Risk and control

Risk management

All business involves risks. Managing risks is necessary in order for Attendo to be able to follow its strategies and achieve its corporate objective. Risk management, work with identifying, managing and monitoring risks, is thus a vital part of Attendo’s business. Managers for support functions and Business Area Directors are responsible for risk management within the framework of their area of responsibility. Attendo has a Group-wide function for managing risk assessment and internal control, which shall function as support for the support functions and the business areas in their work with risks and internal controls.

The objective of the internal control function is to create a Group-wide risk assessment, and based on this, implement control tools within the framework of Attendo’s strategic goals that create good control of critical processes. The work is based on an annual plan approved by the Audit Committee. A risk assessment is conducted annually for the whole Group as well as on the business area levels based on both operational and financial risks.

Industry and market risks

Risks are a natural element of business and entrepreneurship. Managing risks is part of Attendo’s daily work to prevent damages from arising as well as to limit such damages as do occur.

Market risks

The market for health and social care is characterised by competition with a number of major and several minor actors. This creates risks regarding both growth and price trends. Therefore, Attendo must continuously develop its operations in order to be able to offer the clients the best possible care and health care from a quality perspective, and at a competitive price.

Political risks

The majority of the care and health care in the markets where Attendo operates are based on public financing and provided by the municipalities. Municipalities allow, to varying degrees, private companies to provide care and health care to improve quality and economy, and to create a change in the business. As a rule this is handled by the municipality turning over the responsibility for a operation that was previously run by the municipality to a private care provider through public procurement of a contracts. The choice of production model is dependent on political decisions, which means that Attendo’s growth opportunities are dependent on politicians’ views on how care and health care should be carried out.

Political decisions that lead to changes in legislation can have a significant effect on Attendo’s business. The legislative process in the countries where Attendo is active, is transparent, which means that legislative changes are normally known well in advance of their implementation.

In 2014, the Swedish government and the Left Party reached an agreement to investigate the possibility of limiting the freedom of choice and profit distributions in schools, and health and social care. This agreement created significant uncertainty on the conditions for investing in Swedish welfare. This results in that important questions such as quality development, innovation and long-term competence supply in Swedish welfare, will not receive adequate attention. This is particularly unfortunate given the challenges Sweden is facing with increasing health and social care needs, at the same time as citizens are placing greater demands on diversity, choice and access.

The inquiry was launched in March 2015, and is to present its proposals no later that November 1, 2016. At this time, it is difficult to determine what conclusions an inquiry will be, which possible propositions the inquiry will lead to and what parliamentary support these propositions will receive in the Swedish Parliament.

Operational risks

Demands for quality and safety in care and health care come from different directions, from public agencies, customers, clients and their families. Attendo itself, sets extremely high standards on its operations within these areas. Continuous work to improve the quality and safety for clients in our operations is a key factor for Attendo’s success. These areas have therefore an unequivocal and central place in the Group’s strategy work.

The formal starting point for high quality and safety are established by the regulations in laws and ordinances that regulate Attendo’s business in the countries where Attendo operates. The regulations primarily encompass social services, health and medical care as well as care for people with disabilities, but also include a number of other regulations and ordinances. In addition to this, Attendo carefully follows the development in quality and safety area, both nationally and internationally. Attendo leads and governs the operations through quality systems where quality, work environment, safety and the environment are integrated. Attendo has designed a clear structure for the quality work, a system with routines, guidelines and documentation.

Attendo’s experience is that good routines provide more time for the individual person, as we avoid finding new solutions for each situation and can give “that little extra” that we know means so much to the individual’s experience. At the same time, routines make it possible to plan, follow-up and develop the services.

Human capital risks

Access to competent employees is a key factor for Attendo's business. Attendo continuously works to develop models to attract, develop and maintain competent and committed employees.

Pricing risks

As a large number of Attendo’s customer contracts extend over several years, price setting within the contract involves an economic risk. Attendo’s price setting is based on internally developed and proven models and processes that have been developed to minimise risks for incorrect price setting. The largest expense item in the operation is wages. Strong wage increases could therefore result in financial risks for the company. Most customer contracts are, however, linked to labour indexes or similar indexes, which result in price development following wages expense development in the long-term.

