Risk Management


Identification and management of business risks is part of the annual strategy plan for the Group and the two business areas, which is approved by the Board of Directors. Further, the Board of Directors determines the framework for managing interest rate, credit and currency risks and addressing risks related to raw materials and energy prices. The framework is assessed at least once a year.

The following risks have been identified as being SP Group’s key risks, but the list is neither prioritised nor exhaustive:

Commercial risks

Market and competitor risks
SP Group’s sales and earnings are very dependent on the future GDP development.

Several segments of SP Group’s Danish primary market are characterised by excess capacity, numerous small marketers, price pressure and customers requiring still smaller batches and more flexible production. Furthermore, SP Group is experiencing increased competition from low-cost producers in Eastern Europe and Asia. In order to reduce dependency on the Danish market, SP Group is making efforts in several areas:

First, exports are increased on an ongoing basis. The Group focuses in particular on other Northern European markets, whereas selected niche products are sold globally. The international share of revenue amounted to 50.9% in 2016 (2015: 53.5%). In 2016, SP Group billed its services directly to customers in 83 countries.

Second, SP Group relocates production tasks to its factories in Poland, Slovakia, Latvia and China on an ongoing basis and will continue to do so. In addition, production activities have been set up in Brazil and USA. With these measures, the Group will still be able to service customers that outsource their production to these areas as well as able to cultivate new customers in Eastern Europe, China and the Americas.

Third, SP Group’s factories are undergoing regular modernisation and automation to become more efficient and flexible. This effort will continue. Finally, SP Group is consolidating parts of the Scandinavian industry, either by acquisitions (MedicoPack, the activities in Aasum Plast & Metal and Plexx / Opido) or by combining own factories or in-sourcing the customers’ own production (customers outsource the production to SP Group). This process will also continue, and SP Group has intense focus on reducing costs and leveraging on the Group’s size and expertise to improve competitiveness. As part of its strategy to differentiate itself, the Group is also strengthening its expertise and competencies in relation to processes, design and materials.

Free trade

Selling its products in 83 countries and purchasing its raw materials from a number of countries, SP Group is dependent on free and unimpeded access to the markets and dependent on the authorities respecting international agreements.

SP Group has more than 1,000 active customers, the 10 largest of whom account for 50% of consolidated revenue, which is down 3 percentage points on 2015. The 20 largest customers account for 60% of revenue (as in 2015). The 20 largest customers are large consolidated, internationally operating industrial groups.

The largest single customer accounts for 11.8% of consolidated revenue (against 11.6% in 2015). At factory level, the dependence on individual customers is higher because of the individual factories’ specialisation and focus on specific industries.

The concentration on the 20 largest customers was unchanged in the year in spite of increased sales of own products to other global customers and the takeover of MedicoPack and Plexx / Opido, which implied hardly any customer overlap with the existing business, but an inflow of new, interesting customers.

40% of the Group’s sales are effected to the healthcare sector, which is thus the largest single industry. SP Group has deliberately cultivated this industry, because it is a growth sector offering a variety of opportunities for utilising SP Group’s expertise across its business areas. The exposure to the healthcare industry is therefore desired, and risks are reduced by the Group supplying components to a number of different healthcare enterprises in different segments and on all continents. Increasing climate effects have increased the global demand for cleantech products (insulation, energy-saving products, renewable energy and the environment). Sales to the cleantech industry now account for 26% of consolidated revenue. At group level, SP Group is not over-exposed to specific sectors.

Failing sales to single or several customers may affect the Group’s earnings capacity. To minimise this risk, the Group also seeks to enter into multiannual customer and co-operation agreements laying down the terms and conditions for future orders. Furthermore, SP Group is engaged in production development projects in co-operation with the customers in order to stand out clearly as a strategic partner. As the typical order horizon is short (4-5 weeks), political or economic instability is quickly reflected in the level of activity.

Finally, the Group works to develop more niche products and products under own brands, allowing it to control sales to a wider extent. Products under own brands accounted for almost 17% of consolidated revenue in 2016, including medical device products (guide wires, Clear Vials™ and DivibaX®).

Raw material prices and suppliers

SP Group’s earnings depend on the prices of energy (including taxes), raw materials (plastics) and other materials to be used in production.

SP Group enters into hedges relating to electricity, gas and raw materials on an ongoing basis and has agreed on sales price adjustments with a number of customers in case of changes in energy and raw material prices. The Group has centralised its purchase of critical raw materials to increase the level of delivery reliability and to achieve a better bargaining position by purchasing larger bulks. At the same time, SP Group regularly examines the possibility of sourcing critical raw materials globally. The exposure to oil price-driven changes in raw material prices can be reduced, but will fundamentally persist.

