Risks & risk management

Alcadon’s operations are affected by a number of factors beyond the Group’s control and also by many factors whose effects the Group can influence through its actions. The section below does not claim to be complete. Other risks and uncertainties currently unknown to the group or currently not considered material may also have a negative impact on the Group’s operations.
The risk description is not arranged in order of magnitude and is not intended to rank the probability of the various circumstances occurring. Nor does it indicate the potential impact of the risks should they occur. To assess the development of the Group, it is important to assess the aforementioned and potential additional risk factors and their significance for the future development of the Group. All risk factors have in common that they could, to varying degrees, impact negatively on the Group’s operations, performance, and financial position.

OPERATIONAL AND INDUSTRY-RELATED RISKS

Fluctuations of the economic cycle

The demand for Alcadon’s products is affected by the general economic climate in the markets where the Group is active, which is influenced, among other things, by interest rates, exchange rates, taxes, the development of the equity market, credit availability, the unemployment rate and overall business conditions. Less favourable economic conditions may result in a deterioration in the conditions for new investments and maintenance among Alcadon’s final customers and thus a negative impact on the demand for Alcadon’s products. In addition, changes in raw material prices may affect the level of activity and result in investments being postponed and existing orders being delayed or cancelled.

Technology development

Alcadon is active in the data- and telecommunications market in the Nordic countries, Germany, Belgium, the United Kingdom, and the Netherlands. Changes in the IT industry, where products and future technologies often develop rapidly, may thus be associated with a greater degree of uncertainty compared with companies operating in other, more stable industries and less volatile markets. The Group’s products are intended for network infrastructure in the form of fibre and copper cables.

There is a risk that new technologies are developed and introduced, which, depending on their success and Alcadon’s ability to further develop products and systems, could affect Alcadon’s market position.

Price pressure and competition

Alcadon’s operations are conducted in an industry exposed to competition. Market participants compete on price, innovation, design and quality, but also on technology and market penetration. Alcadon is facing a large number of competitors, both traditional retailers and specialised suppliers. In recent years, the Group has seen increasing price pressure in the market, which has contributed to decreasing margins on certain product groups and a demand for cost-efficient solutions.

There is a risk that increased competition results in reduced demand for Alcadon’s products. The Group may also be forced to implement costly restructurings of the operations to maintain its market position and profitability.

Risks related to acquisitions

From time to time, Alcadon may evaluate potential acquisitions that align with the Group’s strategic objectives. Acquisitions always involve risks in terms of, for example, errors of assessment at the time of acquisition, the cost of integrating the acquiree and of possible restructuring efforts, financial commitments in the form of contingent consideration, and diversion of the executive management’s focus on core activities.

If completed acquisitions fail to be successfully integrated, it may have a negative impact on the Group’s performance and financial position. In addition, future acquisitions financed by equity may be dilutive for existing shareholders and debt financing may hamper the group’s flexibility and restrict the use of capital.

Regulatory risks

The activities of Alcadon are not subject to licensing but are subject to laws, regulations and standards pertaining to, inter alia, taxes, personnel, the environment and product safety. If the Group fails to comply with such rules, it may face penalties as a result. In addition, unforeseen problems related to the quality of products could damage the Group’s reputation and lead to increased warranty costs (see also the section ”Risks related to product quality and product safety” below).
Any future amendments of laws, regulations or standards that result in stricter requirements or changed conditions with regard to product specifications, safety, health or the environment may have several negative implications, such as forcing the Group to make investments or take other measures in compliance. Such changes could also result in certain products of the Group becoming obsolete or the Group’s operations becoming limited or obstructed.

There is a risk that new technologies are developed and introduced, which, depending on their success and Alcadon’s ability to further develop products and systems, could affect Alcadon’s market position.

Dependence on suppliers

In order to sell and deliver products, the Group depends on external deliveries fulfilling the agreed requirements with regard to quantities, qualities, delivery times, etc. Defective, delayed or unfulfilled deliveries from suppliers, or other supply chain disruptions, may in turn cause the subsidiaries’ deliveries to be delayed, deficient or faulty, which could result in decreased sales.

Dependence on key individuals and personnel

As at 31 December 2023, the Group had 164 employees. Alcadon’s future development is dependent on the Group’s ability to retain and recruit personnel with relevant experience, knowledge and commitment. Should any member of management or other key employees terminate their employment, this could, at least in the short term, have a materially adverse effect.

Risks related to warehousing and transports

The Group maintains central warehouses in each respective country of operation and smaller warehouses in conjunction with the local offices. There is a risk that the warehouses are subjected to, for example, fire, water damage or theft. Even if the Group has the insurances required, such damages may lead to delayed or unfulfilled deliveries to customers, in turn causing damage to the Group’s reputation. Should products be damaged during transportation from suppliers, the Group may not be able to deliver to customers on time.

Risks related to product quality and product safety

The products supplied by Alcadon may, in the event that the quality is insufficient, cause personal injury or damage on other property such as other equipment installed in conjunction with the damaged products or components. Alcadon issues warranties for its products, usually with a warranty period of 12 months. In relation to the private label brand ECS (European Cabling Systems), the warranty period is 15 years. The warranty imposes an obligation on Alcadon to replace or repair products that are inadequate in terms of quality or safety.

Tax risks

Alcadon conducts operations in a number of European countries. The operations in these countries are conducted in accordance with Alcadon’s interpretation of applicable laws, regulations and judicial practices as well as the administrative practices of the tax authorities. It cannot be excluded, however, that the tax authorities form a different evaluation in certain matters, and that the Group’s previous or present tax situation changes by administrative decision. Moreover, revised tax legislation, possibly with retroactive effect, or revised interpretation of such legislation may have an adverse effect on the Group’s operations, performance and financial position.

RISK MANAGEMENT

Alcadon’s executive management is working continuously to develop and adapt the Company in order to mitigate the risks described above and minimise the effects and damage caused by these risks. Since a significant proportion of sales is targeted to segments other than new construction and to final customers in a variety of industries, the Company has a reduced exposure to cyclical factors. The role as distributor of proven technology rather than developer of new proprietary technology makes us less exposed to the rapid development of the industry; our organisation can distribute the technology that proves to be the leading one in each period of time. By developing private label brands and ensuring the staff’s high level of knowledge about our niche, we can manage the price competition.

Our staff is an important resource and a means of competition, and it is, therefore, very good that the majority of key employees have been large shareholders in Alcadon for a long time. Furthermore, our good and long-standing relations with Asian and European suppliers are crucial for maintaining a high level of quality and ensuring the availability of goods to customers.

Risks related to acquisitions are managed through a very detailed due diligence process, supported by external advisors and with the active participation of the Company’s Board of Directors where several members have extensive experience of such processes. The management’s industry expertise, which further covers the operations of acquired businesses, has also contributed to efficient integration.

FINANCIAL RISKS

For information about risk exposure and financial risk management, please refer to Note 2 in the annual report.