The basic risks and their impact as well as the measures used to mitigate the particular risks are presented in the table below. Additional information regarding risk management are provided in note 36 to the consolidated financial statements of the Grupa Kęty S.A. Capital Group Grupy for the year 2018.
Currency risk
Description
The Group companies export products and services and purchase imported materials. In addition, the prices of some sales and purchases made in Poland are tied to foreign exchange rates.
Potential impact
- A decline in exchange rates applicable to currencies in which export is made results in lower profitability.
- An increase in exchange rates of the export currencies results in higher costs of materials.
Risk-mitigating measures
- ‘natural hedge’ measures
- forward and futures contracts
- debt currency structure management
Risk related to rapid changes in the prices of basic materials
Description
Aluminium is the most important material of the Capital Group. Other crucial materials include raw materials for the Flexible Packaging Segment, such as BOPP and PE granulate or plastics.
Potential impact
An increase in the prices of key materials results in lower return on sales of those products for which fixed prices have been established.
Risk-mitigating measures
- ‘natural hedge’ measures (pricing formulas)
- forward and futures contracts
- contracts based on fixed delivery prices
Extraordinary events risk (fire, flood, etc.)
Description
The production process of a major part of the assortment requires the use of high temperatures and flammable substances. Additionally, some of the Group plants are located near rivers, which means the risk of flooding.
Potential impact
- Loss of property/assets
- Loss of profit
- Declining sales
Risk-mitigating measures
- transfer of a portion of risk to the insurer
- diversification of the locations of production plants
- investments in fire-fighting systems
- training courses in fire safety
Liquidity risk
Description
Liquidity risk may result from the loss of creditworthiness and the associated withdrawal of funding by certain banks, rapid growth in the demand for working capital, for example due to a soar of materials prices, deterioration of the term structure of receivables, etc.
Potential impact
- Problems with supplies of basic materials or their higher cost.
- Higher costs of finance resulting from the need to acquire new sources
Risk-mitigating measures
- diversification of the sources of funding in terms of entities and products and maintaining liquidity buffers in the event of sudden increases in material prices
- transfer of a portion of the trade credit risk to the insurer
Interest rate risk
Description
All major Group companies take advantage of both working capital and investment capital finance. All loan agreements are based on variable rates, therefore, a significant increase in interest rates will adversely affect the costs of finance.
Potential impact
Higher costs of finance
Risk-mitigating measures
Applying interest rate risk mitigation procedures depending on the level of debt of a particular company
Risk of economic downturn on the main markets
Description
Approximately 58% of consolidated sales are made to the construction industry, which means that a significant economic downturn in that business will adversely affect the Group performance.
Potential impact
Lower sales and thereby lower margins resulting from low level of production capacity utilisation
Risk-mitigating measures
- geographical diversification (exports growth)
- product diversification – sales growth in industries not related to construction (automotive, food)
Risk of losing key employees
Description
The success of the organisation depends on its employees. Therefore, the ability to retain skilled employees on key positions in all corporate areas is important for both current activities and growth prospects.
Potential impact
- Higher costs resulting from lower work efficiency of new employees
- Additional costs of recruiting and training new employees
Risk-mitigating measures
- periodic assessment and evaluation of the respective positions and suitable remuneration policy
- HR policy, including resource planning, development and training policy, competence management system
Risk of damage to the environment
Description
In the production process, the Group companies use substances which, if they leak to soil or surface waters in an uncontrolled manner, may cause contamination of the environment.
The companies use special systems to reduce emissions of harmful substances to air. Their failure may result in excessive emission of harmful substances to the environment.
Potential impact
- Fines for environmental pollution
- Land reclamation costs
- Damaged reputation
- Potential loss of some customers
Risk-mitigating measures
- periodic inspections and repairs of the environmental protection systems
- adequate preparation of the places of hazardous and harmful substances storage
Reputational risk and the risk of claims related to the quality of the manufactured products
Description
The Group operates in market segments characterised with high requirements regarding the quality and safety of products, including automotive and construction industries.
Potential impact
- Loss of a portion of sales
- Costs of product withdrawal/recall
- Fines and compensations due to death or health deterioration, or production downtimes at the customers
Risk-mitigating measures
- product quality assurance procedures
- insurance procedures, including product liability insurance, product withdrawal/recall insurance
- verification of insurance policies of key suppliers
Non-compliance risk
Description
The legal environment of the Company related to the Company business and operation on the capital market is subject to major changes, which brings about a risk of the possible failure to apply legal changes in the operations of the Company.
Potential impact
- Legal sanctions, including fines
- Damaged reputation
Risk-mitigating measures
Internal procedures, including internal control and internal audit