Governance

Managing risks in a changing operating environment

Effective management of financial and non-financial risks is essential for Cramo’s ability to create value in the short and long term. Within our risk management framework, we identify and evaluate potential risks and their consequences, and define and implement actions needed to mitigate their impact.

Cramo has identified a number of potential risks that may prevent it from reaching its strategic targets. These include strategic and operative risks as well as risks related to financial markets, competition, compliance with laws and regulations, sustainability and the Group’s reputation. Once identified, risks and their potential financial and non-financial impacts are analysed and evaluated, and the actions necessary to mitigate the impacts are defined. The risks are managed through control activities which are set throughout the organisation, at all levels and in all functions.

Separation of the divisions will have an impact on the Group’s risk management

The current Equipment Rental and Modular Space divisions are affected by the business cycle and general economic trend to varying degrees. In addition, the solutions serve different customer segments and end users, and the competitive situation for each division is different. The separation of the Equipment Rental and Modular Space will have an impact on the Group’s risk management as the company structure and business will change significantly. Each of the stand-alone companies will need update their risk management policies and financial targets to reflect new group structures.

Ensuring value creation ability

The most significant operative risks include risks associated with strategic investments, the success of acquisitions and their integration, IT-related risks and the efficiency of operations. Risk mitigation related to personnel, occupational health and safety, the environment and compliance with laws and regulations is also identified as being crucial to our value creation ability.

As a response to the megatrends affecting our industry and to ensure responsible business operations and growth, sustainability is deeply embedded in our strategic and operational decision-making as well as in our risk mitigation.

Our risks and how we mitigate them

 

