Risks & risk management

The Group’s (DistIT) operating activities are mainly conducted by Aurora Group Danmark A/S, with headquarters in Copenhagen, Denmark, Septon Holding AB, with headquarters in Gothenburg, Sweden, UAB Sominis Technology, with headquarters in Vilnius, Lithuania, and SweDeltaco AB, with headquarters in Stockholm, Sweden. Operations are conducted in these companies or in the respective companies’ subsidiaries in all the Nordic countries and in the Baltics.

The Group’s operations are affected by a number of risks that may affect the Group’s results or financial position to varying degrees. When assessing the Group’s development, it is important to consider relevant risk factors in addition to the opportunities for earnings growth. Not all risk factors can be described in this section, but should be evaluated together with other information in this annual report and a general assessment of the business environment. The Group has decided on a risk policy that is reviewed on an ongoing basis and, if necessary, adapted to the operations and external factors. DistIT’s subsidiaries work continuously with risks and risk management, with the goal of identifying and controlling the risks. This section describes risks that may, among other things, affect the Group’s customers and suppliers. Specifically, this may relate to external influences caused by, for example, natural disasters, wars and pandemics. More information about the DistIT Group’s handling of Covid-19 is provided on p. 47 of this annual report.

RISK MANAGEMENT – IN GENERAL
In a global crisis situation, all priorities should be based on ensuring human health and minimising risk diversification. When this is taken into account, other questions come into the frame.

Strategic risks mainly impact demand and can be counteracted through changes in the cost base. Management, together with the Board of Directors, closely monitors the economic growth in order to be able to act quickly and adapt the business in the event of economic changes.

Operational risks refer to risks that processes, systems, or organisations fail in some respect. By continuously working with corporate culture, visiting customers and suppliers, and monitoring competitors, the risks are reduced.

Financial risks refer to the risk of fluctuations in the operating results and cash flow as a result of changes in exchange rates, interest rates, financing, and credit risks. Financial risks are managed according to established procedures.

STRATEGIC RISKS

Strategic risks refer to external and internal threats that affect the company’s ability to achieve its strategic goals.






 

 

DESCRIPTION

 

MEASURE

 

 

NEGATIVE PUBLICITY

The Group relies
on, among other
things, brand and reputation to attract and retain new customers
and employees. Negative publicity or
disclosures regarding the Group may, regardless of whether they relate to correct information or not, worsen the Group’s reputation. Furthermore,
negative publicity relating to any
of the Group’s products or brands may affect demand for said products.

 

 

The Group
works actively with brand marketing. The Group continuously monitors all publicity about the subsidiaries and brands for preventive purposes.

 

 

 

RISKS RELATED TO COMPANY ACQUISITIONS

From time to time, the
Group may evaluate potential acquisitions in accordance with the Group’s
strategic goals. The possibility of implementing
acquisition strategies may be limited by external
factors, such as competition, financing opportunities, the market situation
and price levels of investment objects. It
is possible that the Group’s
acquisition strategy cannot be followed and
transactions may have a negative
impact on the Group’s financial
position.

 

 

The Group shall
focus on its own acquisition strategy and evaluate it continuously and on an
ongoing basis. When evaluating
potential acquisitions, the Group shall take
precautionary measures, such as hiring external experts
to carry out legal and financial due diligence.

 



 



CORPORATE GOVERNANCE

Each company within the Group is financially integrated but consists
of separate
operational units. DistIT relies on the subsidiaries
to conduct their respective
operations in accordance with established strategies,
budgets and policies. There is a risk that DistIT does not
have sufficient operational control over the other Group companies, which may have a negative impact
on the Group’s position.

 

The Group relies mainly on its employees to ensure
that operations are conducted in
accordance with the Group companies’ respective internal corporate policies
for governance and compliance. There is a risk that the Group’s
employees violate internal
policies, which may expose the Group to risks, such as breach
of contract, conclusion

of conflicting agreements, violations of the law, and breaches
of

regulations, etc.



The Group shall exercise its control over the Group companies by routinely requesting reports,
having an ongoing dialogue, and
reconciling previously submitted reports
on a continuous basis. Furthermore, the CEOs of each subsidiary shall participate when necessary and at a minimum of two board meetings annually
for a review
and discussion of significant operational decisions.



ECONOMIC GROWTH PROSPECTS

The economic growth prospects are difficult to assess and are

important for the Group’s sales and earnings development.

