Risks and business uncertainties

Business Review January‒September 2022, 4 November, 2022

The most significant risks related to Componenta’s business operations are risks associated with the operating environment (competitive situation, prices, commodities and the environment), risks related to business operations (customers, suppliers, productivity, production, processes, labour market disruptions, contracts, product liability, personnel and information security) and financing risks (availability, liquidity, currency, interest rate and credit).

The availability of certain raw materials such as recycled steel, pig iron, structural steel, aluminium and energy at competitive prices is essential for the Group’s business operations. The market prices for electricity remained at an exceptionally high level during the review period. Due to the COVID-19 pandemic, the recovery of the economy and the situation in Ukraine and Russia, uncertainties related to the availability of raw materials and other materials have increased in Componenta’s operational activities. In addition, global challenges with the availability of certain components for customers may lead to production disruptions in our end customers’ plants and thereby affect Componenta’s sales volumes in the short term. To ensure the availability of raw materials and other materials, Componenta maintains active interaction with its suppliers, continuously updates its needs forecast and optimises its inventory levels to meet longer-term demand, closely monitors the situation of its suppliers and market changes and responds to these changes as necessary.

According to Componenta’s estimate, the Group has no significant and immediate risk concentrations related to Russia and Ukraine among its customers or suppliers of goods. Componenta has no operations of its own in Russia or Ukraine. The war in Ukraine has had an impact on the general price development and availability of raw materials such as structural steel and pig iron. The war in Ukraine has had an indirect impact on the supply chains of Componenta’s manufacturers of steel materials and wholesalers through the price development and availability of iron ore and coal, for example. 

A prolonged war in Ukraine can continue to have a negative impact on the financial market, sales volumes, the availability and price development of raw materials and energy and the availability of foreign labour, which increases uncertainty in terms of forecasts.

The cost risk associated with raw materials is mainly managed with price agreements to adjust product prices in accordance with changes in the general index of raw material prices. An increase in raw material prices may tie more cash than expected to working capital. In terms of commercial risks, future volumes may be weakened by customers switching to cheaper alternatives due to price competition.

Componenta is continuously monitoring the liquidity risk. Componenta’s current revolving credit facilities will need to be renewed in November 2023. The Group also finances its operations through factoring arrangements for receivables. Any termination or non-renewal of factoring arrangements or revolving credit facilities can create uncertainties for Componenta’s liquidity and going concern. However, these uncertainties can be mitigated, and it is the management’s estimate that the future financing of operations does not involve significant uncertainties. This is discussed in more detail under “Accounting principles requiring management judgement”.

The Group’s liquidity was at a good level at the end of the review period. In addition, at the end of the review period, Componenta had EUR 2.0 million in unused binding revolving credit facilities and USD 7.5 million available regarding a share subscription facility of USD 8.0 million from GCF, an investor based in the United States. All Componenta Group’s restructuring programmes were completed in 2021