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Risk and Risk Management

Transtema’s activities are exposed to various risks that may have a material impact on the Group’s achievement of its objectives. Transtema conducts ongoing risk assessments, and identified material risks are managed continuously within the organisation and in strategic planning. The Board always has overall responsibility for the company’s risk management. The CEO is responsible for ongoing risk management under the guidelines communicated to him by the Board.

The most significant risks and uncertainties can be divided into business and financial risks.

Business risks and uncertainties

The Group is exposed to various types of business risks in its operations. The overall responsibility for managing the Group’s business risks and developing methods and principles to address them lies with the Board of Directors, and the CEO has the day-to-day operational responsibility.

Competition

Transtema operates in a competitive market and faces competition from several different directions and types of players. Competitors with considerably larger financial, technical, and personnel resources may operate more efficient processes and development of services and products and also have more competitive pricing than Transtema. Consequently, there is a risk that increased competition could lead to reduced growth opportunities and lower profitability for Transtema. If Transtema fails to achieve or maintain the competitiveness needed to succeed in the market, this could have a material adverse effect on Transtema’s business, results of operations, and financial position.

Economic development and external risks

Demand for Transtema’s products is affected by the general economic situation in the markets in which the Company operates and is influenced by factors such as interest rates, exchange rates, taxes, stock market developments, access to credit, unemployment rates, and general business conditions. A less favourable economic climate may deteriorate the conditions for new investments and maintenance among Transtema’s customers. It may thus hurt demand for Transtema’s products, which could adversely affect the Company’s business, results, and financial position. Transtema’s market can be affected by political decisions, and changes in public relations and government subsidies. The possibility that changes in these factors could adversely affect Transtema’s sales or results cannot be ruled out.

Dependence on large customers

Transtema has a large share of sales distributed among a few large customers. There is a risk that these may exploit their importance to Transtema in future contract negotiations, leading to lower margins through reduced business, lower prices, or increased costs. Furthermore, such customers could also reduce their purchases and cease being customers of Transtema in whole or part, thereby negatively affecting Transtema’s sales and profits.

Future technological competitiveness

Transtema operates in markets affected by continuous technological development and, thus, also by customer demand for products and services. As a result, Transtema needs to continuously adapt its offerings to the circumstances mentioned above to maintain its competitiveness. For example, the copper network is being replaced by fibre and mobile networks. The future rollout of 5G technology is an example of a new technology that Transtema will have to master to take advantage of these future business opportunities. Adapting to customer demand may require investment in the business, in the form of training, technology support, and the development of new business models, for example. There is a risk that Transtema will be unable to make the necessary technological conversion due to a lack of skills or capital. Moreover, there is a risk that technological developments will change customers’ behaviour to Transtema’s disadvantage.

Product and service risks

Inadequate quality of Transtema’s products and services could result in claims for damages against Transtema, which could hurt Transtema’s financial position. Furthermore, there is a risk that insufficient quality will result in reduced demand for Transtema’s products and services and, thus, a loss of sales.

Risks associated with contractual commitments

Transtema’s task is to lead and manage various contractual commitments efficiently, contributing to high quality and profitability. The ability to do this depends to a large extent on the project management’s experience and knowledge in leading and steering missions and projects. Projects may also be affected by external factors such as changing laws and regulations, weather and strikes. Transtema enters into certain contracts under which Transtema undertakes to achieve a predetermined result within set time frames. For example, Transtema undertakes to deliver a given level of service in a service agreement or a given time for completion in an installation assignment. There is a risk that Transtema does not meet the client’s expectations according to the contractual commitment, which may lead to a reduction or loss of the fee to be paid under the contract or risk an early termination of the contract.

Percentage-of-completion method

The Group recognises income from fixed-price contracts through the application of the percentage-of-completion method. The assessment of project revenues and costs is based on several accounting estimates, and there is a risk that these estimates cannot be made reliably. There is therefore a risk that the final result may deviate from the gradually accumulated result.

Disputes and legal uncertainties

Through its subsidiaries, Transtema is involved in a couple of material disputes; see further on page 28 under material risks and uncertainties. There is a risk that Transtema may continue to be involved in further disputes with third parties or regulatory or administrative authorities related to Transtema’s ongoing operations. There is a risk of being subject to legal claims from customers, suppliers, competitors, or other market participants. Disputes and claims can be time-consuming, interfere with operations, involve significant amounts of money or matters of principle, entail substantial costs, and negatively impact Transtema’s business, results, and financial position.

Staff

Transtema’s business model relies heavily on our employees; without them, Transtema would stop. Transtema’s ability to attract competent and committed employees is therefore crucial to drive development aligned with the strategic plans and achieve set goals.

Financial risks and uncertainties

The Group is exposed to various types of financial risks in its operations. The overall responsibility for managing the Group’s financial risks and developing methods and principles to address them lies with the Board of Directors, and the CEO, delegated to the CFO, has the day-to-day operational responsibility.

Customer credit risk

Customer credit risk mainly arises from credit exposures in outstanding receivables. Individual assessments of customers’ creditworthiness and credit risk are made, taking into account the financial position of counterparties, past experience, and other factors.

Interest rate risk

Transtema’s interest rate risk arises from short- and long-term borrowing and consists of the risk of changes in loan terms, mainly interest rate changes.

Liquidity risk

Liquidity risk is the risk arising if Transtema cannot meet its payments due to insufficient liquidity or difficulty obtaining credit from creditors. Although the proportion of short-term borrowing is high, mainly because the overdraft is classified as short-term borrowing, the Group has a satisfactory liquidity and financial position. Current and future projects are planned to be financed with equity and credit facilities.

Financing risk

The availability and conditions of additional financing are influenced by several factors, including general circumstances in the financial market, the overall availability of credit, and Transtema’s creditworthiness and capacity. If Transtema, in whole or in part, fails to raise sufficient capital or succeeds in doing so only on unfavourable terms, it could adversely affect Transtema’s business, results, and financial position.