Risk and risk management

Risk and risk management

Owning and managing properties means that operations are exposed to a variety of risks, both internal and external – or to uncertainties that may affect the Group’s ability to achieve objectives. Castellum therefore works with a regular and structured process to identify and actively monitor the full range of financial and non-financial risks that the Group encounters or has to take on. The Group’s risk management involves a structured process of decision-making with the aim of establishing a balance between the desire to limit uncertainty or risk and the task of generating growth and shareholder value.

Risks, exposure and risk management

Castellum defines risk as an uncertainty factor that may affect the ability to achieve company goals. Risk management involves a structured decision-making process with the aim of balancing the desire to limit uncertainty with achieving the objective. In order to assess the effect of identified risks, an internal risk rating is carried out where each risk is assessed, both from the perspective of impact and probability. This process determines whether the risk should be further monitored (Monitor), corrected (Focus) or handled through the standard review and management (Review).
To facilitate risk management, Castellum has chosen to classify risks into the following categories:

  • External environment – risks due to the influence of external factors and events
  • The real estate portfolio – risks associated with the ownership of Castellum’s real estate portfolio
  • Employees – risks associated with recruiting, training and retaining engaged and competent employees
  • Management – risks associated with everyday management of Castellum’s real estate holdings
  • Financing – Castellum’s financing risks
Reduced
Unchanged
Increased
  • Risk category
  • Risk
  • Impact
  • Probability
  • Priority
  • Development

External environment

External environment risks refer to risks due to the influence of external factors, mainly outside Castellum’s control, but to which Castellum has to relate. These risks can be divided into macroeconomic risks, crises and changes in legislation.

  • Macroeconomic risks
  • 1. Macro – crises

  • 1. Macro – crises

    External environment

    1. Macro – crises

    Close

    Risk

    Macroeconomic risks are risks associated with a general reduction in demand in the economy, low inflation, deflation or situations which entail general difficulties in obtaining financing – or funding at higher credit margins.

    • Risk category
    • Macroeconomic risks
    • Impact
    • Serious
    • Probability
    • Low
    • Priority
    • Focus
    • Development
    • Unchanged

    Risk management

    • Monitor world events
    • Strong balance sheet and low loan to value ratio
    • Well-composed contract portfolio with a wide spread regarding notice of termination, type of business, type of facility, contract size and geographical location
    • Deflation protection or a minimum upward adjustment of leases
    • Multiple sources of funding
    • Frequent renegotiations/new credit agreements
    • Property portfolio focused to growth areas
    • Natural macroeconomic hedging mechanism for higher/lower interest costs and rental income, but with some time delay

    Exposure

    A weak economy affects the demand for premises negatively, leading to increased vacancies, falling market rents and loss of indexation for existing leases. In addition, the risk of payment problems, or even bankruptcies, among tenants increases, resulting in immediate negative effects on cash flow. Limited access to funding reduces Castellum’s possibility to operate. Ultimately, reduced demand in the economy leads to declining property values.
  • Impact Serious
  • Probability Low
  • Priority Focus
  • Development Unchanged
  • Read more
  • Crises
  • 2. Crises

  • 2. Crises

    External environment

    2. Crises

    Close

    Risk

    Crises may include such events as terrorist attacks, cyber-attacks, extreme weather and environmental disaster, and information leakage.

    • Risk category
    • Crises
    • Impact
    • Medium
    • Probability
    • Possible
    • Priority
    • Monitor
    • Development
    • Unchanged

    Risk management

    • Crisis plan
    • Succession-planning for senior executives
    • Full value insurance properties
    • Guidelines for information security: create user understanding and awareness of information as an asset to be handled with care.
    • Continuity plan IT

    Exposure

    The risk is generally low, but Castellum could become indirectly affected by external factors and events.
  • Impact Medium
  • Probability Possible
  • Priority Monitor
  • Development Unchanged
  • Read more
  • Change in legislation
  • 3. Changes in legislation

  • 3. Changes in legislation

    External environment

    3. Changes in legislation

    Close

    Risk

    Changes in legislation or regulations, whether national or international, can affect Castellum. For example, tax law changes, new regulations for banks, plan process management etc.

