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AAK Annual Report 2016

Risks AAK’s operations are constantly exposed to risks, threats and external factors with an impact on the company. Through a proactive approach to business intelligence, the company aims to anticipate changes in factors affecting operations. Plans and policies are adjusted continuously to counteract potential negative effects. Active risk management, such as hedging raw material prices and currencies, reduces the risks that the company faces. Raw materials Harvests are weather-dependent. While a year of poor harvests drives up prices, a year of successful harvests reduces them. Most of our raw materials are traded on the international world market, where they are purchased in foreign FXUUHQFLHV7KLVHSRVHVXVWRVLJQL¿FDQWFXUUHQF\DQGUDZ material price risks. Our strategy of active risk management means that, as soon as a sales contract is signed, we hedge the equivalent currency and raw material price exposure. This safeguards margins against price risks on agreed sales contracts. Since many raw materials are produced at a considerable distance from our production plants and markets, transport costs are an important factor. Particularly the potential impact on margins from the growing demand for environmentally- acceptable transport methods has to be taken into consider- DWLRQ&RPSHWLWLRQLQFRPPRGLWLHVLV¿HUFH The processing industry AAK is part of the processing industry. Improvements in results are achieved through organic volume growth and by increasing sales of speciality products with higher margins relative to lower-margin bulk products. Capacity expansion aimed at increasing total volumes in order to meet growing demand has a relatively long planning horizon. AAK must analyze potential growth in good time. In the meantime, it is possible to balance production among RXUSODQWVWRHQDEOHSURFHVVLQJRIVSHFL¿FSURGXFWVFORVHU to their markets and accommodate swings in supply and demand. Key speciality products are produced at dedicated SODQWVZKHUHSUREOHPVZLWKPDFKLQHU\FDQKDYHDPDMRU impact. During 2016, our new production plants in Brazil and China were completed and a gradual ramp-up of the operations will continue in 2017. Political instability Operating globally always carries risks, but it can also be a stabilizing factor. Although AAK largely operates in mature markets in the US and Europe, much of company growth is generated in developing markets, which are vulnerable to political instability that can impact currencies and exchange rates. We also operate in Eastern Europe, the Middle East, Asia, Africa, and South America, where instability may arise. As a well-established operator in these areas, we have extensive experience of handling such issues. In addition, we operate with a deliberate risk management strategy. Global operations involve a number of other risks, including: Trade barriers. ,QÀDWLRQ Changes in national or regional legislation, e.g. the introduction of protective tariffs and taxes, which prevent AAK from operating in a free market. Environmental and health-related legislation. 22


AAK Annual Report 2016
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