Risks and risk management
Risk management at L&T aims to identify significant risk factors, prepare for them and manage them in an optimal way so that the company’s objectives are achieved. Comprehensive risk management endeavours to manage the Group’s risk as a whole and not just individual risk factors.
The principles of L&T’s risk management are approved by the company’s Board of Directors. The Board monitors the implementation of risk management and assesses the efficiency of the methods employed. The President and CEO is responsible for the organisation and implementation of risk management. The principles for financial risk management are defined in the Group’s Financial Policy. The principles for insurance risk management are specified in the Insurance Policy.
Identification, assessment and reporting of risks
The risk management process is defined in L&T’s Integrated Management System. As part of the annual strategy process, risks are assessed at the Group and division levels, in units outside Finland as well as within centralised functions defined as critical. In each responsibility area, the executive management assesses its strategic, financial, operational and damage-related risk factors. L&T evaluates risks using a risk matrix, thereby also assigning monetary values to risks. Contingency plans are prepared for significant risks. Responsibility for the risk management measures is assigned to the relevant parties. The most significant risks identified and preparations for them are reported to the President and CEO and the Board of Directors.
The section Strategic and operative risks describes the most important strategic, operational and damage-related risks of L&T’s business which, if realised, can endanger or prevent the achievement of business objectives. Financial risks and their management are described in Note 37.
Strategic and operative risks
Risks relating to information and communications systems
If realised, risks associated with information and communications systems can cause interruptions in L&T’s operations and customer service. In 2016, determined work continued in order to develop the system environment and secure the IT environment’s reliability.
Key market-related risks include a continuance of the economic recession and the resulting decline in customers' operating volumes, the entry of new competitors into the market, and legislative changes. Market price development for emission rights, secondary raw materials or oil products may affect the company’s business operations. Future developments are difficult to predict due to the continuing general economic uncertainty. Major changes in the markets may have a negative impact on business growth and cause profitability to decline. L&T is not dependent on single large customers, which, together with L&T’s extensive service offering, helps reduce market-related risks. As a means of standing out from its competitors and creating value-adding elements other than price, L&T is continuously developing and launching new service products. To prepare for market risks, L&T pays special attention to profitability improvement and customer care.
L&T seeks growth both organically and through acquisitions. The success of acquisitions affects the achievement of the company’s growth and profitability targets. Failures in acquisitions may impact the company’s competitiveness and profitability and may change the company’s risk profile. Risk related to acquisitions is managed through contracts of sale, strategic and financial analysis of acquisition targets, comprehensive audits of due diligence, and particularly by carrying out an efficient integration programme after the realisation of a deal.
Operations in developing markets
L&T has business operations in countries such as Russia. Business operations in developing markets make the company vulnerable to political and financial risks as well as risks relating to changes in social conditions. For example, the free pricing of services could be restricted in these countries. L&T endeavours to minimise these risks by familiarising itself with the international market situation and the business culture through means such as commissioning studies of the country-specific risks of developing markets.
Availability of competent personnel
L&T’s business is labour-intensive. Seasonal changes in job markets might increase employee turnover, posing challenges to the availability of personnel. Due to the age structure of the population, competition for skilled employees will become tougher. L&T runs several human resources management programmes aimed at ensuring the efficient use, availability and competence of personnel, including the recruitment of foreign personnel. We focus on fostering a good work community, management and leadership, improving multicultural skills, work rotation and occupational safety. L&T endeavours to be the most attractive employer in its sector.
To cover for unexpected damage risks, L&T has continuous insurance coverage in all of the operating countries, including policies for injuries, property damage, business interruption, third-party liability, environmental damage and transport damage.
Risk of fire
The manufacture of recycled fuels within the Environmental Services business constitutes a fire risk. A fire at a recycling plant may result in a momentary or extended interruption of the plant’s operations. However, the significance of the risk is reduced by the fact that individual plants or production lines have no substantial impact on L&T’s overall profitability. In addition to taking out insurance, the company endeavours to minimise the risks of fire damage by carrying out systematic contingency planning, constructing automated extinguishing systems, and training personnel to prepare for emergencies.
Risk of environmental damage
L&T’s business includes the collection and transport of hazardous waste, as well as processing at the company’s own plants. Incorrect handling of hazardous waste or damage to equipment may result in harmful substances being released into the environment or injuries through explosion or poisoning. L&T may become liable for damages due to this. In addition to taking out insurance, the company manages environmental damage risks through systematic environmental surveys of its plants, preventive equipment maintenance plans, audits, long-term training for personnel and emergency drills.
Early retirement of personnel
An increase in the personnel’s disability and accident pension costs may materially affect competitiveness and profitability, particularly in Facility Services. As a major employer, L&T is liable for the full pension costs arising from its employee disabilities. L&T's Sirius programme is designed to promote the health of employees and to manage occupational health care services. It aims to minimise sickness-related absences and disability pensions as well as manage their related costs.
Corporate Governance Statement
The Corporate Governance Statement for the financial year 2016 is provided as a separate report.
In accordance with Lassila & Tikanoja plc’s Articles of Association, the management of the company and the proper arrangement of its operations are the responsibility of a Board of Directors comprising a minimum of three (3) and a maximum of seven (7) members appointed by the General Meeting of Shareholders. The term of each member of the Board of Directors expires at the end of the next Annual General Meeting of Shareholders following his/her election.
The Company has a President and CEO appointed by the Board of Directors. In accordance with the Companies Act, the General Meeting of Shareholders shall decide on any amendments to the Articles of Association. According to a written service contract with the President and CEO, the period of notice is six months if the company terminates his employment.
The Annual General Meeting held on 17 March 2016 confirmed the number of members of the Board of Directors as six (6). Heikki Bergholm, Eero Hautaniemi, Laura Lares, Sakari Lassila and Miikka Maijala were re-elected and Teemu Kangas-Kärki was elected as a new member to the Board until the end of the following Annual General Meeting. At its constitutive meeting after the Annual General Meeting, the Board of Directors elected Heikki Bergholm as Chairman of the Board and Eero Hautaniemi as Vice Chairman. Eero Hautaniemi was elected as Chairman and Sakari Lassila and Teemu Kangas-Kärki as members of the Audit Committee. Heikki Bergholm was elected as the Chairman of the Personnel Committee and Miikka Maijala and Laura Lares as members of the committee.
KPMG Oy Ab, Authorised Public Accountants, is the auditor of the company, with Lasse Holopainen, Authorised Public Accountant, as principal auditor.
Pekka Ojanpää has served as the President and CEO since 1 November 2011.
Group Executive Board members
On 1 July 2016, Tutu Wegelius-Lehtonen was appointed as Vice President, Facility Services. Wegelius-Lehtonen has served as L&T’s Director, Supply Chain, and as a member of the Group Executive Board since February 2015. Tomi Kontinen, was appointed Director, Supply Chain, and member of the Group Executive Board.
On 31 December 2016, the members of the Group Executive Board were Pekka Ojanpää, President and CEO; Timo Leinonen, CFO; Petri Salermo, Vice President, Environmental Services; Antti Tervo, Vice President, Industrial Services; Tutu Wegelius-Lehtonen, Vice President, Facility Services; Kirsi Matero, HR Director; Tuomas Mäkipeska, Development Director and Vice President, Renewable Energy Sources; Tomi Kontinen, Director, Supply Chain; and Jorma Mikkonen, Director, Corporate Relations and Responsibility.