Investors

Risks and business uncertainties

Business Review January‒March 2022, 6 May, 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. Market prices for electricity have started to fall slightly during the first half of the year but in general have remained at an exceptionally high level. Due to the COVID-19 pandemic, the current rapid recovery of the economy and 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, especially semiconductors and other electronic components, 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 requirements and optimizes 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 assessment the Group has no significant and immediate risk concentrations related to Russia and Ukraine in customers or suppliers. Componenta has no own operations in Russia or Ukraine. The war in Ukraine has had an impact on the overall price development and availability of raw materials such as structural steel and pig iron. Indirectly the Ukranian war has had an impact on the supply chains of Componenta’s steel materials manufacturers and wholesalers through the development and availability of iron ore and coal. The continuation of the war in Ukraine may continue to have negative effects on financial markets, sales volumes, the availability and price development of raw materials and energy, and the availability of foreign labour, leading to uncertainty when making future estimates.

Componenta actively monitors liquidity risk. Componenta’s current revolving credit facilities will need to be renewed in November 2022. The Group also finances its operations through factoring arrangements for accounts receivable. Any termination or non-renewal of factoring arrangements or revolving credit facilities creates 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” in Componenta’s Annual Review published on 16 March 2022.

The Group’s liquidity was at a good level at the end of the review period. In addition, Componenta Corporation has available a share subscription facility of USD 8 million from GCF, an investor based in the United States. Componenta Group’s all restructuring programmes have ended in 2021.