Restructuring the production system

Production systems are changed on an ongoing basis, partly by investing in new production equipment and partly by modifying systems and distribution of tasks. This means that the Group gradually obtains improved specialisation of the production at each plant and that efficiency is enhanced. There is a risk that implementing these changes may cause delays and disruptions and thus inflict extra expenses on the Group or affect business volumes. There is also a risk that relocating production equipment and production tasks may cause delays and price increases.

Through careful planning, SP Group aims at minimising expenses and the time spent restructuring the production systems. A smooth and swift implementation of these processes is necessary to increase the Group’s profitability.

Key personnel

SP Group is dependent on a number of key personnel in the management team and among the Group’s specialists. SP Group seeks to retain key personnel by offering them challenging tasks, a basic salary in conformity with applicable market conditions and incentive schemes rewarding outstanding performance.


SP Group has an extensive insurance programme in place, which reflects the scope of the Group’s activities and their geographical location. Once a year, the insurance programme is examined together with the Group’s global advisor to make adjustments that support the Group’s Development on an ongoing basis, thereby minimising any detrimental impact on the Group’s financial performance. Once a year, the insurance policy is reviewed by the Board of Directors and adjusted as required.

Environmental performance

The production plants are subject to a number of environmental requirements in all countries, and further, a number of environmental and quality assurance systems have been implemented by the plants on a voluntary basis. SP Group complies with applicable environmental requirements, but cannot guarantee - in spite of extensive safety procedures - that the general as well as the working environment will not be affected in case of accident. (Moreover, reference is made to pages 35-38 on CSR and page 34 on environmental certification).

Financial risks

The Group’s cash flows and borrowings are managed centrally in accordance with the policies approved by the Board of Directors. The Group does not engage in speculation in financial risks.

Interest rate risks
Interest rate risks primarily relate to interest-bearing net debt, i.e. mortgage debt, lease liabilities and bank debt less cash. At year-end, net interestbearing debt totalled DKK 407.7 million. Approx. 20% of the debt earns interest at a fixed rate for minimum 2-5 years, including the mortgage credit debt earning interest at an average rate of approx. 1.3%. A one-percentage point increase in the general interest level will result in an increase in the Group’s annual interest expenses before tax of approx. DKK 3.0 million.

SP Group focuses on increasing cash flows from operating activities so that the net interest-bearing debt can be reduced and the Group can finance investments via operating activities. The Group also aims at reducing debt by selling non-value-creating assets and activities.

Credit risks
SP Group systematically monitors the credit rating of customers and business partners and makes use of credit insurance and factoring to partially hedge credit risks. No individual customers or business partners pose an unusual credit risk to the Group. As the Group’s customers and business partners are normally well-reputed companies operating in many different business sectors and countries, the overall credit risk is reduced. SP Group has not realised any noticeable credit losses in the past five years.

Currency risks
In accordance with the policies approved by the Board of Directors, SP Group carries through currency transactions to hedge commercial agreements. Hedging takes place by means of borrowing, forward Exchange contracts or options, and Management regularly assesses the need for hedging each individual transaction.

In general, there is a good balance between income and expenses. Approx. 80% of sales are thus recognised in DKK or EUR, and approx. 60% of the Group’s fixed costs are incurred in DKK or EUR. The most critical Commercial currency risk is indirect and relates to the customers’ sales outside Europe. Similarly, purchasing is primarily conducted in DKK and EUR.

Exports from Europe to USA are settled in USD on a 12-month forward selling basis (project orders up to 36 months).

Moreover, there is a currency risk between PLN and EUR and between RMB and USD, as the Group has increasing exports from Poland and China, which are settled in EUR and USD, respectively. In order to hedge the currency risk between PLN and EUR, EUR is sold against PLN on forward contracts for up to 48 months (hedging). At year-end 2016, the Group had hedged approx. 99% of the expected net cash flows in the coming 36 months and 10% of the expected net cash flows in the subsequent 12-month period.

15% of the Group’s financing is raised in EUR, and the remaining debt is mainly raised in DKK.

Liquidity risks
It is the Group’s objective to have sufficient cash resources to be able to continually make appropriate arrangements in case of unforeseen changes in cash outflows.

It is Management’s opinion that, considering its current operations, the Company still has adequate capital resources and sufficient liquidity for purposes of its plans and operations. The Company’s long-term cooperation with its financial business partners is fruitful and constructive. This is expected to be continued. The Group has neither neglected nor been in breach of loan agreements in the financial year or the comparative year.



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