Risk and risk management

ICA Group’s operations are exposed to various types of risk that can have a material impact on the Group's ability to achieve its goals. A Group-wide risk management process (Enterprise Risk Management – ERM) increases transparency and awareness about the main risks. It provides a better basis from which to set priorities and also provides support in decision-making processes. The Group's ERM process is integrated with the strategy and budget processes. Information on the risks is compiled and reported at least twice a year to Executive Management and once a year to the Board of Directors. Below are some of the main identified risk areas with a brief description of how the risks are managed.

Risk   Description   Management
Risk relating to ICA Norway’s operations   ICA’s operations in Norway have had negative results for a long time. A strategic business plan has been produced to turn this trend around. Delays in implementing or an inability to implement parts of the strategic business plan could result in a continuation of the negative impact on the Group's earnings.   A significant element of the strategic business plan is a cooperation agreement with Norgesgruppen to reduce sourcing and distribution costs. The implementation of this cooperation agreement has been delayed pending a decision from the Norwegian Competition Authority. On 13 February, 2014 the Norwegian Competition Authority informed the Company in an advance ruling that it is to block the cooperation. ICA Norway has taken all possible steps to reduce sourcing costs and improve efficiency in existing distribution processes. Another important aspect of the strategic business plan consists of activities to improve store sales and operation. During the year ICA Norway has, among other things, reduced prices and improved marketing communication to raise the level of customer satisfaction and loyalty.
Risk relating to agreements with ICA retailers   Agreements with the Swedish ICA retailers are structured according to various generations of agreements involving different levels of revenue for ICA Sweden. A lower renewal rate for the agreements could, in the long term, impact the Group's operations and earnings. Furthermore, the Swedish ICA retailers are free to choose the product suppliers they use and any inability to offer products on competitive terms could have a significantly negative impact on operations and results.   ICA Gruppen and ICA retailers are engaged in an ongoing dialogue to ensure that products are offered on competitive terms and that agreements are in line with current conditions.
Market risk   ICA Gruppen’s operations and products are affected to a great extent by the general economic situation, changes in commodity prices and distribution costs. Significant changes in consumption patterns, such as increased online sales or actions by competitors may also reduce the market share, margins or increase price pressure.   By maintaining a dialogue with customers and ensuring the Group has sufficient resources for investments and product development, ICA Gruppen strives to offer prices, products, quality and service in line with customer demand. To deal with the increasing competition from online sales, the Group intends to launch an online solution in 2014.
IT-related risk   ICA Group’s operations are highly dependent on having efficient IT infrastructure. Any inability to ensure the Group has modern IT infrastructure that is appropriate for the Group's operations could have a significantly negative impact on the Group's operations and earnings. In addition, any disruptions resulting in extended operational interruptions or loss of important information could reduce the public’s confidence in ICA Gruppen and have a negative impact on the Group's earnings.   ICA Gruppen's current IT platform is complex and developing new functionality is very time-consuming and associated with potential accessibility or functionality problems as well as high costs. Planned platform replacement/upgrades will be carried out in stages over the next few years and will be preceded by an analysis of dependencies and tests to reduce risks associated with replacement. As part of its structured risk management work, the Group is engaged in ongoing activities to limit the number of system disruptions and the consequences of these. Training in information security and back-up routines reduces the risk of unauthorised access to or loss of information.
Distribution risk   ICA Gruppen’s distribution solutions vary from market to market. Access to efficient distribution in all the markets where the Group operates is essential if the Group is to reach its goals. In the event a significant supplier, haulage firm, warehouse or other party involved in the supply chain should strike, go bankrupt or otherwise cease to meet its obligations, this could have a negative impact on ICA Gruppen and could make it difficult to supply products for a period of time. The same applies if an interruption should occur as a result of lengthy disruption at or serious damage to any of the facilities.   ICA Group implements preventative measures to ensure a high degree of reliability and to ensure the Group is prepared to manage any distribution disruptions. One aspect of this is constant maintenance of facilities, employee training, risk inspections and measures to ensure that everything is in good order.
