Operational risks

Market risks

Demand for Lindab’s products is affected by changes in customers’ investment plans and production levels, which in turn may change following any changes to the economic situation in a country or industry. Lindab’s customers are dependent on functioning financial systems for the financing of projects and are more seriously affected than companies manufacturing consumer products, for example, if bank financing is not available. The Group’s operations are currently distributed throughout 31 countries and approximately 45 percent of sales are to the renovation segment, which is usually less sensitive to the economic cycle. Lindab’s products have historically gained market shares from traditional products and materials. The sharp decline in demand in late 2008 and 2009 was met by Lindab with measures that were focused on balancing the cost structure and cash flow. Previously announced cost reduction programmes, now fully implemented, have reduced costs by a total of SEK 560 m annually compared with the situation in 2008. Approximately half of the cost
reductions are considered to be sustainable in a stronger market.

Competition

Within the various markets, Lindab faces a large number of local players and a small number of regional, national and multinational companies. Lindab works with highly automated central production units for volume
products, and to lower costs the company has also chosen to become established in countries with favourable production costs in order to increase the company’s competitiveness. At the same time, the distribution
has been adapted to suit each market situation, with proximity to the customer being the common denominator.

Bad debt losses

Lindab has just over 20,000 customers from approximately 60 countries. In 2010, the Group’s largest customer accounted for less than 1.5 percent of sales, meaning that Lindab’s dependence on individual customers is limited. To minimise bad debt losses, a number of companies within the Group have insured themselves against bad debt losses. Credit information is sought for new customers and existing customers are monitored continuously. The total reserve for bad debt losses amounted to SEK 80 m (99) at the end of 2010. During the year, SEK 24 m (57) was expensed relating to reserves for bad debt losses, amounting to 0.4 percent (0.8) of the Group’s total sales.

 

Raw material prices

Lindab purchases large quantities of steel, mainly sheet metal, and is affected by developments in the market for raw materials. In 2010, approximately 182,000 tonnes of steel products and other raw materials
were consumed with a value of SEK 3,016 m (3,282), corresponding to 48.8 percent (48.5) of Lindab’s total costs. Centralised steel purchasing
strengthens Lindab’s ability to negotiate competitive prices and terms. In addition, through long-standing relationships, the company has established a purchasing strategy which allows purchases to be made directly from the steel mills, without intermediaries. Lindab’s close  relationship with steel manufacturers has allowed it to develop special grades of steel and finishes adapted to the company’s systems and products. Purchasing is carried out both in Asia and in Europe. In 2010 the bulk of steel purchases were made in Europe. The price variance with Asia was marginal and the shorter European lead-times were given preference, driven by the strong focus on stock and cash. Lindab has worked to broaden its supply base and to prioritise suppliers that are prepared to adopt a just-in-time approach under competitive terms.

 

Other risks

 

• Seasonal risks
• Risk of claims
• Environmental risks
• Risk for and in connection with disputes
• Tax disputes
• Risk for product liability
• Insurance risks
• Product development risks
• Reputation
• Stoppages
• Loss of key competence