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

RISK AREA	DESCRIPTION	CONTROL ACTIVITIES
Competence supply and leadership	The successful recruitment, retention and development of necessary skills is crucial for the company. Development of managers is essential, firstly to deliver quality in projects and, secondly, to retain personnel with the desired skills.	Competency mapping and development plans are prepared for key positions. Group-wide skills development programs for project management and leadership. Future managers/leaders are identified and development plans are devised. Succession planning occurs within all business areas and corporate staff functions.
Project management	Within contracting operations, the main operating risks are project selection and project management.	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.
Work environment	Many operations in the Group feature risky elements for workers that are subject to considerable demands regarding correct training and safety equipment, and not least an established culture that has the safety and health of employees as its highest priority.	Safety efforts are assigned top priority and are a mandatory aspect of all management team meetings. At Group level, distinct guidelines are set for safety work, and instructions are devised for each business area, all in order to achieve the vision of zero accidents at our worksites. All reported incidents are analyzed with the aim of improving the injury-prevention effort, with a particular focus on creating a culture that encourages safe work.
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 international suppliers.	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 company’s Code of Conduct. Employees who potentially breach internal rules or break the law represent a risk.	NCC has focused continuously and actively on the company’s values for a number of years and provides training in the Code of Conduct. Efforts in 2020 include further development of a training program addressing competition law.
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 be updating a number of systems.	NCC monitors technical advances, 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

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 Finance 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 37.
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 recognized earlier.	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.