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FERRONORDIC ANNUAL REPORT 2021
expected to continue as a result of the current conict and the sanctions against
Russia. As early as 2014, the Russian government introduced a decree that pre-
vents state and municipal organisations from buying foreign construction machinery
if there are Russian produced equivalents. The decree has had only a limited
impact on the Group’s operations, but similar and more comprehensive regula-
tions can be introduced in response to sanctions and as part of an economic and
industrial economic policy and have a signicant negative impact on the Group’s
operations, nancial position and results.
Russia has also warned that assets of companies that choose to leave Russia
may be administered by Russian authorities to reduce negative effects on Russian
business and employment. Rules and regulations for such administration can leave
wide scope for different interpretations and entail signicant risks for companies
operating in Russia.
Legal system and legal procedures
The legal systems of Russia and Kazakhstan are relatively unstable. Many laws
and regulations are relatively new. Some of these contain ambiguous wording and
their application can be interpreted in different ways. In addition, there are often
discrepancies between laws and regulations at different levels.
Lack of legal or administrative guidance to interpret applicable rules, lack of
legal precedents, relatively unstable and immature legal systems, lack of inde-
pendence vis-à-vis political and commercial interests, relatively untested application
of recently adopted legislation and its impact on complex commercial agreements,
corruption in the legal system, gaps in the legal regulatory environment due to
delays in or lack of implementation of legislation, and undeveloped bankruptcy
proceedings can all affect the Group’s ability to protect and enforce its legal rights,
as well as to protect itself against legal claims.
Corruption
Media have reported on widespread corruption in Russia and Kazakhstan. Media
reports have also described cases where government ofcials have initiated targeted
investigations and prosecutions to promote the interests of the government or
certain individuals or companies.
Ferronordic adheres to the Group’s code of conduct and to strict standards of
business ethics. The Group has procedures to counter risks of corruption, cases
of illegal activity, demands from corrupt ofcials, allegations that the Group or its
management has been involved in corruption or illegal activities and biased articles
and negative publicity. Notwithstanding such procedures, corruption and unethical
behaviour can have adverse negative effect on the Group’s operations, earnings
and nancial position.
Environmental risks
Environmental legislation may impose obligations or nes on property owners
and business operators that violate certain standards or cause certain harm to
the environment. Ferronordic strives to be a leader and set the standards in terms
of sustainability and minimising ecological footprint. No guarantees can however
be given that the Group’s properties do not contain undetected pollution or that
authorities could claim that its operations conict with licenses or environmental
regulations. New and changing regulation could result in the Group’s properties (or
properties that have previously been owned or operated by the Group) being sub-
jected to stricter audits than previously. Ferronordic may become subject of claims
for damages regarding environmental liability. An unfavourable outcome of such
proceedings may result in civil, administrative or criminal law liability for the Group
or its executives. Changes to laws and their application regarding the environment,
health and safety may entail costs and obligations and have adverse negative
effect on the Group’s operations, earnings and nancial position.
Tax system
For information on risks associated with the Russian and Kazakh tax systems,
please see Note 25.
Variations in economic activity
The Group’s products are to a large extent used in connection with construction
and industrial operations. An economic downturn, and in particular a weakened
development in the road and construction industry or reduced industrial activity
could consequently lead to a signicant reduction in demand for the Group’s
products.
Furthermore, the Group’s market is affected by changes in the price of com-
modities as well as the market for extraction and processing of natural resources.
Declining commodity prices or a weaker market for natural resources could there-
fore have an adverse effect on the Group’s operations.
The Group’s business could also be adversely affected (either temporarily
or in the long term) by a decline in customers’ expenditure and investment levels,
unfavourable credit markets that negatively affect end customers’ nancing oppor-
tunities, reduced investments in infrastructure projects at local and federal level,
increased costs for building materials, as well as increased interest rates. Down-
turns in the construction and industrial sectors as a result of the above-mentioned
or other factors may have an adverse impact on the Group’s business, earnings
and nancial position. Demand for spare parts and service is less sensitive to the
economic cycle than machine sales. The new and far-reaching sanctions imposed
on Russia following the conict in Ukraine and Russia’s counter-sanctions have
created signicant economic uncertainty and intensied such risks.
Since the outbreak of the Covid-19 pandemic, authorities have issued
recommendations and regulations to restrict mobility and social contacts to limit
the spread of the virus, which has had an adverse effect on the Group’s business.
Companies, including Ferronordic’s suppliers, competitors and customers, have taken
measures to adapt to an uncertain business environment. Extensive vaccination
programs have reduced such risks, but vaccination levels in Russia and Kazakhstan
are lower than in many other countries, which increases the risk of new outbreaks.
The path of the virus and measures to stop it cannot be predicted and Ferronordic
cannot rule out further disruptions on the supply or demand side of the Group’s
business.
Capacity utilisation
The Group has continuously expanded its network and infrastructure. An unfore-
seen decline in capacity utilisation, e.g. as a result of economic downturn, discon-
tinuation of certain products etc., generally results in decreased sales which in the
short term cannot be offset by a corresponding cost reduction.
Formal
annual report
Formal annual report
Directors’ report
Risks and uncertainties
Financial reports
Notes
Board signatures
Auditor’s report
Introduction Operations
Market outlook Sustainability The share
Corporate
governance