Risks and business uncertainties

Half-Year Financial Report 2021, 23 July, 2021

The most significant risks to Componenta’s business in normal circumstances are risks related to the business environment (competition and price risk, commodities risks and environmental risks), risks related to business operations (customer, supplier, productivity, production and process risks, disruptions in the labour market, contract and product liability risks, personnel and data security risks) and financing risks (risks related to availability of financing and liquidity; currency, interest and credit risks).

The availability of certain raw materials, such as recycled steel, pig iron, structural steel and aluminium, as well as energy at competitive prices, is essential for the Group’s business. The cost risk related to raw materials is mainly managed through price agreements, whereupon product prices are adjusted in line with changes in the general index of raw material prices. Rising raw material prices may tie up more money in working capital than estimated. As for commercial risks, future volumes may be weakened due to customers switching supplier because of price competition.

Componenta’s current credit facilities will need to be renewed in June-November 2022. The Group also finances its business through non-binding factoring arrangements for trade receivables. Termination of factoring arrangements or non-renewal of credit facilities could significantly impair Componenta’s liquidity and impact the Group’s ability to continue as a going concern. However, the Group’s liquidity was at a good level at the end of the reporting period. Additionally, Componenta Corporation has entered into a USD 8 million share subscription facility with a US investor, GCF.

According to the management the uncertainties related to the ability to continue as a going concern have clearly decreased due to premature payment of restructuring debts of the parent company, the aforementioned share subscription facility and the renewal of the revolving credit facility agreement. Uncertainties and other business risks related to the company’s ability to continue as a going concern have been described in detail in the halfyear financial report table.

Impact of the COVID-19 pandemic

The health security of personnel has been very important to Componenta during the COVID-19 pandemic. Componenta’s proactive measures to ensure the health of its personnel have minimized the effects of the pandemic and the Group has succeeded in serving customers, completing deliveries, and keeping all operations running without any major issues.

If the uncertainty in the market persists due to the pandemic, this may have a significant impact on the financial situation of Componenta’s customers, which will increase Componenta’s credit loss risks. The negative consequences of the COVID-19 pandemic, if prolonged, could also pose a risk of impairment of the company’s goodwill, inventories, trade receivables or fixed assets as well as of the availability of raw materials and thus impact Componenta’s forecasts and lead to impairment of assets. However, the Group’s liquidity is on a good level.

In connection with the COVID-19 pandemic, Componenta closely follows regulatory guidelines, market developments and the operating conditions and business situation of its customers and adjusts its own operations accordingly, when necessary. Any possible illness and quarantine measures affecting personnel, as well as any other restrictions imposed by Finland and other states, could pose challenges to both Componenta’s own and its partner companies’ business. The effectiveness of vaccinations and adherence to vaccination targets are considered to be particularly important for managing the negative effects of the pandemic. Componenta continues to actively implement the necessary measures to maintain health and well-being and prevent the spread of the pandemic. Market uncertainty caused by the COVID-19 pandemic is expected to continue in the second half of 2021.