    • Risk category
    • Change in legislation
    • Impact
    • Medium
    • Probability
    • Safe
    • Priority
    • Focus
    • Development
    • Increased

    Risk management

    • Monitor developments regarding laws, regulations, praxis etc., within areas most essential to Castellum.
    • Actively participate in public debate
    • Prepare Castellum for new legislation
    • Frequent renegotiation of credit agreements
    • Broaden the funding base through multiple sources of funding and financiers

    Exposure

    Changes in legislation may affect future investment opportunities, or lead to increased expenses, resulting in reduced future returns. New banking legislation may affect access to financing, cost of borrowed capital – and might trigger credit clauses that would lead to higher financing costs. Changes in tax rates and tax legislation – such as proposals regarding interest-deduction limitations, new regulations concerning tax depreciation and the prohibition for “bundling” of properties – may affect Castellum’s future tax expenses.
  • Impact Medium
  • Probability Safe
  • Priority Focus
  • Development Increased
  • Read more
  • 4. Regulatory compliance

  • 4. Regulatory compliance

    External environment

    4. Regulatory compliance

    Close

    Risk

    Lack of compliance could lead to financial losses, supervisory sanctions, loss of reputation, and – worst-case – to delisting. Some regulations are open to interpretation – (IFRS), which means that Castellum and a possible regulations supervisor may have different opinions.

    • Risk category
    • Change in legislation
    • Impact
    • Serious
    • Probability
    • Uncommon
    • Priority
    • Focus
    • Development
    • Unchanged

    Risk management

    • A corporate culture based on high ethical ideals
    • Strict internal control processes with several levels of quality assurance
    • Code of conduct
    • Competent and responsible employees
    • Closely following the development of legislation, praxis, court orders etc.
    • A compliance function, reporting directly to the Audit and Finance Committee
    • A whistleblower function

    Exposure

    It is crucial to the Group’s long-term success that Castellum’s operations are conducted in a responsible manner. Our business and our ability to continue to create value are based on the relationships between employees, customers, partners, investors, authorities etc. A sound relationship is based on trust, and Castellum will be worthy of trust. Together, all employees create the image of Castellum through our behaviour and what we communicate to others.
  • Impact Serious
  • Probability Uncommon
  • Priority Focus
  • Development Unchanged
  • Read more

Real estate portfolio

Real estate portfolio risks are risks associated with the ownership of Castellum’s real estate portfolio, which in turn can be divided into risks concerning the composition of the portfolio, investments and changes in property value.

  • Composition of the real estate portfolio
  • 5. Composition of the real estate portfolio

  • 5. Composition of the real estate portfolio

    Real estate portfolio

    5. Composition of the real estate portfolio

    Close

    Risk

    The composition of the portfolio can be affected at two levels: unfavourable geographical distribution – which means that Castellum owns properties in the wrong submarket, community or location with respect to, for example, future growth and current urbanization trend, – or: owning obsolete properties – i.e. a real estate portfolio that is not future-proof with regard to customer preferences, technical requirements, micro-location – or flexibility in usage and condition of contracts.

    • Risk category
    • Composition of the real estate portfolio
    • Impact
    • Large
    • Probability
    • Uncommon
    • Priority
    • Monitor
    • Development
    • Reduced

    Risk management

    • Macro analysis – regular reviews of submarkets regarding economic growth, rental market, cooperative climate, infrastructure investments, etc.
    • Annual review of the real estate portfolio regarding geographic exposure and property type
    • The Board’s adoption of an annual strategy document

    Exposure

    Castellum’s real estate portfolio is located in twenty cities. Currently, all locations are asses-sed as having the right conditions for continued holding or investments. Moreover, during 2014 and 2016, major transactions took place with the aim of creating better conditions for future cash flow growth. The Group’s real estate portfolio in the commer-cial real estate segment is distributed across office, warehouse and logistics. All segments are linked to growth possibilities.
  • Impact Large
  • Probability Uncommon
  • Priority Monitor
  • Development Reduced
  • Read more
  • 6. Obsolete product/property

  • 6. Obsolete product/property

    Real estate portfolio

    6. Obsolete product/property

    Close

    Risk

    A non- “future-proof” real estate portfolio may become obsolete due to customer preferences, technical requirements, micro-location or to flexibility in usage and condition of contracts. It entails a risk of increased vacancies and a decline in value as a result. Alternatively, large investment commitments.

    • Risk category
    • Composition of the real estate portfolio
    • Impact
    • Medium
    • Probability
    • Likely
    • Priority
    • Monitor
    • Development
    • Reduced

    Risk management

    • Follow the rental market and its development/supply
    • “Trend spotting”
    • Be close to customers to understand not only the needs of today but also those of tomorrow
    • Follow infrastructure investments
    • Participate actively in developing the area/submarket
    • Follow the development of technology
    • Ongoing investments in existing portfolio to “upgrade” and sell properties that are not deemed “right” from a future perspective.