Personnel risk   ICA Gruppen’s ability to attract talented and dedicated employees is crucial if the Group is to develop in line with the strategic plan and achieve the established goals. If ICA Gruppen does not have access to employees with the right skills at the right time, operations and earnings could be negatively impacted.   By keeping track of dependency on key individuals and through constant professional development and strategic HR planning, ICA Gruppen can ensure it has knowledgeable and dedicated employees to develop the business and achieve the goals.
Sustainability risk   To meet the expectations of the market and customers as well as the Group's own goals, ICA Gruppen strives to constantly adapt the business to the increasing demands for transparency and sustainability as well as changes in laws. Any inability to work effectively on sustainability issues could reduce cost efficiency as well as customer confidence.   Sustainability issues are integrated into the day-to-day operations through ICA’s common values, ICA's Good Business. ICA Gruppen’s sustainability work is constantly being developed to reduce climate impact, improve energy efficiency and goods transportation, and ensure social responsibility in the distribution chain, food safety, health and well-being. Since 2009 the Group has worked in a structured way using tools and models to follow up and ensure compliance with the laws in effect and the Group’s common values. One aspect of this work is certification of sourcing, logistics and store processes.
Brand risks   A good reputation is of great importance in ICA Gruppen’s success. Should a product that is harmful to health or otherwise substandard be supplied by ICA Gruppen or sold by an ICA retailer, ICA Gruppen’s reputation could be negatively impacted. The same applies if ICA Gruppen, any of the Group's suppliers, distributors, other partners or any of the ICA retailers acts in a way that is in conflict with the values that ICA Gruppen represents.   ICA Gruppen’s values are summarised in the ICA's Good Business and are integrated into its operations. Combined with various other guidelines, these values support the employees in understanding how to act in interactions with customers, colleagues and suppliers. Since ICA's operation in Sweden consists of independent retailers who in varying degrees purchase products from suppliers other than ICA Sverige, the Group's ability to ensure adherence to the values can sometimes be limited. Through constant dialogue with ICA-handlarnas Förbund and ongoing training, the Group strives to achieve the highest level of adherence to its values.
Regulatory risk   Both retail and financial operations are subject to increasingly comprehensive and complex regulations. An inability to comply with laws or regulations as well as changes in the application or interpretation of existing laws and regulations could require ICA Gruppen to change its business methods, cause the loss of permits to operate or incur unforeseen costs. This could also affect the Company’s reputation among customers and shareholders.   Adapting the business to changes in laws and regulations is an ongoing process and is achieved by monitoring regulatory changes, through analysis and training and by producing policy documents. ICA Gruppen also maintains a dialogue with the regulatory authorities to keep them informed about the operations and to ensure the Group is in compliance with laws and regulations.
Financial risk   ICA Gruppen’s goal is to provide a good and stable return on investment over the long term and to reduce the level of debt. The ability to secure financing for the Group and to control financial exposure in line with policies and guidelines is essential if ICA Gruppen is to achieve its goals.   Financial risks such as interest rate risk, refinancing risk, liquidity risk, foreign currency risk, credit risk and commodity price risk are managed centrally by the Group's Treasury & Tax function in accordance with the policies set annually by the Board of Directors. For a more detailed description of established risk levels and how compliance with these is ensured, see Note 21.
Real estate related risks   To ensure access to attractive and appropriate retail locations, ICA Gruppen is engaged in both property management and property development. Shortcomings in property development or insufficient maintenance could lead to the violation of regulations and standards and could result in harm to people and/or buildings, increase costs and affect the value of the properties. Two other factors that may have a negative impact on the Group's earnings are failure by tenants to meet their financial obligations and significant changes in consumption patterns.   Through constant dialogue with the tenants, regular inspections and extensive investment, ICA Gruppen ensures that properties are well maintained and developed. Before decisions are made on major new construction or renovations, ICA Gruppen conducts risk analysis to identify and reduce risks associated with property development, e.g. environmental impact. A long-term plan to ensure access to strategic locations and that properties have a variety of tenants helps to maintain high occupancy rates for the Group's properties and keep rent levels in line with market norms.