Material risks and uncertainties

NCC has conducted a measurement of the company’s risks and describes below the risks regarded as most probable and that are estimated to have the greatest impact on NCC’s potential to achieve its objectives in the long and the short term.

Risk	Description	Control activities
Market
1. Geopolitical situation	The global geopolitical situation is unstable in several parts of the world with a potential impact on the normal course of international relations. This leads to more complex situations for companies in several respects, including inflation and economic developments, rising energy prices and interest rates, austerity in financing markets, higher risk for cyberattacks and disturbances in the supply chain.	NCC only conducts operations in the Nordic region, which limits exposure to international geopolitical situations and their consequences on NCC’s general economy and supply chain. The organization has managed and mitigated challenges related to the geopolitical situation, including cost inflation and disturbances in the supply chains during 2023. The risk remains in the coming years with a potential broad impact on the business. See sections 2, 3 and 9 below for more details about risk description and key mitigation action plans relating to the situation.
2. Market volatility	Risk for loss of revenue due to weakening market overall. More specifically a risk of underestimating the size and speed of the downturn of the market, and then being too slow to respond. The market sentiment is a material risk for the property development operations both in terms of letting and divestments. Furthermore, there are cost increases linked to interest and inflation.	NCC carefully monitors developments in the market and the financial development of customers and suppliers. Internal processes are designed to ensure that price increases can be passed to customers (fixed prices from suppliers where appropriate). NCC works continuously to steer operations through segment prioritization and portfolio governance to limit exposure to vulnerable parts of the economy where possible.
3. Material and price increases	Risk of shortage of materials and price increases in general, for instance metals, steel, energy, cement, plastics and freight, due to the external circumstances in the market. Stone material and asphalt plants are highly dependent the supply of raw material, such as stone material reserves, bitumen, reclaimed asphalt pavement (RAP), etc.	The Group’s purchasing department provides quarterly reporting on the market situation and the potential risks related to material prices. No framework agreements with a set process to the extent possible, and ensure reasonable clauses that regulate price increases secured through templates in the Purchasing Portal. Work with NCC’s supplier relationships to ensure that we are a prioritized customer. Long-term raw material strategies have been developed. To guarantee deliveries, the supplier base has several key suppliers. Focus on increasing the number of bitumen depots under NCC control and reducing the number of specialty products to minimize the dependency on one single supplier.
People
4. Skills supply & Leadership	The foundation of NCC’s strategic direction is to be a knowledge-based company, and it is therefore imperative for us to have the right people with the right attitude, skills and experience on-board. Successful recruitment, retention and development of people with necessary skills is crucial for the company. Lack of leadership increases the risk that we cannot deliver according to quality and profitability, and will not be able to retain our employees. The development of managers is essential to drive and deliver quality in projects and retain personnel with the desired skills.	Development plans are created for both the short and long term, based on continuous discussion about the skills development needed by our employees (focus on general development and project management ability). Group-wide development programs are conducted for project management and leadership, such as the Mega Project Management Program, Senior executive program, Strategic leadership program and Practical leadership program for site managers. Workshops based on the Group’s Star behaviors have been conducted to improve culture and behavior across the organization. A process to follow up the progress has been implemented. Star behaviors form the basis of all leadership programs. A structured succession planning process is in place to ensure that we constantly replenish with the right competencies and experience.
