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Essity is exposed to a number of risks that could exert a greater or lesser material impact on the Group. These risks are generally defined as factors that impact Essity’s ability to achieve established targets for the Group. This applies to both financial targets and targets in other areas. Essity’s objectives are outlined in the chapter Our objectives.
Many of the risks described could have a positive or negative impact on the Group. This implies that if a risk develops in a favorable manner or if risk management is successful in counteracting the risk, target fulfillment could exceed expectations. From this perspective, the risks could also entail opportunities for Essity. Examples include the GDP trend and the economic situation, the cost of input goods, customer and consumer patterns, and movements in market prices.
The description in this section relates to the structure that Essity had at year-end 2017.
Essity’s structure, value chain and operations entails in itself a certain degree of risk spread.
Essity conducts operations in hygiene and health, with sales through a variety of different channels and distribution paths, both in retail trade and business-to-business, as well as deliveries to entirely or partially different customer segments and end-users. The geographic structure includes both mature markets and emerging markets with sales in approximately 150 countries. Manufacturing is pursued at about 90 production facilities in some 30 countries. Sales are often based on local manufacturing. Essity’s operations are partly influenced by the business cycle and general economic prosperity. The competitive situations also differ.
Essity’s Board of Directors determines the Group’s strategic direction based on recommendations from the Executive Management Team. The responsibility for long-term and overall management of strategic risks follows the company’s delegation scheme, from the Board of Directors to the President, and from the President to the Business Unit Presidents. This implies that most operational risks are managed by Essity’s business units at a local level, but are coordinated when deemed relevant. The tools for this work primarily comprise continuous reporting by the business units and the annual strategy process, which includes risk assessment and risk management as part of the process. Identified risks have been classified according to the likelihood of the risk becoming a reality and the impact it can have on Essity’s target fulfillment. The standardized model also includes how risks shall be monitored and followed up. The outcome of this evaluation constitutes a part of the assessment of risks described in this section.
Essity’s financial risk management is centralized, as is the case for the corporate internal bank for financial transactions of Group companies and management of the Group’s energy risks. The financial risks are managed in accordance with the Group’s finance policy, which is set by Essity’s Board of Directors and, together with Essity’s energy risk policy, comprises a framework for management activities. The risks are grouped and followed up on a regular basis to ensure compliance with these guidelines. Essity has also centralized the management of other risks.
Essity has established a corporate internal audit unit, which ensures that Essity’s organization complies with the set policies.