Risks and risk management
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
effects. Active risk management, such as
hedging raw material prices and currencies, reduces
the risks that the company faces.
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 and purchased in foreign
currencies. This exposes us to significant currency and
raw material price risks.
We have a strategy of active risk management and
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
Since many raw materials are produced far away
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 have to be taken into
consideration. Competition in commodities is fierce.
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
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
between our plants to enable processing of specific
products closer to their markets and accommodate
swings in supply and demand. Key speciality products
are produced at dedicated plants, where problems with
machinery can have a major impact.
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
Global operations also involve risks such as trade
barriers, inflation, environmental and health-related
legislation, and changes in national or regional legislation,
e.g. the introduction of protective tariffs and taxes,
which prevent AAK from operating in a free market.
Trade sanctions and export controls
AAK is committed to conducting business in accordance
with applicable trade sanctions laws and export control
regulations which AAK believes are important tools in
the international community’s strive to inter alia improve
human rights. AAK will not tolerate any violation of trade
sanctions laws, export control laws or related regulations
by its employees.
This means that AAK will not engage, directly or indirectly,
in any business, dealing, or transaction prohibited
by applicable trade sanctions or export control regulations.
Furthermore, AAK and its employees will not carry
out any direct or indirect business activities with any
person, entity or government targeted by trade sanctions,
nor export goods or services subject to applicable
export control laws without required licenses and/or
approvals from the relevant authorities.
Changes in the competitive environment
The sector in which AAK operates is undergoing
structural change. As a sector that has existed for just
over a century and has a fundamental dependence
on natural products, there is great pressure for more