Contract risks

Attendo’s operations include a large number of commercial customers and supplier agreements. Customer agreements usually extend over a period of 2–5 years. Attendo’s operations are, however, not dependent on any single commercial agreement. Attendo utilises help from external lawyers to address specific contractual risks when drawing up contracts. Responsibility and termination risks are covered by insurances that are drawn up and designed in cooperation with external insurance advisers. There is, however, a certain risk that a situation can arise that is not covered by an insurance, which in itself can result in an economic loss. However, the large number of operations within the Group limit this risk.

Leasing contract risks

Attendo’s services within its in-house operations are offered in its own homes and facilities. The greater portion of these homes and facilities are leased by Attendo from its real estate partners, which means that Attendo enters into multi-year leases. If the demand for Attendo’s services should be low, then legal actions resulting from multi-year leases create an economic risk. Attendo has in-house developed models and processes to minimise the risk that multi-year leasing contracts are entered into in regions and areas where the demand for Attendo’s services is unfavourable.

Acquisition risks

Attendo mainly acquires smaller companies and units within the business areas that the company has good knowledge of. Attendo has a structured and systematic work method that requires analysis, documentation and Board decisions prior to each individual acquisition, which is why the risks are limited

Property risks

Attendo’s activities are operated in facilities provided by the procurer and in facilities that are leased or owned by Attendo. In cases where Attendo owns or is responsible for real property, the company has real property insurances that are drawn up and designed in cooperation with external insurance advisers.

Financial risks

The Group is through its operatios exposed to a number of financial risks such as foreign exchange rate risks, interest rate risks, credit risks, financial counterparty risks, liquidity and financing risks. The Group’s comprehensive risk management policy focuses on unpredictability on the financial markets and strives to minimise potentially unfavourable effects on the Group’s financial results. Risk management is handled by a central finance department in accordance with established principles.

Foreign exchange rate risks

The Group is active internationally and is thereby exposed to foreign exchange risks from different currency exposures, especially with regard to the Euro but also the Norwegian krona and Danish krona. The foreign exchange rate risks are divided into transaction risks and translation risks. As purchasing and invoicing mainly occur in the respective country’s currency, the transactions risk for Attendo is insignificant. The Groups results are affected by translation of foreign subsidiaries’ income statements, where the translation is done to the financial year’s average rate. In cases where the foreign subsidiary’s local currency changes in relation to SEK, the Group’s reported revenue and earnings that are translated to SEK changes. Furthermore, currency risk arises through translation of assets and liabilities reported in foreign operations. The exposure in Euro is in this respect essential and investment in Finland has partly been hedged by borrowing in Euro (net investment hedge). As currency exposure in Norwegian krona and Danish krone is not of a significant nature, there is no currency hedging of these translation risks.

Interest rate risks

The Group’s interest rate risks are primarily related to the Group’s long-term borrowings and bank balances in Nordic commercial banks. At the end of the financial year, 100 per cent of the borrowings were at variable interest rates. To reduce the risk of borrowing at variable interest rates, interest rate swap agreements were entered into.

Credit risks

Customer credit risks consist of outstanding accounts receivables and non-invoiced services rendered to Attendo’s customers. Attendo’s ¬customer are mainly municipalities, which are deemed to have very high creditworthiness. The risk for customer credit losses within the Group are therefore deemed to be limited.

Financial counterparty risks

Financial counterparty risks refers to exposure in the form of investments of surplus cash and derivative contracts with banks and financial institutes. Liquid assets are only invested in government securities or banks with high official credit ratings. Derivative contracts are only entered into with banks with a credit rating of at least A1/P1 and with which Attendo has a long-term customer relationship.

Liquidity and financing risks

The liquidity risk refers to the risk that Attendo cannot meet its payment obligations. Attendo manages its liquidity risk by maintaining a liquidity reserve (cash, bank balances and the unused portions of existing credit). The financial risk refers to the risk that financing of outstanding loans cannot be carried out or becomes more expensive. The Finance Department strives to have financing where the credits come due on different dates and by keeping committed credit lines available.