 

Management
closely monitors the economical growth. The Group’s customers are in several
industries and can be both
corporate customers and customers who sell
to end consumers, which reduces a sensitive
economic climate.

 

 



OPERATIONAL RISKS

Operational risks refer to risks that
processes, systems or organisations
fail in some respect. By
continuously working with corporate culture,
reviewing procedures, cultivating customers and suppliers,
and monitoring competitors, risks are reduced.

 

DESCRIPTION

 

MEASURE

INDUSTRY AND MARKET

Changes in the IT industry, with its rapid product changes and technology development, may be associated with
a greater degree
of uncertainty than for companies in more stable industries and markets
with minor changes.

 

 

The Group
works continuously and
actively to limit
this risk through
continued careful product selection and close collaboration with current and future suppliers and customers.

DISTRIBUTOR’S ROLE

The
distributor’s role is changing, partly due to today’s advanced Internet technology, and development of new logistics and distribution services. The Internet can make it possible
for both retailers and end
customers to find and contact the manufacturer directly. The Internet can make it
possible for international and European distributors to take market share from the Group. New
logistics and distribution services
make it possible for providers to self-distribute their products.

 

 

Through an increasing share of sales
of our own brand labels, we have strengthened our
position against foreign
competitors and created added value in our
offers to end customers that
are difficult
for others to compete with.

 

REGULATORY RISKS

DistIT’s operations are not subject
to licence, but are covered
by laws, rules and standards regarding, among
other things, taxes, personnel, the environment and product safety.
If the Group
does not comply
with such rules, it could,
for example, result in the Group being ordered to pay penalties. Unforeseen problems with the quality of the
products could further damage the
Group’s reputation and lead to increased costs for
product warranties, which
would accordingly have
a negative
impact on the Group’s resutls and financial position (see more below,
under
“Risks related to product quality and product safety”).

 

 

 

The Group
carefully observes applicable laws and regulations to ensure that all operations are conducted in
accordance with applicable rules, laws and standards. New rules, laws and
standards are monitored and
analysed, and, if necessary, measures are
taken to ensure full compliance. Deviations are reported on an ongoing basis
to company management

in accordance with established procedures and policies. Any
major deviations are
reported to the Board.



 



RISKS RELATED TO PRODUCT QUALITY
AND PRODUCT SAFETY

The products Distit and its subsidiaries provide can, in the event
of poor quality,
cause damage, to both person
and property, for example,
other products that are installed together with the damaged products or components.



For own brand labels, an extended
life-long warranty
period is issued.In the event of deficiencies in product quality and product
safety, the companies are required to replace or repair the damaged product.
In the event of a sharp increase in compensation claims according to issued guarantees, this may result in a
negative
impact on the Group’s results and financial position.



 

 


KEY PERSONNEL AND EMPLOYEES

The Group is dependent on key personnel, usually senior executives. The Group’s development is also dependent on the ability to recruit and retain qualified employees.

 

 

 

 

 

 

 

 

 

 

We work
to create an attractive work
environment with good development opportunities and to be
a learning organisation where
knowledge and experiences are shared between
and by employees. We are also
actively seeking to secure
senior executives in the long term, primarily through option programmes.

 

CUSTOMERS

The Group offers
IT products and accessories to a large number
of
customer groups in most industries and market segments. A general
decline in demand
for IT products may therefore have a negative effect on the Group’s operations.

 

 

 

 

 

 

 

 

 

 

 

We work continuously to create long-term relationships with
our current customers, while actively working on
acquiring new customers. We have also significantly broadened our product range
to reduce dependence

on individual products and product groups. This work continues.

PRICE PRESSURE

The Group’s operations are conducted in a competitive industry which, among
other things, can be affected by price pressure, which in turn drives demands for cost-effective solutions. In recent years, we have seen increasing
price pressure in the market, which
has partly led to declining margins for certain product groups.

 

 

 

 

 

 

 

 

 

 

The Group has an active procurement strategy based on long-term relationships with
suppliers in Asia and Europe. Through these collaborations, we have ensured that we can meet customers’ demands for lower prices and increasing margins. Together with
our long-term approach to both
customer and supplier relationships, we have
ensured sustainability in a changing market.

COMPETITION

Competing companies may increase competition for the Group’s products.

 

 

 

 

 

 

 

 

 

 

Despite the fact that the
subsidiaries are constantly trying to adapt to the current competitive situation, we may
be forced to carry out costly restructuring of the operations in order to maintain our market position
and profitability. Growth is
also an important way of
securing the best purchase prices based on increasing volumes.

