Risks
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Per Nilsson
Corporate Communication and Marketing Director
+46 (0)73 973 72 00
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Risks.

Semcon is exposed to a number of risks that may affect the Group’s results. Semcon has chosen to divide the risks the company faces into financial and business-related risks. Semcon evaluates and identifies significant risks continually within the organisation and in strategic planning.

Financial risks

The company has identified five financial risks that could affect earnings:

  • Financing risks
  • Liquidity risks
  • Credit risks
  • Currency risks

 

For further information about financial risks, see Note 4 on page 57 in the Annual Report 2017.

Business-related risks

Economic climate dependency
RISKS: Semcon’s customers are affected to varying degrees by a poor economic climate as this can negatively impact demand for Semcon’s services.
MANAGEMENT: Semcon continuously works to broaden its customer base to minimise dependency on different markets and industries as well as individual customers, which may be affected by a poor economic climate. Semcon’s customer base consists mainly of companies in the automotive industry and Nordic industrial companies in various industries even though new customers from other geographic markets such as China, India and Brazil have been added in recent years.
EXPOSURE: Semcon is a global company with activities in Sweden, the UK, Brazil, Norway, Germany, Hungary, India and China. The percentage of sales to customers outside Sweden amounts to 24 per cent.

Industry dependency
RISKS: Semcon’s business is affected to varying degrees by developments and dependency on individual industries.
MANAGEMENT: To minimise the dependency on the automotive industry, Semcon is prioritising growth in other industries, such as energy and life science.
EXPOSURE: Since last year, exposure to the automotive industry has been reduced and amounts to 47 per cent of the Group’s total sales.

Single-customer dependency
RISKS: A customer can end an assignment/project at short notice or gradually cut back on business volumes. This can result in a risk, since Semcon cannot always guarantee full cost coverage, particularly for employees who cannot immediately be transferred to another assignment.
MANAGEMENT: Semcon works continuously to broaden its customer base to minimise its dependency on single customers.
EXPOSURE: Semcon’s customer base mainly comprises Nordic industrial companies in various sectors and foreign customers in the automotive industry. The ten largest customers account for 55 per cent of the Group’s total sales, which is 2 per cent lower than in 2016.

Employees
RISKS: There is always a risk that key employees or a large number of employees choose to leave the company. There is immense competition for skilled employees, which generally means that salaries may rise above the agreed contracts, both for groups of employees and individual key employees.
MANAGEMENT: Semcon prioritises activities to be an attractive employer and thereby improve employees’ job satisfaction. Resources are set aside for training, recruiting and induction activities.
EXPOSURE: In 2017, employee turnover was 21 per cent.

Sustainability
RISKS: Semcon’s presence on the global market carries sustainability risks in the areas of human rights, working conditions, environment and corruption.
MANAGEMENT: Semcon reduces its exposure to sustainability-related risks using set regulations, such as the company’s Code of Conduct, which is based on the UN Global Compact, and its Quality and Sustainability Policy. Semcon has a certified environmental management system in place to ensure that environmental legislation is followed throughout the Group. Semcon takes a zero-tolerance approach to any form of corruption and has a framework in place that clarifies the ethical rules for Semcon’s conduct in relationships with customers and other stakeholders. In addition, Semcon has a whistleblowing function where each employee is given the opportunity to anonymously report any suspected breaches of the Code of Conduct. No cases of infringements against the Code of Conduct or other serious irregularities were reported during the year.

Price pressure
RISKS: The risk of being exposed to price pressure is high in development-intensive industries.
MANAGEMENT: Semcon offers competitive prices in all markets but also gives customers the opportunity of using Semcon’s entire network of local and international offices. Semcon is continuing to adhere to its set plan of moving away from fixed hourly-based pricing towards more performance-based deliveries. This can increase the risk but also provides opportunities to improve profitability. Price pressure has remained strong, although there are variations between different sectors and markets. Every reduction or increase in total annual fees by one percentage point impacts the outcome by about SEK 15 million. The main priority is to offer the right solutions for customers and that they are based on results instead of primarily hours delivered.

Fixed price projects
RISKS: Fixed price projects expose the company to risks if projects cannot be completed to budget and/or if the project cannot be completed on time.
MANAGEMENT: All projects are planned, budgeted and carried out according to joint, fixed working methods. Semcon actively works with project management and is ISO 9001 and ISO 14001 certified. Meanwhile, projects give the Group the potential of improving profits through efficiency gains and by using expertise from various Semcon offices on projects.
EXPOSURE: During the year, employees received training as part of Semcon’s project manager training, which is based on the Group’s own project methodology, the Semcon Project Model.

Liabilities
RISKS: There is a risk that incorrectly carried out assignments and projects can affect results.
MANAGEMENT: The Group is insured according to industry practice for such eventualities.
EXPOSURE: During the year, a review of insurance cover took place in all of the Group’s markets. Over the years, Semcon has only used its insurance on a few occasions.

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