The enterprise risk management concept forms an important part of Cramo Group’s monitoring and control system. It is aimed at ensuring that the Group identifies its business-related risks and opportunities, and assesses and monitors them on an on-going basis. Enterprise risk management is a continuous process that is integrated into Cramo Group’s strategy process, operative planning, daily decision-making and monitoring of operations. It is also part of the Group’s internal control environment.
The Board of Directors, the Group management and the Group Finance and Development function are responsible for managing strategic, operational, financial, event and environmental risks as well as the related insurance coverage. The General Managers shall also draft a country-specific risk profile for their operating country annually when preparing the business plan and the budget. The risk profile and the related risk management policy will have to be adapted by the various subsidiaries.
As part of strategic planning, Cramo has identified risks related to the implementation of the must-win battles at the Group and operating country levels. Risk areas have been prioritised with regard to the extent of impact and likelihood, and an action plan has been completed.
Strategy follow-up includes an actively followed set of forward-looking indicators to give an early indication of any changes in the market environment or the operations of the Company. The forward-looking indicators can be divided into external indicators, such as GDP, construction growth rates and confidence indices, and internal indicators, such as time utilisation of the rental fleet and the modular space order book. In addition to formal indicators, Cramo follows a number of weak signals originating in the day-to-day rental operations.
Operational hedges for rental businesses
Cramo has created a number of operational hedges and flexibilities which facilitate increased business agility and reduce exposure to risks in its rental business operations. Firstly, Cramo has worked to reduce business exposure by actively developing its modular space business. The demand for modular space is less dependent on economic cycles and driven by longer rental contracts and the importance of public sector as a key customer segment.
Secondly, Cramo focuses on reducing customer exposure by expanding, broadening and balancing its customer base in order to lessen dependency on individual customers and individual customer segments. Thirdly, Cramo´s broad geographic footprint limits its geographic exposure.
Furthermore, Cramo limits its asset intensity by implementing a Group-wide fleet management and financing strategy. Cramo’s fleet management strategy enables the Group to swiftly respond to changes in demand by either transferring fleet within the broad international network of rental depots or by selling excess equipment through established sales channels. The fleet financing strategy helps Cramo in creating a flexible financing mix to address both long-term fleet financing needs and short-term changes in demand in a cost-efficient, risk-optimising manner.
Finally, Cramo has built flexibilities into its business model in a number of ways, for example, by increasing the amount of hired work force and entrepreneur-managed depots.
Contingency planning throughout the business cycle
Cramo’s contingency plan determines the actions to be taken in a market downturn, both on the Group level and in the subsidiaries. Under normal market conditions, Cramo’s contingency plan activities are focused on planning and actively monitoring the business environment. The implications of forward-looking indicators and key performance indicators are taken into day-to-day business decisions regardless of the stage of the overall business cycle. In addition, Cramo focuses continuously on further improving its operational hedges for the rental business.
In a downturn or crisis, forward-looking indicators are further used to identify and determine the severity of the situation. Based on the situation analysis, contingency plans are implemented to the degree required. Contingency plan actions in a downturn include reductions in investment levels, returns of fleet financed through operational leases, restructuring of the organisation and depot network, fleet transfers and sales, reductions in subcontracting work and various types of fixed-cost adjustments.
Risk management responsibilities
The Board of Directors monitors and is responsible for ensuring that the Group’s risk management process functions are comprehensive. It defines risk-bearing tolerance on a continuous basis, according to current conditions.
The Group’s operative management is responsible for achieving the goals set as well as controlling and managing risks that threaten them. The operative management is committed to fully supporting implementation of the risk management work and to ensuring the performance of the risk management process and the availability of sufficient resources.
Risk management assessments are coordinated by the Group Finance and Development function, which supports the management, business units and other support functions in implementing the risk management policy. It is responsible for instructions and advice to the units and for monitoring the practical implementations of the process.
The Internal Audit unit and the Group Finance and Development function collaborate closely with corporate risk management and concentrate on assessing risks.
Business units and corporate functions identify and assess significant risks within their area of responsibility in their planning processes, and take necessary corrective measures as well as report in the agreed manner.
Further information on internal control and risk management related to financial reporting can be found in the Corporate Governance Statement 2017.