Administration Report

Risks and uncertainties 

AddLife works with risk management on both a strategic and operational level. Risk management involves identifying and measuring risks and preventing them from occurring, as well as continually making improvements to reduce future risks. Our risk management focuses on business risks, financial risks and other potentially significant risks such as legal risks. The AddLife Group has policies and guidelines that provide responsible managers with tools to identify deviations that could develop into risks. The level of risk in the operations is systematically followed up in monthly reports, in which negative deviations or risks are identified and remedied.

AddLife’s earnings and financial position, as well as its strategic position, are affected by various internal factors within AddLife’s control and various external factors over which AddLife has limited influence. The external factors that are most important for AddLife are the economic situation, combined with the market, competition and public procurement and political decisions.

In addition AddLife is affected by financial risks such as transaction exposure, translation exposure, financing and interest rate risk, as well as credit and counterparty risk. See Note 4 for a more detailed description of how AddLife manages financial risks.

 

Risk/description

Management

Economic cycle and market trends
 

Demand for AddLife’s services is greatly influenced by macroeconomic factors beyond the control of the Company, such as conditions in the global capital market, the state of the economy in general, public finances and events such as the ongoing pandemic. Factors such as business investments, public sector investment, the volatility and strength of the capital market and inflation affect the business and economic climate. A weakening of these conditions on some or all of the markets in which AddLife operates could have material adverse effects on the Company’s business, financial condition and results of operations.

A significant share of the Company's sales are made to publicly funded activities in medical care, research and health services.

Weakened public finances could have a negative impact on AddLife’s business and results of operations.

AddLife’s subsidiaries are active on a large, or to some extent non-cyclical market, which generally makes the Group less sensitive to economic fluctuations. The strength in AddLife’s business model can also be found in the ability of the subsidiaries to retain their flexibility, but with stable funding from the parent company, which makes it simpler to adjust and respond to changes in the market.

Public procurement and political decisions
 

Political decisions in the Nordic countries have resulted in a decline in the number of contract customers because of the consolidation of regions into larger entities. As a result public tenders are now larger and contract periods have often been extended. This change has resulted in an increase in both pressure on prices and competition, while making it difficult for smaller operators in the market to participate in public procurement processes. Furthermore, because the industry is consolidating on the supply side and larger merged suppliers have a broader offering, at the same time that purchase contracts are becoming broader in scope, there is a risk that niche operators like the Company may be unable to participate in the procurement process.

Since agreements covered by public procurement constitute a significant part of AddLife's net sales, there is a strong focus on these in the organization and at the subsidiaries. Great effort is put into preparing and ensuring that the procurement requirements are met, as well as training.

 
Technological development
 

AddLife is exposed to the risk that the various subsidiaries in the AddLife Group may not be able to implement new technology or adapt the product range and business model in time to be able to take advantage of the benefits of new or existing technology. The costs associated with keeping up with product and technological advances may be high and influenced by factors that are fully or partially outside of AddLife’s control. Moreover, the level and timing of future operating expenses and capital requirements could significantly differ from current estimates.

There is a strong focus on proactive business development within the subsidiaries, as well as a focus on future technological adaptation with new acquisitions. In several of the subsidiaries major initiatives in research and development are underway, and collaborations with business partners are initiated as needed to ensure technological developments. Regarding distribution of third-party products, there is a strong ongoing collaboration with suppliers with respect to technological developments.  

Customers
 

AddLife has a large number of customers of varying sizes, some of whom are public and some private operators. Because of the number of customers and the Group structure, agreements with customers vary in character with regard to factors such as contract length, warranties, liability limitations and scope, which may cause difficulties in centrally forecasting the operations and development of the different subsidiaries. In some customer relationships there are no written customer agreements, which could result in legal uncertainty regarding the content of the agreement. Moreover, there is a risk that such variation could result in unforeseen liability exposure for AddLife, especially in cases where no standard terms and conditions are applicable for the agreements, or in cases where no specific limitations of liability have been incorporated into the agreements.

Although there are contractual risks associated with the scattered customer base that AddLife subsidiaries have, there are also advantages. An individual subsidiary may be dependent in the short term on a single customer, but AddLife as a Group is not dependent on any single customer and no customer accounts for more than about xx percent of sales. This is a strength in the AddLife business model.

Suppliers
 

Over the past few years, the industry has undergone consolidation, where the number of suppliers is decreasing. Thus there is a risk that AddLife will lose suppliers that are important for the Company. In order to deliver products, AddLife depends on external suppliers who must meet the terms of the agreements regarding matters such as volume, quality and delivery date. Incorrect, delayed or missing deliveries could in turn cause AddLife’s deliveries to be delayed or incorrect. AddLife has agreements with a large number of suppliers over which the Company cannot exercise control nor can it have full insight into their operations. Consequently, AddLife is exposed to the risk that suppliers could act in a way that could harm AddLife. The majority of the Group’s supplier agreements have been entered into in accordance with the supplier’s terms of agreement and are thus often supplier-friendly.