    Exposure

    Castellum annually invests approx. SEK 4.5 billion, evenly distributed in a normal year between acquisitions, new constructions, extensions and reconstructions. In addition, the Group sells real estate for about SEK 0.5 billion a year when it is commercially justified.
  • Impact Medium
  • Probability Likely
  • Priority Monitor
  • Development Reduced
  • Read more
  • 7. Size – too big in a submarket/area

  • 7. Size – too big in a submarket/area

    Real estate portfolio

    7. Size – too big in a submarket/area

    Close

    Risk

    Becoming too big in a market segment or area may mean that the municipality or the outside world places higher demands on Castellum, for example: that the company has to take overall financial responsibility for an area regarding infrastructure etc.

    • Risk category
    • Composition of the real estate portfolio
    • Impact
    • Small
    • Probability
    • Uncommon
    • Priority
    • Review
    • Development
    • Unchanged

    Risk management

    • To be among the top three in each respective submarket
    • Follow market share, which is considered in the adopted investment strategy
    • Conduct annual analysis of the next three years to ascertain available growth opportunities

    Exposure

    The real estate portfolio is concentrated to selected submarkets, which are all considered stable, possessing favourable prospects for long-term positive development.
  • Impact Small
  • Probability Uncommon
  • Priority Review
  • Development Unchanged
  • Read more
  • Investments
  • 8. Investments

  • 8. Investments

    Real estate portfolio

    8. Investments

    Close

    Risk

    Erroneous investment strategy or, alternatively: inability to execute the selected investment strategy or to find profitable investment projects. Investments can be made either in the form of new constructions, extensions and reconstructions, or via acquisitions. Acquisitions of individual properties can be carried out directly as property acquisition, or indirectly in corporate form. Acquisitions may also be made on a larger scale, either in the form of portfolios for regions or category of properties, or in the form of strategic acquisitions of corporations, i.e. the purchase of an existing organization.

    • Risk category
    • Investments
    • Impact
    • Large
    • Probability
    • Likely
    • Priority
    • Focus
    • Development
    • Unchanged

    Risk management

    • Annual review and evaluation of the adopted investment strategy
    • Link investment decisions to the adopted
    • investment strategy to ensure the optimal decision is made
    • Several parallel investment discussions ongoing simultaneously
    • Post-investment follow-ups after three years
    • Risk-based model to determine the proportion of projects that may commence without ready customers
    • A structured decision-making process which analyzes market conditions and risks
    • Contract form that limits risk
    • Leasing agreements designed to limit the negative impact of unforeseen construction delays, additional requirements, etc. when leasing before construction starts
    • Quality assurance and evaluation of implemented projects
    • Quality assured due diligence process concerning legal, financial and tax issues
    • Introduction program for new employees

    Exposure

    Low-yield investments and/or lack of growth potential mean that the 10% income-growth objective for property management will not be achieved. Further, yearly net investments constitute a prerequisite for reaching the growth target, which in a highly competitive real estate market means increased risk that the investment strategy can’t be carried out. The risks associated with new constructions, extensions and reconstructions concern both technology issues in the form of construction risks – such as selecting suppliers, contract type, technical execution, etc. – and market issues in the form of rental and vacancy risks as well as miscalculations regarding potential rental level and customer requirements. In addition, there are risks in the form of negative environmental impact. Acquisitions via corporations also involve corporate-specific risks pertaining to the acquired companies, for example, taxes, litigations and environmental issues. Furthermore, the task of employee integration often accompanies the transfer of employees.
  • Impact Large
  • Probability Likely
  • Priority Focus
  • Development Unchanged
  • Read more
  • 9. Strategic acquisitions

  • 9. Strategic acquisitions

    Real estate portfolio

    9. Strategic acquisitions

    Close

    Risk

    Strategic acquisitions can be performed to obtain various advantages, but can also carry risks such as difficulties integrating operations and employees, a risk that management’s attention is drawn away from other important business issues, risks with a potentially new market that the acquirer has limited or no experience of, expenditures for any unknown or potential legal liabilities in the acquired company, as well as an overly expensive acquisition.

