All business operations are associated with risk. Risks that are well managed can lead to opportunities and create value, while risks that are not managed properly can result in damage and losses. Controlled risk taking is essential for good profitability.
Serneke works with risk management from both a Group perspective and an operational perspective. The capacity to identify, assess, manage and follow up risks is an important part of the governance and control of Serneke’s business operations. Some significant risks are described below.
- Political decisions, such as amended tax regulations, conditions of tenure, changed regulations on housing construction, infrastructure investments and municipal planning, could change the conditions of the market and of Serneke’s operations.
- Project risks. Serneke operates in an industry in which various risks prevail involving both clients and suppliers. Large-scale and complicated disputes can be costly, time and resource intensive and may disrupt normal operations.
- The transaction for the sale of 50 percent of the Karlastaden project includes operational risks. The purchase consideration is calculated based on the assumption that the development rights above ground will amount to a certain number of square meters multiplied by a pre-determined price per square meter. The purchase consideration will be adjusted in the event that the potential number of square meters in accordance with the final details of the development rights diverges from the company’s assumption. In addition, the purchase consideration may be adjusted in the event that the development rights are resold at a price lower than that agreed between the parties in determining the purchase consideration. In accordance with the agreement, Serneke shall also be responsible for all property registration expenses and for certain other obligations and services involved in advancing the project, including decontamination, demolition and development measures. Serneke has estimated what the final cost is expected to be. The agreement is conditional on the approval of a detailed development plan within a given period of time and that the approved detailed development plan is essentially consistent with the proposed plan currently being considered by the City of Gothenburg. In the event that Serneke’s expenses and commitments become more expensive than expected, no detailed development plan is adopted, the detailed development plan is significantly delayed or deviates significantly from what was expected, this could have a negative effect on Serneke’s operations, performance and financial position.
- Interest rate risks, changes in interest rates could have a negative effect on performance and financial position
- Liquidity; liquidity risk is the risk of being unable to meet payment obligations.
- Financing; financing risk is the risk that financing cannot be secured or renewed on maturity, or can only be obtained or renewed at significantly increased expense, which could have a significant negative impact on the company’s operations and financial position.
- Credit risks, credit risk refers to the risk that the company’s customers and suppliers and sub-contractors are unable to meet their obligations
- Risks in the financial reporting. Serneke’s financial reporting based on the Group’s accounting policies, which include estimates and assessments made of various balance sheet items’ value, and of when and how sales are reported. For certain areas, there is a significant risk of material adjustments to the carrying values of assets and liabilities in future periods, which could, in turn, affect important key indicators.
For further information regarding risks and uncertainties, see Note 4 in the 2015 Annual Report.