Risk management

Risk management is an essential part of Hydratec Industries’ business strategy. The overriding objective is to identify and mitigate risks with a potential major impact on our achieving our strategic and financial goals, and therefore on the overall value of our business. Hydratec Industries has a culture of entrepreneurship where employees’ personal responsibility, independence and ownership come first. We are always seeking a balance between our entrepreneurial spirit and risk-taking. An effective risk management system is crucial in this regard. Final responsibility for risk management lies with the Management Board. By making risks visible, measures can be taken to manage them. The Management Board, management, Audit Committee and Supervisory Board ensure a culture in which everyone feels free to deal with risks responsibly.

Strategic and operational decisions are targeted at creating sustainable value. This prevents decisions being made that serve only short-term gains and destroy value in the longer term. The benefit of this approach is that it ensures that risk management is solidly integrated into and inextricably linked to operations. The risk assessment system is evaluated every year during the strategic evaluation with the Supervisory Board to check that the system continues to perform adequately or whether it requires adjustments.

The main risks are identified and placed in four categories: strategic, operational, financial and compliance.

We have estimated the possible impact of each risk or risk area on the organisation and the likelihood of the risk occurring. The impact involves financial and non-financial factors. It is the Management Board’s job to balance business opportunities against the expectations and interests of shareholders, employees, finance providers, regulators and other stakeholders.
Our risk appetite is subsequently disclosed for each category. We explicitly look for a balance between acceptable risk and entrepreneurship in the context of long-term value creation.
And finally, we have indicated the measures we take for each gross risk to arrive at the acceptable net risk. These measures have been further improved to mitigate risks to an acceptable level.

Risk assessment

To provide a schematic overview of our net risks, an estimate of the impact and likelihood of each risk or risk area is provided in the graph below. The risks have both a financial and a non-financial impact. For the financial instruments used, please refer to section 1.41 of the financial statements.

Risk appetite

Hydratec specifically tries to strike a balance between acceptable risk on the one hand and entrepreneurship and long-term value creation on the other. Risk appetite is related to probability and impact. Our risk appetite for each risk category:

Category	Category description	Risk appetite
Strategic	Risks affecting Hydratec’s long-term positioning and performance	Medium - Hydratec is willing to take risks that allow us to responsibly pursue the interests of our stakeholders and our long-term goals. These should support our growth ambition, taking into account our financial position.
Financial	Risks affecting Hydratec’s financial performance	Low - Hydratec has a low financial risk appetite. Hydratec aims to have a financial position that supports long-term goals and rewards our stakeholders.
Operational	Risks affecting internal processes, people, systems and/or external issues affecting strategic goals	Medium - Hydratec has an average risk appetite with regard to operational risks in order to pursue strategic goals that do not compromise operational efficiency.
Compliance	Risk of non-compliance with laws and regulations, internal processes and procedures in a broad sense.	Low - Hydratec and its employees strive to comply with laws and regulations at all times.

Measures to mitigate risks

To align the risks to be run by Hydratec with the risk appetite, the following measures have been taken per risk. The risks are grouped into the four categories mentioned above.

Strategy

Risk	Name	Description	Mitigating measures
1	Market & geopolitics	Economic and geopolitical developments affect the implementation of the strategy, financial position and the results.	•	Spread operations across several companies, products and countries.
			•	Flexible cost structure.
			•	Maintain a strong financial balance sheet.
2	Technology & innovation	Insufficient technological development and innovation.	•	Ongoing attention to and resources for innovating and implementing the R&D roadmap.
	Technology & innovation	Insufficient technological development and innovation.	•	Focus on food, health and mobility.
3	M&A agenda	Unsuccessful integration and/or operation of businesses acquired.	•	Thorough multidisciplinary preliminary research.
			•	Acquisition guidelines.
			•	Procedures and guidelines for implementing the due diligence process.
			•	Engaging external expert.
			•	Fast integration and harmonisation in the reporting and management systems and of business processes.

Financial

Risk	Name	Description	Mitigating measure
4	Currency	Volatility of currencies putting profit margins under pressure.	•	Hedging currency risks by means of forward exchange contracts.
5	Supply chain	Supply chain restrictions resulting in limited availability of materials and volatility of material prices exerting pressure on revenue and margins	•	Price movements are set off in the selling price as much as possible.
			•	Strategic procurement from several suppliers
			•	Margin analyses.
			•	Internal efficiency and cost-saving programmes.
6	Reporting	Risk that reporting contains material errors and does not comply with laws and regulations.	•	Internal procedures and guidelines for internal and external financial reporting.
			•	Education and training.

Operational

Risk	Name	Description	Mitigating measure
7	Project management	Risk that projects are not delivered consistent with specifications, agreements and planned margins.	•	Invest in qualified staff.
			•	Educate and train staff.
			•	Guidelines and procedures for project management and project accounting.
8	IT & security	Risk of breaching availability, confidentiality and integrity of data (including IP).	•	IT control framework.
			•	Exchange of knowledge between various IT managers.
			•	Strict procedures when systems fail or malfunction.
			•	Ongoing attention to cybersecurity and awareness among employees.
9	Personnel	Shortage of well-qualified staff, inability to retain qualified staff and high absenteeism.	•	Talent management programme and personnel management.
			•	Educate and train staff.
			•	Use good reputation to recruit talent.
			•	Partnership programmes with educational institutes.
10	Economic crisis	Declining consumer confidence and rising interest rates could lead to low investment appetite.	•	Flexible cost structure.
			•	Internal efficiency and cost-saving programmes.
			•	Product development to make replacement investments more attractive to customers.
			•	Operating capital management.
11	Product liability	Faults in the production process or technology which may lead to a loss of quality and discontinuity.	•	Strict quality standards and certification.
			•	Risk Identification and Assessment.
			•	Fire and other insurance.
			•	Standardisation of products and processes.

Compliance

Risk	Name	Description	Mitigating measure
12	Legal	Loss or damage (including reputational) due to being in breach of the law and regulations, including in matters relating to export and sanction regulations, unfair competition, fraud, bribery and corruption.	•	Internal compliance guidelines.
			•	UBO and background check.
			•	Signed agreement with agents.
			•	Signed code of conduct applicable to agents.
			•	Control over beneficiary of compensation to agents.
			•	Regular workshops on the risk of fraud.
			•	Code of conduct for all personnel.
			•	Internal guidelines pertaining to complying with environmental legislation.
13	Taxation	Loss or damage (including reputational) due to being in breach of tax laws and regulations.	•	Monitoring compliance and development of tax laws and regulations.
			•	Making use of external tax consultants
			•	Tax Control Framework.

Previous Remuneration

Next In control statement