STOCK DEPENDENCE

A distributor of physical products is dependent on their stock.

 

 

 

 

 

 

 

The Group takes measures through
collaborations with the
Group’s logistics partners and its own reasonable
measures to protect its stock from fire risk, water damage and theft.

SUPPLIERS

To be able
to sell and deliver products, the Group is dependent on external
deliveries meeting agreed requirements relating to, for example, quantity, quality and delivery time. Incorrect, delayed or missing deliveries from suppliers can mean that the subsidiaries’ deliveries in turn are delayed, or are defective or incorrect, which
can result in reduced sales and thereby negatively affect our
operations, financial position and results.

 

 

 

 

 

 

 

 

 

 

We continuously evaluate and develop our quality criteria, which we ensure our suppliers
can meet through our internal
processes. This is done, among other
things, through close contact and regularly
visiting them, together with quality assessments and quality tests performed by third parties.



 

 

 

 

 

 

 

 

 

 

 

DEPEDENCE ON THIRD
PARTIES FOR INVENTORY MANAGEMENT

The Group engages third parties for warehousing, inventory management and logistics. There
is a risk that such third parties
will not deliver products in accordance with set conditions, that the price of the services will increase,
or damage to storage
facilities, such
as fire, water or theft, will
occur. Any such risk may have
a negative impact
on the Group’s operations.

 

 

 

 

 

 

 

 

 

 

 

 

The Group companies shall
limit the contract period for
agreements with third parties to a maximum of
five years. Furthermore, the Group companies shall maintain a continuous dialogue with each third party

in order to find improvement measures and streamline work. The
agreements with third-party companies are carefully
regulated in agreements which, for example,
state requirements for delivery times,
etc.

 

 

 

 

 

 

 

 

ENVIRONMENTAL RISKS

The Group’s operations are not regulated by law or subject to any license. There is a risk that the
products which the Group distributes
will be subject to additional environmental laws, rules or regulations, or that
additional taxes or fees will be introduced or added, which
may have a negative impact
on the
Group’s financial position.

 

 

 

 

 

 

 

 

 

The Group has developed an action plan based on the Group’s environmental policy, which,
for example, sets
environmental requirements for suppliers, products and services. The environmental policy
is continuously monitored and
updated in accordance with current environmental laws
and regulations.

 

 

 

 

 

 

 

 

 

 

INADEQUATE PROCEDURES OR LACK OF CONTROLS

Within the framework of day-to-day operations, the Group may incur losses due to inadequate
procedures, lack of controls, irregularities,
or external factors. If the Group’s warehouses or
products therein are damaged, for example as a result of a fire or other event, or delays in distribution, or if any of the warehouses had to close, or if a third party
providing warehousing services terminates
the collaboration or activities, it may lead to losses for the Group due to delayed deliveries.

 

 

 

 

 

 

 

 

 

 

 

All the Group’s companies have a lead in their orders with
suppliers based on various parameters and lead times. The
Group has also taken out business interruption insurance for all the Group’s companies, which covers any losses.

 

 

 

 

 

 

 

INTELLECTUAL PROPERTY RIGHTS

Sales of some of the Group’s products depend on brands and domain names. If the Group’s protection
of its brands or domain
names
is insufficient, or if the Group violates
the intellectual
property
rights of third parties, this may result in lower sales and revenues and have a negative impact
on the Group’s
position.

 

 

 

 

 

 

 

 

The Group
actively cultivates and follows up its own
brand labels and domain names through, among other things, national and European trademark registrations.

 

 

 

 

 

 

 

 

 

 

DISPUTES

There is a risk that the Group will become involved in future disputes. The results of any ongoing or
future investigations, proceedings,
disputes or arbitration proceedings initiated by customers or other counterparties, supervisory authorities or bodies cannot
be predicted. Consequently, an unfavourable

settlement or decision for the Group
may entail significant fines,
damages and/or negative publicity, which may have a negative impact
on the Group’s
operations.

 

 

 

 

 

 

 

 

 

 

 

The Group has broad competence and a good network of expertise, as well as the legal resources for handling
disputes and arbitration proceedings. Any ongoing disputes are reported on an ongoing
basis and described in quarterly reports.

 

 

 

 

 

 

 

 

INSURANCE RISKS

The Group is exposed to various types of risks, such as product liability, property damage, third party
liability, and interruptions in operations, including events caused
by natural disasters and

other events beyond
the Group’s control. In such a case, the Group may
be obliged to compensate for
losses, damages, and expenses.

