Konecranes’ Board of Directors has defined and adopted a set of risk management principles based on widely accepted international good management practices. The Audit Committee evaluates and reports on the adequacy and appropriateness of internal controls and risk management to the Board.
Risk management principles
Risk is anything that will clearly affect Konecranes’ ability to achieve its business objectives and execute its strategies. Risk management is part of Konecranes’ control system and is designed to ensure that any risks related to the Company’s business operations are identified and managed adequately and appropriately to safeguard the continuity of Konecranes’ business at all times. The Group’s risk management principles provide a basic framework for risk management across Konecranes, and each Group company or operating unit is responsible for its own risk management. This approach guarantees the best possible knowledge of local conditions, experience, and relevance. The Group’s risk management principles define risk management as a continuous and systematic activity aimed at protecting employees from personal injury, safeguarding the assets of all Group companies and the Group as a whole, and ensuring stable and profitable financial performance. By minimizing losses due to realized risks and optimizing the cost of risk management, Konecranes can safeguard its overall long-term competitiveness.
Significant risks for Konecranes
Konecranes has assessed its strategic, operational, hazard and financial risks. The risk descriptions below, sample risks and the risk management methods are intended to be indicative only and should not be considered exhaustive.
Strategic risks
At Konecranes, strategic risks are considered to have potential long-term impact on Konecranes businesses and strategic objectives. Demand for Konecranes’ products and services is affected by the development of local and global economies, regional and country-specific political and geopolitical issues and stability, as well as the business cycles of Konecranes’ customer industries. Currency fluctuations may cause changes in the competitiveness of Konecranes’ products in a specific market and affect its customers’ businesses. Demand for maintenance services is driven by the capacity utilization rates of customers. Capital expenditure on industrial cranes varies with the development of industrial production and production capacity, while demand for port solutions follows trends in global container traffic and port investment cycles. Lift truck demand follows other industrial and port product segments. In addition to risks related to sales volumes, adverse changes in demand can also result in overcapacity and affect market prices, as can the actions of competitors.
Konecranes’ aim is to increase the proportion of service revenue in its total revenue stream and thereby reduce its exposure to economic cycles. In general, the demand for services is less volatile than that for equipment. As part of its strategy, Konecranes strives to maintain a reasonably wide geographical market presence to balance out economic trends in different market areas, while also paying attention to relevant distribution costs. Konecranes also aims to limit the risks resulting from changes in demand in different customer segments, as well as the demand for certain products, by maintaining a diverse customer base and offering a wide range of products and services. Konecranes also strives to differentiate itself from its competitors and reduce the competitive pressures that it experiences, through active product development.
Operational risks
Konecranes’ operational risks are closely related to day-to-day activities, decisions, and management of business. These risks are continuously managed at all organizational levels.
Konecranes’ ability to operate is dependent on the availability, expertise, and competence of professional personnel. Konecranes’ personnel objectives are supported by active talent processes, talent acquisition and engagement as well as systematic employee surveys and third-party social responsibility assessments. Konecranes invests continuously in improving the essential competencies in the industry-leading technical skills of its service technicians, digital talent, leadership development, and in customer-centric and effective sales and sales management skills, among other things. Failure to obtain, develop and retain the required capabilities could have an adverse effect on Konecranes growth and profitability.
As Konecranes has and maintains a strong brand and reputation, issues affecting Konecranes’ reputation or brand could have negative impact on Konecranes’ business and financial performance. Such risks could materialize, for example, due to issues with safety, cyber security, quality, or major delivery challenges.
Konecranes’ supply relies on its supply chain of own manufacturing operations, while most components used are sourced from external suppliers. Konecranes subcontracts and outsources a substantial share of activities and processes while working closely with partners and service providers in various activities, such as logistics and IT. This model exposes Konecranes to availability, continuity and cost risks of components and subcontracted labor, and services. A failure to secure materials, components, resources or services in a timely manner, or quality issues within these, can cause business disruptions, cost increases or quality risks with supply. Labor availability constraints can impact Konecranes’ capacity to operate.
Hazard risks
Hazard risks are, by nature, occurrences with negative consequences.
Employee and subcontractor safety is the top priority in everything Konecranes does. Konecranes’ goal is that everyone gets home safe every day. In Konecranes’ way of working, there is no job so important and no service so urgent that one cannot take the time to perform work safely and correctly. Safety extends to Konecranes’ offering of safety-enhancing products, solutions, and services to support the safety of customers. Safety risks may expose individuals and businesses to various negative consequences.
Konecranes’ business depends on the reliable and continuous operation of its production facilities, supply chain, various internal and outsourced services, and functioning logistics. Konecranes, its customers and suppliers rely materially on information technology and availability, integrity, and quality information. Potential disruption with any of these may cause business interruption to Konecranes’ operations, with financial consequences and damage to Konecranes’ brand.
Cybersecurity incidents, severe weather events, natural catastrophes or terrorism ere examples of hazard risks that are difficult to predict, challenging to mitigate or prevent and may cause interruption to Konecranes, its supply chain or service providers.
Financial risks
See note 33 in the Financial Statements for a detailed overview of financial risk management.
Insurance
The Group continuously reviews its insurance policies as part of its overall risk management. Insurance policies are used to cover all risks that are economically feasible or otherwise reasonable to insure.