The greatest risks in Tecnomen’s operations are related to major customer and partner relationships, to agreements made with these partners, and to the correct timing and success of its product development decisions.
Tecnomen’s largest customers are much bigger businesses than the company itself and the five largest customers account for more than half of net sales. The relationship between the company and its major customers is one of interdependence, which poses a potential risk but also offers significant new business opportunities.
Certain commitments are associated with the project and maintenance agreements made by the company, and unforeseen costs may arise in the future from these agreements. The company aims to limit these liabilities with limitation of liability clauses in customer contracts. In addition the company has a current global liability insurance to cover liabilities that may materialise in connection with customer projects.
Project deliveries result in significant accounts receivable. The payment record of customers and the situation concerning receivables are actively monitored and credit rating checks are made on new customers before confirming an offer.
Changes in exchange rates create risks especially for sales activities. A significant part of the company’s net sales is in US dollars. The company hedges its currency denominated net position of cash flow for a maximum period of 12 months. Currency forward contracts and options are used as hedging instruments. Liquid funds are invested, avoiding credit and liquidity risks, in money-market deposits and short-term interest funds with a good credit rating.
Carrying out projects creates risks. They are contained for example in projects that require new product development, where creating new product features may prove more difficult than anticipated. Another problem with project sales arises from variations in net sales and profit during the different quarters of the year. Forecasting these variations is often difficult.
Tecnomen operates in a rapidly changing sector. When making R&D decisions there is the risk of making choices which do not necessarily have the expected return.