    • Risk category
    • Investments
    • Impact
    • Serious
    • Probability
    • Possible
    • Priority
    • Focus
    • Development
    • Unchanged

    Risk management

    • Due Diligence
    • Thorough planning and structured processes to incorporate a new company
    • Identify in advance the skills and market awareness needed
    • Identify key figures in well in advance
    • Access to the market’s best advisors

    Exposure

    Castellum has effective processes and skills (directly or indirectly via advisors) required for major strategic acquisitions. The acquisition of Norrporten 2016 resulted in an integration process between the two company cultures.
  • Impact Serious
  • Probability Possible
  • Priority Focus
  • Development Unchanged
  • Read more
  • Change in value
  • 10. Changes in value – real estate

  • 10. Changes in value – real estate

    Real estate portfolio

    10. Changes in value – real estate

    Close

    Risk

    Value changes can occur due to macroeconomic factors (see section above, on macroeconomic risks), microeconomic factors (usually the wrong submarket, district or location), or property- specific causes. In addition, there is also the risk of individual properties being incorrectly assessed. Whatever the reason, value changes affect both income statement and Castellum’s financial position including loan to value ratio.

    • Risk category
    • Change in value
    • Impact
    • Serious
    • Probability
    • Safe
    • Priority
    • Focus
    • Development
    • Unchanged

    Risk management

    • Strong balance sheet
    • A large number of properties, a geographically diversified real estate portfolio and great variation in lease agreements – concerted
    • actions which result in lower volatility of the real estate portfolio value
    • Continuous analysis of the transaction market and quarterly reviews of the valuation of the real estate portfolio help detect early warning signs
    • Internal quality assurance and internal control of internal valuations
    • Annual external valuation of at least 50% of the portfolio

    Exposure

    Large negative value changes can ultimately lead to the breaking of agreed terms and terminating credit agreements, thus resulting in higher borrowing costs, or – worst-case scenario – in utilized credits falling due for payment.
  • Impact Serious
  • Probability Safe
  • Priority Focus
  • Development Unchanged
  • Read more

Management

Property-management risks refer to risks connected with day-to-day management of Castellum’s property portfolio, which can directly influence the balance sheet. These can be categorized as rental income, property costs, taxes, sustainability, liability risk and reporting.

  • Rental income
  • 11. Rental income

  • 11. Rental income

    Management

    11. Rental income

    Close

    Risk

    Rental income is affected by many factors, both external and internal. External factors may include falling market rents, loss of indexation and bankruptcy (see section above on macroeconomic risks). Poor management can result in disgruntled tenants, unnecessary vacancies and customer loss caused by inability to offer customers what they want.

    • Risk category
    • Rental income
    • Impact
    • Medium
    • Probability
    • Uncommon
    • Priority
    • Monitor
    • Development
    • Unchanged

    Risk management

    • Maintain properties in growth areas and a contract portfolio with a large number of agreements – not dependent on a single tenant or business sector. Ensure a maturity structure spread over time
    • Proximity to customers and attentiveness to customers
    • Experienced and competent management and leasing staff who prevent notices of termination through active renegotiations before contract expiry
    • Competitor analysis; measure customer satisfaction and follow-up of net leasing
    • Strive for leases with an index clause with deflation protection and minimum indexation

    Exposure

    For Castellum, reduced income can be derived from lower rental value, i.e. loss of potential rent obtained from vacant premises, or from lower rental income, which is the actual rent received. Rental income is hence dependent on both the market rent of the property and on how Castellum handles vacancies. Reduced rental income ultimately leads to a decline in the value of the real estate portfolio. The acquisition of Norrporten 2016 results in a lower risk distribution in the contract portfolio due to a large proportion of public tenants as state, government and agencies and extended average lease length on the contracts.
  • Impact Medium
  • Probability Uncommon
  • Priority Monitor
  • Development Unchanged
  • Read more
  • 12. Disgruntled customers/tenants

  • 12. Disgruntled customers/tenants

    Management

    12. Disgruntled customers/tenants

    Close

    Risk

    The risk that several tenants or customers become disgruntled and leave the Group. The ability to attract new customers/tenants fails, with large vacancies and value decline as a result.