5. Health & Safety	In the construction business, there is a high risk of different types of accidents. Fatal and serious accidents still occur and often within the three high-risk areas: working at height, heavy crane lifting and use of heavy vehicles. Analyses implemented have concluded that root causes are poor planning, less involvement from production management, and improper and high-risk behaviors among workers. Another conclusion is that there are few or poor safety barriers between people and this increases the risk of an accident. Many operations in the Group feature risky elements for workers, placing high demands on correct training and safety equipment, and not least an established culture that has the health and safety of employees as its highest priority.	Strategic direction that aims to reduce common accidents, and to eliminate serious incidents and fatalities. Systematic work to improve and increase the number of digital and physical safety barriers in collaboration with NCC Group R&I, IT and Purchasing. It is important to incorporate more qualitative safety barriers into equipment, machinery and production vehicles we purchase or lease. NCC stipulates clear safety requirements for production machinery and vehicles used by our subcontractors. Within the framework of Star behaviors, NCC focuses systematically on reducing behavior among NCC employees and subcontractors that is not in line with NCC’s values. Intensive work to improve our Site Introduction tool to align and digitize our safety requirements for NCC worksites. Each employee, supplier and subcontractor must pass the Site Introduction to gain access to our worksites. The purpose of this is to increase safety awareness. Clarification of what applies to the entire Group and what all managers must know. At Group level, distinct directives and guidelines are set for safety work, and instructions are devised for each business area, all to achieve the vision of zero accidents at our workplaces. All reported incidents are analyzed with the aim of improving injury-prevention activities, with a particular focus on creating a culture that encourages a safe work environment.
Management
6. Management of operations	Within contracting operations, the main operating risks are project selection and project management. There is also a risk of failure in the ability to implement what has been decided according to the processes and strategic initiatives. There is an overcapacity in the market for Industry in all geographical areas. The season is limited and there is intense competition to provide large volumes in a short period of time. This leads to unpredictable pricing. In addition, asphalt is a volume-driven business and there is a risk of higher costs per ton in the event of low volumes.	NCC assigns priority to submitting tenders with identified risks that are manageable and calculable. Different forms of contracts and partnerships with customers facilitate the management of various risks. These operating risks are counteracted by NCC’s project selection, assessment of tenders and operational control systems. Specifically for the Industry business area, we work with sales control, tender evaluation and pricing to ensure the right volume and cost control. In addition, we are continuously evaluating capacity and making necessary adjustments in time.
7. Supply chain	Inadequate control of the supply chain gives rise to the risk of human rights violations, such as illegal labor, which remains an industry risk. It also gives rise to the risk of commercial breaches and, lastly, a poor overview of material being brought in to our worksites.	All international suppliers are pre-qualified before entering into a contract to ensure compliance with rules and regulations, including internal rules. NCC conducts systematic evaluations to ensure compliance with rules and regulations. At the worksites, the Site Introduction initiative helps to identify personnel on site who support our efforts against illegal labor and unfair pay.
IT
8. Group Common IT Development	Failure to implement shared IT developments leads to significant costs for development without any realized benefits, implying lack of commitment and readiness for change in NCC’s operations. In the event of failure, NCC will face new stalemates in the future, both in terms of the technological lifecycle and adaptation to business needs.	Dedicated resources for leading the program and a business approach (future processes and ways of working at NCC) before selection of the tools. Clear roles and responsibilities have been defined to ensure business alignment and maximum benefit. Process framework and governance are in place and shared process owners have already been appointed for some process areas. NCC has developed and implemented a common way of working with business change management and is continuously working with building capability to ensure sustainable change. NCC is continuously following up the ongoing implementations and realized benefits to ensure that we are progressing as planned.
9. IT security (information security)	The ongoing advances in technology, rapid digitization and emergence of information-dependent societies are expected to give rise to new types of cyberattacks and network vulnerabilities. It is fundamental to continue to monitor the fast-changing technical development and ensure proper security governance and planning to prevent weaknesses in the IT environment.	NCC Security Strategy and roadmap, in combination with the NCC Finance & IT development roadmap, together with each business area’s and Group function’s roadmap, describe the necessary activities to mitigate information security risks. NCC is continuing to establish an Information Security Management System and a Cyber Security Operation Center, which increases the threat-monitoring ability and capabilities for resilience to security incidents.
Compliance
10. Compliance	Risk of penalties and sanctions and risks related to branding, lawsuits and costs for disqualification from public tenders due to compliance breaches.	A risk-based compliance program that includes a whistleblower channel and policies governing anti-corruption, competition law, conflicts of interest, GDPR and human rights. Mandatory training for white-collar employees in anti-corruption, competition law and GDPR. The training programs are regularly followed up. Anti-corruption training was updated and relaunched in 2023.

