Material risks and uncertainties
Management of operational, strategic and financial risks is a key prerequisite for NCC’s business and efficient risk management is a necessity for a stable and profitable company. The aim of risk management is to identify risks, assess the efficiency of existing controls and strengthen and develop preventive measures.
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.
Operational and strategic risks
|Competence supply and leadership||Since the foundation for NCC’s strategic focus is to be a knowledge-based company, it is essential that we have the right people with the right attitudes and competencies.
The successful recruitment, retention and development of necessary skills is crucial.
Development of managers is essential, firstly to deliver quality in projects and, secondly, to retain personnel.
|In order to improve the corporate culture workshops in Star behaviors have been arranged throughout the organization.
Competency mapping and development plans are prepared for key positions. Group-wide skills-development programs are arranged for project management and leadership within the framework of
Structured succession planning occurs for all units.
|Project and operational control||Within contracting operations, the main operating risks are project selection and project management.
In the asphalt market, there is surplus capacity in the market and a limited season. Large volumes are supplied over a short time. This leads to risks of more unpredictable pricing. The operations are also volume driven, leading to a risk of higher costs per ton at lower volumes.
|NCC assigns priority to submitting tenders with identified risks that are manageable and calculable. Various contract formats and partnerships with customers facilitate the management of different risks. These operating risks are counteracted through NCC’s project selection, assessment of tenders and operational control systems.
In the asphalt segment, NCC works to create a good business portfo- lio to ensure the right volume. The focus is also on cost control by utiliz- ing the company’s paving capacity, increasing recycled asphalt and green fuel solutions in production, and closing unprofitable units.
|Work environment||Many operations in the Group feature risky elements that
subject workers to considerable demands regarding correct training and safety equipment, as well as an established culture in which the safety and health of employees is the highest priority.
|The aim of NCC’s new strategic focus for OHS work is to reduce accidents in general, and to eliminate incidents and serious accidents in three high-risk areas: heavy lifting by cranes, working at heights and working close to and around heavy machinery. Work is focused on activities designed to prevent root causes, meaning good planning, safe behavior and technical safety barriers.
To increase awareness, NCC works intensely on introductions to worksites in order to adapt and digitalize our safety requirements for NCC’s worksites.
At Group level, clear OHS directives and guidelines are established and instructions are formulated for each business area. All reported incidents are analyzed in order to improve the injury-prevention work, with a specific focus on creating a culture that contributes to a safe work environment
|Shortage of materials
and price hikes
|Considerable risks are associated with a shortage of products or raw materials where few alternatives are available. In Swe- den, a risk of a shortage of cement has arisen since there is uncertainty concerning the long-term permit for limestone mining at Slite in Gotland.
Stone materials and asphalt operations are both highly dependent on access to raw materials, such as stone material reserves, bitumen and recycled asphalt.
|NCC works continuously to prevent the consequences of shortage of materials. Activities are under way on site, such as close contact with suppliers and an analysis of forecasts of tangible needs in the projects.
The Industry business area works systematically with a long-term raw material strategy designed to secure access to critical materials. The focus is on expanding the current supplier base, increasing the number of depots under NCC’s control and reducing the number of special products to minimize dependency on a certain supplier.
|Supply chains||The company is highly dependent on suppliers and
subcontractors. Accordingly, this entails that NCC is
exposed to a risk of not being able to secure deliveries
of such critical materials as steel and bitumen.
The supply chains in the construction sector
represent a risk of inadequate control of, for example,
subcontractors labor conditions. There is a risk that
subcontractors do not comply with laws, rules and
business ethics. There is also a risk associated with
quality assurance of materials from national and
|NCC works systematically to assess and expand its control
of the supply chain and to secure access to critical materials.
The quality of suppliers is primarily assured by signing
central framework agreements that must be followed.
Purchasing that transcends central agreements must also
comply with established processes and use templates
developed for quality control. Tools for ensuring traceability
include logbooks and digital standardized identification
of construction products (GTIN).
NCC has a thorough process for evaluating suppliers in
risk areas in order to prevent human rights crimes.
|Compliance||Since NCC is a player in society with a broad customer
and supplier base, all employees are strictly required to act in accordance with the Group's Code of Conduct. There is a risk, for example, of fines and sanctions, and of being disqualified from public tender processes should employees breach internal rules, break the law or contravene issued permits.
|For a number of years, NCC has been working continuously and actively on corporate values and training in the Group's Code of Conduct.
During 2021, training in such areas as competition law was developed and introduced.
In respect of permits, there is internal support for such matters as tender assessments and training.
|IT security||Updating and developing IT systems and applications is
crucial for improving the efficiency of the company’s processes. Over the coming years, the company will update a number of business-critical systems. Disruptions in this work risk impacting business-critical processes.
|NCC monitors technical advances, and safeguards long-term management and control of the reliability of IT infrastructure, and its integration into processes for supporting and protecting the operations.|
Financial risks & reporting
|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 has been adopted by NCC’s Board of Directors and constitutes a framework for risk mandates and limits in the NCC Group. The Group’s financial activities are organized centrally, thus providing an adequate overview of financial positions and risks. Refer also to Note 36.|
|Exchange rate risk||The exchange rate risk is the risk that exchange rate changes 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 counter - party 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
|By means of project management, meaning continuous monitoring 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
|Supplier controls and development of the supply chain.|
Sensitivity and risk analysis
|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|
|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 marigin||+/–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|
|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|
|Changed interest rate, net debt 2)||+/–1 percentage point||9||0.2|