Economic conditions
Potential impact
  • Demand for our services is linked to the general level of economic activity over the long term. Equipment rental demand is directly linked to construction activity, which is cyclical in nature. The modular space business is less cyclical due to longer rental agreements and since demand is strongly driven by the public sector.
Mitigation
  • Manage and control capital expenditures and investments, taking into account the different phases of the economic cycle.
  • Build flexibilities into the business model.
  • The modular space business is less cyclical.
  • Maintain capital structure and debt facilities in order to absorb market disruptions.
Development
  • Our performance benefitted from increased economic and construction activity in 2018. The equipment rental outlook for 2019 includes significant country-specific differences. In Sweden and Finland, the peak in the construction market is considered to have been reached and a slight decrease is forecast for 2019. At the same time, markets in several Central European countries are expected to grow strongly. The modular space market experienced strong growth in 2018, and the market outlook for 2019 is also positive.
  • We are prepared for the next economic downturn by ensuring we have a strong balance sheet in order to also perform well at the bottom of the cycle.
Link to strategy
  • Stretch and scale up business models
  • Capture potential in our markets
  • Target: Net debt/EBITDA <3.0
Competition
Potential impact
  • This already competitive and active market can become even more competitive.
  • New entrants or existing competitors can come out with new market-changing solutions or offerings.
  • Increased and fierce competition could result in reduced sales, a smaller market share and lower profitability.
Mitigation
  • Create a competitive advantage by providing the best service at a price that offers the highest value for our customers – concreate promises to customers.
  • Safeguard our market position by having industry-leading IT solutions, experienced employees, a depot network that is easily accessible and a large, versatile equipment fleet.
  • Monitor our market share and track the performance of our competitors.
  • Create innovative solutions and develop game-changing offerings.
Development
  • In 2018, organic sales growth for Equipment Rental was 5.4%. This is higher than the growth rate in the markets that Cramo operates in, according to the European Rental Association (ERA)’s figures. In Modular Space, organic rental sales grew 14.6% in 2018.
  • Competition in the equipment rental industry decreased in 2018. Our pricing strategy, digitalisation and high-quality customer service will support our position in the competitive landscape.
  • We have reacted to changing customer needs by launching new digital solutions.
Link to strategy
  • Game-changing offerings
  • Enhancing the performance culture
  • Creating new digital concepts
Financing
Potential impact
  • Debt facilities, bonds and other financing arrangements are committed and valid only until their maturity. Debt facilities also include financial covenants. The main risks are failing to renew maturing instruments, causing insolvency, and breaching these covenants, leading to default.
Mitigation
  • Maintain at all times the availability of sufficient financing instruments with long and balanced maturities. Negotiate new agreements well before they are needed.
  • Target to have a conservative leverage ratio, net debt/EBITDA below 3.0.
Development
  • Our solid performance enables us to benefit from strong financial markets with ample availability and competitive pricing of funds.
  • On 31 December 2018, Cramo Group’s undrawn committed credit facilities (excluding leasing facilities) amounted to EUR 258.5 (267.2) million.
Link to strategy
  • Target: Net debt/EBITDA <3.0
Information technology
Potential impact
  • Our operations rely heavily on information technology since we have high transaction volumes due to our large fleet and customer base. A cyberattack could lead to a loss of sensitive data or failure to deliver service to our customers. This could affect our reputation and we could suffer financial losses or penalties.
Mitigation
  • Updated parameter protection and enhanced logging and monitoring of network traffic to avoid unwanted traffic.
  • Blacklisting of sites.
  • Site advisory system.
  • Enhanced protection of clients.
  • Updated firewalls.
  • Enhanced partnership with IT security partners.
Development
  • Appointed CISO with IT security as a main objective.
  • Advanced e-mail protection system.
  • MDM tool for mobile devices.
  • Vulnerability checks on all IT infrastructure components 4 times a year.
Link to strategy
  • Shape the future
Health and safety
Potential impact
  • Our customers and employees give health and safety high priority. Furthermore, we need to comply with laws and regulations governing occupational health and safety. An inability to match or respond to external and/or internal demands will result in damage to our reputation, a loss of customers and decreased employer attractiveness. It might also result in severe injuries to individuals and legal claims against the Group.
Mitigation
  • Cramo works systematically to reduce health and safety risks, including providing internal safety training and relevant protective equipment, conducting audits and promoting wellness and an active lifestyle.
  • To reduce the risk at customer sites, Cramo works systematically with safety instructions, offers safety training and instructions, and reports major incidents to the manufacturers concerned.
Development
  • In 2018, we continued the process of implementing a Group management system, including health and safety matters. LTIR decreased during the year, from 9.9 to 9.5.
  • No legal claims pertaining to health and safety were filed against Cramo during the year.
Link to strategy
  • Target: LTIR ≤ 5 by 2020
  • Target: 0 accidents
Environmental impact
Potential impact
  • We meet increased demands from customers for resource efficiency and a reduced environmental impact. We also need to comply with laws and regulations governing environmental protection. An inability to match or respond to those demands will result in damage to our reputation, a loss of customers and/or lost opportunities. It might also result in environmental damage and legal claims against the Group. An inability to optimise resources will lead to increased operational costs.
Mitigation
  • We work systematically to reduce our environmental impact, focusing on reducing our energy usage and emissions as well as minimising waste.
  • As part of our strategy, we aim to reach out to customers and other stakeholders, seeking opportunities to cooperate in developing sustainable solutions.
Development
  • In 2018, we continued the process of implementing a Group management system, including for environmental matters. CO2e emissions, scope 1 and 2 relative to sales, were 15.6 tonnes/MEUR (17.5 in 2017).
  • No environmental legal claims were filed against Cramo during the year.
Link to strategy
  • Target: CO2e emissions, scope 1 and 2 relative to sales, >20% decrease by 2020 vs 2016
  • Target: 0 legal proceedings
Human rights
Potential impact
  • The protection of human rights is fundamental to Cramo. We have identified non-discrimination as a major focus area. An inability to maintain a non-discriminating working environment will result in damage to our reputation, decreased employer attractiveness and a loss of customers. It might also result in harm to individuals as well as legal claims against the Group.
Mitigation
  • We have established a diversity policy, including a policy on equal rights and opportunities.
  • Our values and Code of Conduct are systematically communicated and embedded throughout the organisation. We also provide a whistleblowing service for our employees to report suspicions of misconduct.
  • Our Supplier Code of Conduct is included in all new supplier contracts.
Development
  • In 2018, there was one case of sexual harassment reported in Cramo’s operations. The case was investigated by the company, which took actions, and was also heard in a court of law. The company was not a party in the legal proceeding. (0 legal proceedings in 2017).
Link to strategy
  • Target: Target: 0 legal proceedings
People
Potential impact
  • Retaining and attracting people with the right competences is key to delivering an outstanding performance and excelling in customer satisfaction.
  • Excessive staff turnover or an inability to attract new talent may impact our capability to perform and to maintain the high quality of our customer service, and could ultimately adversely affect our financial performance.
Mitigation
  • Cramo works systematically to offer safe, stimulating workplaces and aspires to provide an inspiring environment for professional and personal development for all our employees.
  • Employee satisfaction is regularly monitored to help identify development areas, and we have a process in place for annual performance reviews.
  • We work actively to strengthen our employer brand to attract potential employees, and we also put effort into surveying the expectations that future talents have regarding working life.
Development
  • In 2018, we launched our new people promise, We are Shapers – with the ambition to increase employee engagement and strengthen Cramo’s employer brand.
  • We continued to establish Group-wide people processes.
  • The employee turnover rate in 2018 was 19% (18% in 2017).
  • The rate of new employee hires in 2018 was 21% (22% in 2017).
Link to strategy
  • Enable people to perform
Business ethics
Potential impact
  • It is vital to us that our customers, employees and other stakeholders trust that we conduct business in an ethical, transparent and lawful manner. Failure to comply with laws and regulations will result in damage to our reputation, a loss of customers and a loss of trust among our employees as well as among other stakeholders. It might also result in legal claims against the Group.
Mitigation
  • Our values and Code of Conduct are systematically communicated and embedded throughout the organisation. We also provide a whistleblowing service for our employees to report suspicions of misconduct.
  • Our suppliers are evaluated using business ethics criteria. Our Supplier Code of Conduct is included in all new supplier contracts.
Development
  • No legal claims regarding non-ethical behaviour, such as corruption, were filed against Cramo in 2018.
  • During the year 33% (77%) of our employees received business ethics/Code of Conduct training. 54% (48%) of our contract suppliers have signed the Supplier Code of Conduct.
Link to strategy
  • Target: 0 legal proceedings
  • Target: All employees get business ethics/Code of Conduct training annually
  • Target: All contract suppliers have signed the Supplier Code of Conduct by 2020