Kemira’s risk management policy and principles proactively protect and help Kemira to reach the desired aggregate risk level and ensure the continuity of its operations.
Risk Management Policy
The key principles of Kemira’s risk management are defined in the Kemira Group Risk Management Policy. In the policy, a risk is defined as a potential event or circumstance, which, if it materializes, may affect Kemira’s ability to meet its strategic and operational goals in a sustainable and ethical way. In addition, Kemira has Group guidelines and other policies in place that specify management objectives, responsibilities and risk limits in greater detail.
Kemira Oyj’s risk management is based on the Finnish Corporate Governance Code, the Kemira Code of Conduct and the company’s values. The principles of Kemira’s risk management are also in compliance with international risk management frameworks and standards such as COSO Enterprise Risk Management and ISO 31000 (Risk Management – Principles and Guidelines).
In accordance with its risk management process, Kemira aims at systematic and proactive assessment and treatment of various risk categories, such as strategic, operational, hazard and financial risks. The objective of the risk management is to contribute to ensuring Kemira’s long term strategic development and to achieving Kemira’s strategic and operational targets by supporting decision making by taking uncertainty and its effects into account.
Kemira Oyj’s Board of Directors defines the key principles applied in risk management. The Audit Committee assists the Board in risk management supervision. The business segments, regions, and functions are responsible for the risks involved in their activities and for the related risk management. The Group’s Risk Management function is in charge of developing and coordinating risk management and risk management networks within the Group. Internal Audit is responsible for monitoring and evaluating the effectiveness of Kemira’s risk management.
Risk management implementation
At Kemira, each business segment, region, and function performs its overall risk management according to the risk management framework and process described in Kemira’s Risk Management Policy. Risks are identified, analyzed and evaluated in a consistent manner. Risk management systems and methodologies suitable for the specific situation and organizational needs as well as risks are applied. The results of the risk management process are reported regularly both internally and as part of Kemira Oyj’s external reporting.
Some of Kemira’s risk treatment measures are performed centrally in order to generate cost benefits and ensure a sufficient level of protection. These include insurance cover for certain risks, such as general third-party and product liability, cargo, property and business interruption insurance, as well as the hedging of treasury risks.
About Kemira’s risks
As in previous years, risk management was integrated into the strategy process in 2012. In addition to risk assessments conducted on the Group and Segment strategies, risk management was used to evaluate several macro-economic scenarios and their financial impacts on Kemira. Some of Kemira’s key strategic, operational and hazard risks are described next. More detailed information on financial risks and their management is provided on page 29. Management of Financial Risks in the Notes section. Despite proactive risk management efforts, some of the risks may possibly materialize and significantly affect Kemira’s ability to achieve its targets.
Global economic environment
A potential decline in the global GDP would have a negative impact on Kemira’s business, especially in the Paper segment. It could also delay some future growth projects. Weak economic development may have serious effects on the liquidity of Kemira’s customers, which could result in increased credit losses for Kemira. The prices of many raw materials decrease in unfavorable market conditions, but the availability and price risk related to some of Kemira’s raw materials may increase. Kemira’s geographic and customer-industry diversity provides only partial protection against this risk.
Kemira operates in a rapidly changing and competitive business environment, which represents a considerable risk to meeting its goals. New players seeking a foothold in Kemira’s key business segments may use aggressive means as a competitive tool, which could affect Kemira’s financial results.
Kemira is seeking growth in segments that are less familiar and where new competitive situations will prevail. In the long-term, completely new types of technology may considerably change the current competitive situation. This risk is managed both at the Group and segment as well as on regional levels through continuous monitoring of the competition. The company aims at responding to its competition with active management of customer relationships and development of its products and services.
Price and availability of raw materials and commodities
Continuous improvement of profitability is a crucial part of Kemira’s strategy. Significant increases in raw material, commodity or logistic costs could place Kemira’s profitability targets at risk. For instance, high oil and electricity prices could materially weaken Kemira’s profitability.
Changes in the raw material supplier field, such as consolidation or decreasing capacity, may increase raw material prices. Poor availability of certain raw materials may affect Kemira’s production if we fail to prepare for this by mapping out alternative suppliers or opportunities for process changes. Raw material and commodity risks can be effectively monitored and managed with Kemira's centralized Supply Chain Management function (SCM).
Kemira has manufacturing plants across the world. Kemira’s production activities involve many hazard risks, such as fires and explosions, natural catastrophes, environmental risks, as well as employee health and safety risks. Certified management systems, efficient hazard prevention programs and the Group’s network of experts play a central role in managing these hazard risks. In addition, Kemira has several insurance programs that protect the company against financial effects of hazard risks.