Risk Management
All business activities involve risk. Risks that are effectively managed may lead to opportunities and value creation, while risks that are not managed correctly could result in damages and losses.
Trelleborg’s operation is aimed at a range of customers and customer seg-ments. The Group is represented in 44 geographic markets and has about 110 manufacturing units. While the business is diversified – providing Trelleborg with an effective underlying risk spread – sev-eral risks remain. Accordingly, the ability to identify, evaluate and manage risks plays a central role in steering and con-trolling Trelleborg’s business operations. The aim is to achieve the Group’s finan-cial targets while applying well-consid-ered risk-taking within set parameters.
Main risks encountered by Trelleborg are:
- Strategic and operational risks: include, for example, political decisions, con-flicts, natural disasters, environmental impacts and external financial risks. Other examples are changed patterns and attitudes among customers and consumers, industry and market risks in the form of the economy’s effect on demand, technology and market devel-opments, supplier dependence, pro-duction disruptions and supply and price fluctuations of input goods in the form of raw materials and compo-nents. Additional examples include the ability to attract and retain key person-nel, acquisition and integration of new units, divestments, structural meas-ures, site risks, customer-related cred-it risks and IT risks.
- Financial risks: include foreign ex-change, interest-rate, financing and liquidity risks as well as financial credit risks.
- Legal and other risks: include legislation and regulations, intellectual property rights, health, safety and the environ-ment, authorities and control bodies, tax risks and disputes and damage claims.
- Reporting risks: include the risk of incorrect reporting to authorities and the risk of mistakes in the Group’s financial reporting to the stock market.
A description of risks relating to financial reporting is presented in the Corporate Governance Report under the Report by the Board of Directors on Internal Control, page 44.
Trelleborg has established an Enterprise Risk Management process (ERM pro-cess) that provides a framework for the Group’s risk activities. The purpose of the ERM process is to provide a Group-wide overview of Trelleborg’s risks, to provide a basis for decision-making regarding the management of risks and to enable the follow-up of risks and the manner in which they are managed.
Within the scope of the ERM process, risks are identified, evaluated and managed in the Group’s companies, business areas, business units and processes. The management of risks is performed through an appropriate balance between preventive and risk- reducing measures. The various pro-cesses and tools of the ERM process are continuously developed by integrating previously established risk management processes and systems in various parts of the Group and by strengthening risk management in areas with improvement potential.
The ERM process involves all of the Group’s companies, business areas and business units. Overall coordination and work with specifically selected risk focus areas is centrally controlled by the Group’s Risk Management staff function and is led by the General Counsel, who assumes ultimate responsibility.
The respective managers are in charge of risk management in the Group’s companies, business areas and business units. This responsibility en-compasses the day-to-day work focused on operational and other relevant risks, and on leading and developing risk management activities in their own areas of responsibility. The managers are supported by central Group resources in the form of the Risk Management staff function and Group Treasury as well as Group-wide process and tools.
Moreover, because selected parts of risk management activities are Group-wide, the central Group resources can be allo-cated to prioritized risk focus areas.
Group Treasury is responsible for financial risk management activities. The unit is in charge of Group compa-nies’ external bank relations, liquidity management, net financial items, interest-bearing liabilities and assets, Group-wide payment systems and netting of currency positions. Centralization of the Group’s treasury management ensures substantial economies of scale, lower financing costs, tight management of the Group’s financial risks and improved internal control.
Trelleborg’s Treasury Policy defines the financing operation’s purpose, organ-ization and distribution of responsibility, and also prescribes a framework for financial risk management activities.
The Finance Committee of the Board of Directors reviews the Treasury Policy and proposes changes annually, or more frequently if necessary, after which the Treasury Policy is adopted by the Board. Trelleborg’s Treasury Policy states, among other things, that decisions on foreign exchange hedging of operating cash flows shall be made by the respec-tive business areas in cooperation with Group Treasury, which manages hedging activities centrally. All foreign exchange transactions of Group companies must be conducted in conjunction with Group Treasury, which ensures that the Group’s hedging activities are carried out in com-pliance with the Trelleborg’s Treasury Policy. Group Treasury continuously mon-itors key figures related to the Group’s capital structure and forecasts for the Group’s liquidity reserve are reviewed on a monthly basis.
Within the scope of Trelleborg’s Treasury Policy, Group Treasury has the option to conduct a certain level of pro-prietary trading in currency and interest-rate instruments. Such trading generated a profit in 2011. Trelleborg’s risk management is systematically monitored by Group man-agement using such tools as monthly reports from the managers in charge in which they describe developments within their respective areas of responsibility as well as identified risks. 2011 also marked the introduction of new reporting procedures for Enterprise Risk Manage-ment and Corporate Responsibility in which the Group’s consolidation system plays a decisive role. The Group’s
General Counsel reports on a continuous basis to the Audit Committee regarding the Group’s risk activities and risk man-agement and the Group’s CFO reports frequently to the Finance Committee concerning the Group’s finance opera-tions, including financial risks and finan-cial risk management. Furthermore, the President regularly provides the Board with reports on the development of the