Risks and business uncertainties

Financial Statements Release January‒December 2022, 2 March 2023

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, as well as the uninterrupted supply of energy, is essential for the Group’s business operations. Market prices for electricity remained at an exceptionally high level during the review period. Due to the coronavirus pandemic, the recovery of the economy and the situation in Ukraine and Russia, uncertainties related to the availability of raw materials and other materials continue to exist 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 in relation 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 Financial Statements Release 2022 7 on the general price development and availability of raw materials such as structural steel and pig iron, and on the development of energy prices. 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 through index-based price agreements, based on which the sales prices of products are updated retrospectively in response to changes in the prices of raw materials. An increase in raw material prices may increase capital employed in 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 the continuity of its operations. However, these uncertainties can be mitigated, and it is the management’s estimate that the future financing of operations does not involve significant uncertainties. Until June 2024, Componenta has access to a share subscription facility, which can be used to finance operations as necessary.

The Group’s liquidity was at a good level at the end of the financial year. At the end of the review period, Componenta also had EUR 4.0 million in unused binding revolving credit facilities and a USD 7.5 million unused portion of its USD 8.0 million share subscription facility from GCF, an investor based in the United States. In addition, the final instalment of EUR 2.0 million of the EUR 4 million working capital loan agreed in December is expected to be drawn down during the first quarter of 2023. All the Componenta Group’s restructuring programmes were completed in 2021. A more detailed description of the uncertainties related to the continuity of the company’s operations and other business risks is provided under “Accounting principles requiring the management’s judgement”.

The Componenta Group has no significant unresolved disputes or legal proceedings. Componenta Corporation owns 3.6% of Majakka Voima Oy, which has been placed in liquidation and is subject to claims because of the Fennovoima project. According to Componenta’s estimate, it is unlikely that any significant financial liabilities will arise from this matter for Componenta.