    • Risk category
    • Rental income
    • Impact
    • Serious
    • Probability
    • Low
    • Priority
    • Focus
    • Development
    • Unchanged

    Risk management

    • Proximity to customers and attentiveness to customers
    • Experienced and competent management and leasing staff
    • Annual measurement, Customer Satisfaction Index

    Exposure

    Castellum has a strong and clear customer focus, and it is important that the Group lives up to customer expectations. Hence, an annual Customer Satisfaction Index measurement is carried out.
  • Impact Serious
  • Probability Low
  • Priority Focus
  • Development Unchanged
  • Read more
  • Property costs
  • 3. Property costs

  • 3. Property costs

    Management

    3. Property costs

    Close

    Risk

    Risks concerning property costs mainly relate to cost increases beyond what Castellum can be compensated for through contractual rents, indexation and surcharge. It can also refer to unforeseen costs and extensive renovation needs.

    • Risk category
    • Property costs
    • Impact
    • Insignificant
    • Probability
    • Possible
    • Priority
    • Review
    • Development
    • Unchanged

    Risk management

    • High percentage of cost recharging
    • Compensation via minimum indexation
    • Continuous optimization of operations and efficiency efforts
    • Electricity hedging
    • Demarcation list landlord/tenant
    • Prevention of rental losses via background checks on customers and operating an “in-house” debt collecting business
    • Long-term maintenance planning, in order to optimize maintenance costs over time

    Exposure

    The price of electricity is determined by supply and demand in an open, deregulated and partly international market. Other media costs are partly controlled by local monopolies, which creates uncertainty in future costs. The basis for calculating ground rent levels may change in future renegotiations, and political decisions can change both tax rate and tax assessment value used for calculating property tax. Indirect costs for employees – such as payroll taxes and other obligations – could also be affected by political decisions.
  • Impact Insignificant
  • Probability Possible
  • Priority Review
  • Development Unchanged
  • Read more
  • Tax
  • 14. Tax

  • 14. Tax

    Management

    14. Tax

    Close

    Risk

    Castellum’s potential non-compliance with existing regulations or non-adaptation to changing regulations regarding income tax and VAT. Tax is also an important parameter in the context of calculation.

    • Risk category
    • Tax
    • Impact
    • Insignificant
    • Probability
    • Possible
    • Priority
    • Review
    • Development
    • Unchanged

    Risk management

    • Strict internal control processes and external quality assurance of, for example, income tax returns
    • Open claims regarding doubtful items
    • Continuous training of employees
    • Closely following the development of legislation, praxis and court orders

    Exposure

    Incorrect tax management might lead to erroneous tax being paid, to tax penalties and, in some cases, to qualified opinion. Poor fiscal management may lead either to an overestimation of the return – which means insufficient actual return. Or it could lead to an underestimation of the return, with the risk of a fundamentally profitable investment not being implemented.
  • Impact Insignificant
  • Probability Possible
  • Priority Review
  • Development Unchanged
  • Read more
  • Sustainability
  • 15. Operational environmental risks

  • 15. Operational environmental risks

    Management

    15. Operational environmental risks

    Close

    Risk

    Environmental risks directly related to Castellum activities can include physical environments, which affect people and properties, as well as prevailing prices for natural resources, in terms of materials and energy. Castellum estimates that risks related to increased commodity prices due to potential resource shortages will increase in the long term. For new construction, extensions and reconstruction there is also a risk that the materials and methods in current use could sub-sequently prove to cause damage in the future. In addition, Castellum might be affected by uncon-trollable variables, in the form of specific environ-mental policies and environmental opinion.

    • Risk category
    • Sustainability
    • Impact
    • Serious
    • Probability
    • Low
    • Priority
    • Focus
    • Development
    • Increased

    Risk management

    • Strict internal control processes and external quality assurance of, for example, income tax returns
    • Open claims regarding doubtful items
    • Continuous training of employees
    • Closely following the development of legislation, praxis and court orders

    Exposure

    Inadequate efforts in working with environmental risks could affect Castellum’s brand, legal compli-ance, and direct costs. Castellum works actively with environmental certification and environ- mental inventory to reduce environmental, climate and health risks. 29% of the real estate portfolio is certified and 82% has undergone environmental inventory. Efficient management – with a focus on decreased use of resources – reduces the risk of high cost, and environmental and health impacts, as well as providing custo-mers with a healthy working environment. Since 2007, energy consumption has been reduced by 27% and carbon dioxide emissions by 78%.
  • Impact Serious
  • Probability Low
  • Priority Focus
  • Development Increased
  • Read more
  • 16. Risks attributable to climate change