In a longer perspective, AddLife is not dependent on any single supplier for the survival of the business. The Company's largest supplier amounts to approximately 7 (7) percent of net sales for 2020. AddLife works strategically with the larger suppliers and conducts regular supplier evaluations, with the aim that all suppliers will live up to the AddLife Code of Conduct. 

 
Acquisitions
 

AddLife has historically completed several acquisitions. Strategic acquisitions will continue to be an important component of AddLife’s growth strategy. However, there is a risk that AddLife will not be able to identify acquisition targets or to carry out strategic acquisitions because of, for example, competition with other acquirers or lack of financing.

Acquisitions generally entail integration risks. In addition to company-specific risks, the acquired company’s relationships with important customers, key personnel and suppliers could be adversely affected. Integration involves risks relating to the ability to retain skills and to the possibility of creating a common culture. There is also a risk that the integration process may take longer than expected and that unforeseen costs associated with the consolidation of operations may arise. Moreover, expected synergies may totally or partially fail to arise.

Moreover, acquisitions could expose AddLife to unknown obligations. Acquisitions usually involve not only the assumption of all of the assets of the acquired company, but also its obligations. There is a risk that not all potential obligations or commitments have been identified prior to the acquisition, or that the seller lacks the financial ability to compensate AddLife in the event of a breach of warranty.

AddLife constantly pursues acquisitions to ensure that there is an inflow of interesting objects for the Group. AddLife has many years of experience of acquisitions and has a structured process for both acquisition work and integration of completed acquisitions. Guarantees to limit the risk of unknown obligations are one of the tools used in contract negotiation. 

Organisational risk
 

AddLife applies a decentralised organisational model, which means that subsidiaries in the Group are largely responsible for and conduct business independently.

Corporate governance in a decentralised organisation places high demands on financial reporting and monitoring and deficiencies in reporting and monitoring entail a risk of inadequate operational control.  The decentralised organisational model has historically been an advantage for the Group. However, there is a risk that the organisational model will prove to be less suitable for meeting any future market challenges that should arise.  Moreover, the lack of specialist expertise in the various subsidiaries, such as regarding financial knowledge, could result in incorrect business decisions and slow decision making.

Group Management controls, checks and monitors the business in the subsidiaries, primarily by serving as Chairman of the Board of the companies and by continually monitoring developments. In addition, AddLife works with weekly follow-up of orders received, monthly reporting and follow-up of financial developments in all subsidiaries, which means that the parent company has good insight into and understanding for current and future challenges and opportunities.

Ability to recruit and retain staff
 

AddLife’s continued success depends on experienced employees with specific skills. There are key personnel both among senior executives and among the Group’s employees in general. There is a risk that one or several senior executives or other key personnel could leave the AddLife Group on short notice.

AddLife invests time and energy into in-house skills development through AddLife Academy. The aim for each acquisition is for key personnel to remain in the acquired companies and continue to pursue both personal growth and growth of the company within the framework of the Group. AddLife conducts an annual employee survey and follows up the results to ensure that employees are provided with the conditions necessary for personal growth and job satisfaction. AddLife also has an incentive programme for senior management.  

 
Product liability
 

AddLife’s business entails risk associated with product liability. AddLife could be subject to product liability claims if the products that are produced or purchased cause personal injury or property damage. There is a risk that such product liability claims are not fully covered by AddLife’s insurance policy. If a product is defective, AddLife may be forced to recall it. In such a situation there is a risk that AddLife cannot make corresponding claims against its own suppliers to receive compensation for the costs incurred by AddLife due to the defective product.

AddLife works continually with suppliers to increase product safety and ensure that products meet the quality requirements that are in place. AddLife regularly reviews its insurance coverage to reduce the risk of unforeseen expenses. AddLife’s own products are subjected to ongoing quality assessment and follow-up.

Environmental risk
 

New environmental legislation linked to transports and product materials could have an impact on sales for AddLife’s subsidiaries. AddLife owns a few properties and according to the Swedish Environmental Code, a property owner is responsible for any pollution or other environmental damage, with responsibility for remediation, which may also include damage caused by previous operations.

AddLife’s subsidiaries are primarily engaged in commerce and businesses that have a limited direct environmental impact. At the time of each acquisition, earlier environmental impact are noted and reviewed, and contractual protection is negotiated.

Latest updated: 3/30/2021 1:29:20 PM by sophia.dernulf@add.life