 

 

 

 

 

 

 

 

 

The Group has an ongoing
overview of all the Group’s
companies’ insurances, and procures and
adapts existing insurances to the ongoing operations.

 

RISKS RELATED TO IT INFRASTRUCTURE

The Group is dependent on its IT system for operating important business systems, including administrative and financial functions. Interruptions, such as downtime of network servers, virus attacks, and
other disruptions or errors in IT systems, can occur and
have a
negative impact on the Group’s
operations. In addition, insufficient
strategies regarding IT and outsourcing, as well as documentation of IT systems and strategies, can lead
to failures in the Group’s technical systems
and cause disruptions in the Group’s
operations.

 

 

All the Group’s companies have their own resources that are integrated into each company’s operations, and take care of the companies’ IT systems and their various functions.





FINANCIAL RISKS

Financial risks refer to the risk of fluctuations in the operating results and cash flow as a result of changes in exchange
rates, interest rates,
financing, and credit
risks.

 

 

DESCRIPTION

 

MEASURE

 

 

 

 

 

 

 

CURRENCY RISK

The currency risk relates to how the value of financial

instruments varies due
to changes in exchange rates.

 

 

 

 

 

 

 

The Group’s
measures, in order to manage transactional
currency risk, are to buy
currency in the event of identified
needs
in order to minimise the short-term impact
on results and
at the same time create
long-term room for manoeuvre.

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST RATE RISK

The interest rate risk is in the form of the value of a financial

instrument varying due to changes
in market interest rates.

 

 

 

 

 

 

 

 

The Group’s credit
runs with variable interest rates that are in part renegotiated on an annual
basis. No investment, other than own holding
of private corporate bond of a nominal
MSEK 74.4, as of 31 December 2020, is
currently made in
capital instruments.

 

 

 

 

 

 

 

 

CREDIT RISK

The Group’s credit
risk mainly constitutes the solvency of the subsidiaries’ customers.

 

 

 

 

 

 

 

 

 

Credit assessment of customers is standard according to established
procedures. In most cases, credit insurance
is used as a means of reducing credit risk.
Credit losses

have historically
been low, but increasing competition in the industry has meant poorer opportunities for credit insurance for customers and slightly higher
credit losses.

 

 

 

 

 

 

 

 

 

 

 

 

 

LIQUIDITY RISK

Liquidity risk means that financing cannot
be obtained, or only at significantly increasing costs.

 

 

 

 

 

 

The Group’s liquidity risk is considered to be
relatively limited. Ongoing
dialogue and communication takes place with
lenders such as banks, financial institutions and
bondholders.

 

 

 

 

 

 

TAX RISK

The DistIT Group conducts its operations in
the Nordic countries. Operations in
these countries are conducted in accordance
with the Group’s interpretation of applicable laws, rules and case law, as well as
the tax authorities’ administrative
practices. However, it cannot be ruled out
that tax authorities may make other assessments in any respect, and that the Group’s previous
and current tax situation may
change as a result of the tax authorities’ decisions.

 

 

 

 

 

 

 

 

 

 

 

 

The Group’s tax situation is considered to be relatively secure. Ongoing
monitoring is carried out in connection with audits, and through regular contact with the relevant authorities in the Nordic markets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEPENDENCE ON SUBSIDIARIES

DistIT is a holding company and the
Group’s operations are mainly
conducted through its subsidiaries. DistIT is
therefore dependent on its
subsidiaries in order to meet its payment obligations.

 

 

 

 

 

 

 

 

 

 

 

The Group intends to provide DistIT
liquidity through the Group’s cash
pool, intra-group loans,
dividends
or other value
transfers in order for DistIT to be able to
meet its payment obligations.
However, there is a risk that DistIT will not be able
to meet its payment obligations if the subsidiaries do

not provide such liquidity, or, due to other circumstances, conditions, laws
or regulations, are
prevented from supplying DistIT with liquid assets.

 

 

 

 

 

 

 

 

 

 

 

LOANS

The Group has outstanding interest-bearing liabilities. Such
loans may have an impact on the Group’s
financial position by limiting the Group’s ability
to obtain additional financing
for future operations, investments, acquisitions, and other business opportunities.

 

 

The Group
has a continuous and ongoing dialogue with the

Group companies’ banks and other financiers, and adheres

to the guidelines required
to obtain good financing for various

operational
areas.