Gränges has a Financial Management Policy which regulates a minimum level for available liquidity, including committed credit facilities from banks.

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 receivable exposure is managed and followed up continuously in local credit committees. The need for provisions is tested every quarter, or when necessary, according to predefined 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 agreements such as ISDA agreements.

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 significantly higher cost.

Risk mitigting activities

  • Financial planning: By adequate financial planning regarding the capital need over time and a robust financing strategy, the refinancing risk can be limited. Gränges’ planning process, Financial Management Policy and leverage target minimizes the refinancing risk.