Since a number of external and internal factors influence Net Insight’s operations and earnings, the company relies on a continuous process of identifying existing risks and assessing how each risk should be managed. The risks the company is exposed to include market-related risks and operational risks connected to sustainability and financial risks.

The outbreak of the Covid-19 pandemic which started in Q1 2020 has had far-reaching effects on society and the economy, and also affected Net Insight in 2020. We assess that the company will be negatively affected in the first half of 2021. As of the reporting date, we do not assess that Covid-19 has or will have a material impact on the company’s assets. However, it is difficult to predict how the situation with Covid-19 will progress and the company continuously monitors the situation and the need for new measures.

Net Insight’s overarching strategy in this extraordinary situation is to ride out the storm – prioritize R&D and continue to drive strategic development projects, protect the company’s financial position through active cost control and prepare a rapid increase in activity as the signs of market recovery emerge.

Risk assessment summary

The following table shows Net Insight’s own assessment of the likelihood of Net Insight being affected by the various operational risks described in this section, and the estimated consequences of these risks. The assessment does not claim to be exhaustive but merely serves as an illustration.

Market-related risks

Competition and technology

Net Insight operates in a dynamic industry characterized by rapid technological progress and intense competition. Failing to keep pace with technological progress or making incorrect technological investments would exert a negative impact on revenues and profit.

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The risk of an unexpected forward leap in technology rendering the company’s products obsolete is considered low. The risk of making erroneous technological investments is also considered low in the areas where the company has been active for some time. In areas where there is new technology on a new market, the risk is higher. The skills and competence of Net Insight’s development staff, combined with market research, competitor monitoring, and close collaborations with large customers, help keep Net Insight well informed and up to date on relevant technology and market trends.

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Political risks and international exposure

Net Insight has customers in more than 70 countries. A broad global presence is vital for running and growing the business, but also implies a certain number of risks.

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Rapid changes in the political climate, specifically in politically instable countries can result in suspension of payments. Geographical expansion is preceded by a risk identification process on each relevant market that evaluates payment instruments and commercial conditions to mitigate risks as far as possible. Some countries are exposed to corruption which can significantly harm the company’s brand. Net Insight has a zero-tolerance approach towards corruption and expects its collaboration partners to act accordingly. When Net Insight enters into a new partnership the company performs background checks and ensures that commercial terms in the partnership agreement are in line with global partnership agreements. Staff potentially exposed to corruption receive training in the matter.

Some countries have export prohibition or export restrictions. Net Insight has well established routines and system support to ensure compliance with these regulations and restrictions. Operating in, and exporting to, several markets involves compliance with a large number of laws and regulations which can make export complicated. This specifically comprises tax, customs, employee rights, technology standards and reporting standards. Net Insight has extensive internal expertise in the areas above but often also consults external experts.

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Risks related to operations

Product liability, intellectual property rights and litigation

Potential defects in Net Insight’s products could lead to claims for compensation and damages. The company is considered to possess adequate product liability insurance coverage, accordingly direct risks are considered limited. Products also undergo extensive testing and verification in the development process and in the shipping process before products are sent to customers.

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Net Insight continuously seeks to protect its corporate name, trademarks and brands, it is well prepared for any infringement litigation through insurance coverage, and with the aid of internal expertise in its corporate legal department and external legal counsel. Neither Net Insight AB (publ) nor its subsidiaries are currently involved in any litigation processes, legal or arbitration procedures.

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Customer dependency and contract risks

If one of Net Insight’s larger customers became insolvent or changed supplier, this would have a manageable impact on Net Insight’s earnings. A growing customer base and relatively high cost to customers to change suppliers limits this risk. To limit customer-related risks further, Net Insight continuously endeavors to exceed customer expectations in terms of the technology performance and quality of its products, as well as its level of customer service.

Supplier risk

Net Insight is dependent on a limited number of suppliers for components and production. To mitigate the effects of potential supply chain disruptions, the company has consequential loss coverage, maintains dialogue with alternative suppliers, and ensures that the relevant preferred suppliers have prepared disruption plans.

Competence risks

Net Insight’s operations involves advanced technology in complex global situations where skilled, competent and motivated staff is needed to ensure the company’s competitiveness.

The competition to attract the best resources is strong and the risk of losing skilled staff is always present. Similarly, the ability to continue attracting new competent staff is crucial.

Net Insight has implemented processes and guidelines to ensure competence training and support in form of staff appraisal, employee surveys, compensation packages and training.

Financial risk factors

Net Insight is exposed to various financial risks: market risk (including foreign currency risk, fair value interest risk, cash flow interest risk, and price risk), credit risk, and liquidity risk. Foreign currency risk is predominant and the Board assesses that Net Insight is primarily exposed to the following financial risks:

Foreign currency risk

Foreign currency risk is defined as the risk of decreased earnings and/or decreased monetary flows due to fluctuations in exchange rates.

Changes in exchange rates affect the group’s earnings and equity in different ways:

  • Earnings are affected when sales and purchases are in different currencies (transaction exposure)
  • Earnings are affected when assets and liabilities are in different currencies (translation exposure)
  • Equity is affected when foreign subsidiaries’ net assets are translated into Swedish kronor (SEK) (translation exposure in the Balance Sheet).

Transaction exposure

Net Insight is highly internationalized with most of its sales denominated in EUR and USD. Purchasing of components is mainly in SEK, but is up to some 71 percent linked to the USD and to some 12 percent linked to the EUR. Currency risks are managed in accordance with the finance policy, as adopted by the Board of Directors.

Translation exposure

Average rates of exchange for the period are used for translating foreign subsidiaries’ Income Statements. The most significant currency in this context is USD.

Liquidity risk

Liquidity risk means that Net Insight cannot sell a financial instrument at market price, or only subject to significantly increased costs, when paying it’s financial liabilities . Net Insight’s policy is to only invest cash and cash equivalents in banks or financial institutions with a credit rating of at least P1 or A+ (Moody’s or equivalent). Liquidity may not be invested for more than 12 months, and the investment terms must at all times reflect the capital requirements of the company. All reported accounts payable are due within three years and show the undiscounted amount.

Interest risk

Interest risk is the risk that the value of a financial instrument varies due to changes in market rates. Net Insight’s interest risk is low because its need for external financing has been limited. Cash and cash equivalents are normally invested with a fixed-interest period from two weeks up to six months.

Management of capital

The group’s capital structure objectives are to secure continuous operations, generate returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to keep capital down.

Credit risk

Credit risk means that a party in a transaction with a financial instrument cannot fulfill its commitment. The company’s customers are generally large, well-established, highly solvent companies spread over several geographical markets. There is no significant concentration of credit risks either geographically or on any particular customer segment. To limit the risks of potential credit losses, the company’s credit policy includes guidelines and regulations for credit checks on new customers, terms of payment, and procedures for handling unpaid claims.