Risk area	Description	Control activities
Interest-rate risk	The interest rate risk is the risk that changes in market rates will adversely affect NCC’s cash flow or the fair value of financial assets and liabilities.	NCC’s Group Treasury Policy is adopted by NCC AB’s Board and forms a framework for risk mandates and limits for the NCC Group. The Group’s financial activities are centrally organized, which provides a good overview of financial positions and risks. Also refer to Note 36.
Exchange rate risk	The exchange rate risk is the risk that changes in exchange rates will adversely affect NCC’s income statement, balance sheet or cash flow statement.
Refinancing risk	Refinancing risk is the risk that opportunities for financing will be limited and/or that the cost will be higher when loans that expire have to be refinanced, which could adversely impact NCC’s operations, earnings and financial position.
Liquidity risk	The liquidity risk refers to the risk that NCC does not have sufficient payment capacity at a given time, which could adversely impact the Group’s ability to fulfill its payment obligations.
Credit and counterparty risks in financial operations	Credit and counterparty risks in financial operations refers to the risk that NCC’s financial counterparties are unable to fulfill their obligations to NCC.
Customer credit risk	Customer credit risk refers to the risk that NCC’s customers are unable to honor payments to NCC for delivered goods and services.	At NCC, customer credit risks are managed through Group-wide procedures for identifying and assessing risks, both before agreements are reached with customers and continuously in operational follow-ups. NCC’s credit risk in accounts receivable is highly diversified given the large number of projects of varying sizes and types in a multitude of customer categories.
Percentage of completion profit recognition	In assignments involving construction contracts, NCC applies percentage-of-completion profit recognition, whereby profit is recognized at the pace of completion. Should the anticipated profit from a project deteriorate during the project’s production period, this could result in a need to reverse profit recognized earlier.	By means of project management, meaning continuous follow-up of production calculations, reconciliation of work completed, project forecasts, etc., it is possible to ascertain that the information is accurate.
Supplier risk	Risk that sub-suppliers enter bankruptcy and cannot deliver orders.	Supplier controls and development of the supply chain.

	Change	Result effect after net financial items, SEK M (annual basis)	Effect on return on shareholders' equity	Effect on return on capital employed (percentage points)	Comments
NCC Infrastructure
Volume 1)	± 5%	61	1.0	0.5	For NCC Infrastructure, a one percentage-point increase in the margin has a significantly larger impact on earnings than a 5-percent increase in volume. This reflects the importance of pursuing a selective tendering policy and focusing on risk management in early project stages.
Operating margin	+/–1 percentage point	163	2.7	1.4
NCC Building Sweden
Volume 1)	± 5%	53	0.9	0.5	For NCC Building Sweden, a one-percentage-point increase in the margin has a significantly larger impact on earnings than a 5-percent increase in volume. This reflects the importance of pursuing a selective tendering policy and focusing on risk management in early project stages.
Operating margin	+/–1 percentage point	139	2.3	1.2
NCC Building Nordics
Volume 1)	± 5%	52	0.9	0.5	For NCC Building Nordics, a one-percentage-point increase in the margin has a significantly larger impact on earnings than a 5-percent increase in volume. This reflects the importance of pursuing a selective tendering policy and focusing on risk management in early project stages.
Operating margin	+/–1 percentage point	113	1.9	1.0
NCC Industry
Volume 1)	± 5%	25	0.4	0.2	NCC Industry’s operations are affected by such factors as price levels and the volume of produced and paved asphalt. An extended season due to favorable weather conditions increases volumes and, because the proportion of fixed costs is high, the impact on the margin is material.
Operating margin	+/–1 percentage point	108	1.8	0.9
Capital rationalization	± 10%	5	0.1	0.7
NCC Property Development
Sales volume, project	± 10%	79	1.3	0.7	NCC Property Development’s earnings are predominantly determined by sales. The potential to sell property projects is largely dependent on the leases signed with tenants. An increased leasing rate facilitates a higher sales volume. The value of a property is also determined by the difference between operating expenses and rent levels, and thus a change in the rent levels or operating economy of ongoing projects could change the value of such projects.
Sales margin, project	+/–1 percentage point	47	0.8	0.4
Group
Changed interest rate, net debt 2)	+/–1 percentage point	9	0.2