  • 16. Risks attributable to climate change

    Management

    16. Risks attributable to climate change

    Close

    Risk

    • Risk category
    • Sustainability
    • Impact
    • Medium
    • Probability
    • Possible
    • Priority
    • Monitor
    • Development
    • Unchanged

    Risk management

    • All investment issues are to be reviewed from a climate perspective, when assessing a property’s sensitivity to climate change
    • All new constructions will be environmentally certified
    • Prioritize environmental issues in all parts of the business
    • Monitor developments in laws and regulations

    Exposure

    Inadequate efforts in analyzing climate risks can lead to unforeseen and extensive costs for Castellum in the form of emergency measures or obsolete properties. Castellum is currently reviewing every investment issue from a climate perspective; we also work with environmental certification to reduce climate risks.
  • Impact Medium
  • Probability Possible
  • Priority Monitor
  • Development Unchanged
  • Read more
  • 17. Violation of Code of Conduct

  • 17. Violation of Code of Conduct

    Management

    17. Violation of Code of Conduct

    Close

    Risk

    For a major player in the construction and real estate industry, there are risks pertaining to working environment, corruption, and human rights. These risks can be found within the company, but also with retained suppliers and partners working on behalf of Castellum. This social responsibility risk can cause significant damage to Castellum’s operations and brand name.

    • Risk category
    • Sustainability
    • Impact
    • Serious
    • Probability
    • Low
    • Priority
    • Focus
    • Development
    • Increased

    Risk management

    • Compulsory training for Castellum employees on the internal code of conduct
    • Castellum’s Code of Conduct for suppliers to be incorporated into contracts
    • Compliance function to work systematically with follow-up and management
    • Whistleblower function
    • Compliance with standard procedures and documentation requirements

    Exposure

    There is some risk that a breach in code of conduct may exist internally as well as with hired suppliers and partners. Through well- integrated codes of conduct in the form of pro-curement requirements, mandatory training for all Castellum employees, an active compliance function and a whistleblower function, risk of violation is considered low.
  • Impact Serious
  • Probability Low
  • Priority Focus
  • Development Increased
  • Read more
  • Liability risks
  • 18. Liability risks

  • 18. Liability risks

    Management

    18. Liability risks

    Close

    Risk

    All ownerships entail responsibility. For Castellum’s part, the properties may be destroyed by fire, water, theft or other damage. Moreover, Castellum may – through negligence – cause damage to a person or to the property of another. The Company might also cause environmental damage for which it will become liable.

    • Risk category
    • Liability risks
    • Impact
    • Large
    • Probability
    • Possible
    • Priority
    • Monitor
    • Development
    • Unchanged

    Risk management

    • Preventive measures to minimize the risk of damage to property, person or environment
    • All properties will be covered by full value insurance
    • Subscribe to an insurance which covers liability and other economic losses
    • Environmental inventory of existing portfolio and when acquiring new properties in order to identify and address environmental and health risks

    Exposure

    Inadequate insurance coverage may result in unforeseen costs for Castellum. Liability and compensation for damage might also arise due to personal injury and third-party property damage, as well as for remediation of environmental damage.
  • Impact Large
  • Probability Possible
  • Priority Monitor
  • Development Unchanged
  • Read more
  • Reporting
  • 19. Reporting

  • 19. Reporting

    Management

    19. Reporting

    Close

    Risk

    The risk of an official report, in the form of interim reports or financial statements, which do not provide a true and fair view of Castellum’s operations, earnings and financial position.

    • Risk category
    • Reporting
    • Impact
    • Serious
    • Probability
    • Uncommon
    • Priority
    • Focus
    • Development
    • Reduced

    Risk management

    • A corporate culture based on high ethical ideals and orderliness
    • Close internal control with quality assurance at several levels
    • Skilled and experienced staff
    • Updated on development of regulations and able to implement changes in good time
    • A compliance function which reports directly to the Board’s Audit and Finance Committee
    • External audit full-year and half-year

    Exposure

    A misleading report would lead to bad will and a negative reputation in the market. This may lead to uncertainty among investors, increased risk premium and, ultimately, to a negative exchange rate impact, creating economic losses for Castellum’s current owners. Other effects include: investors may make incorrect investment decisions, regulators may exercise sanctions and, ultimately, the Castellum share may become delisted.
  • Impact Serious
  • Probability Uncommon
  • Priority Focus
  • Development Reduced
  • Read more

Employees

To recruit, develop and retain motivated and engaged employees is crucial to Castellum’s long-term success.

  • Employees
  • 20. Employees

  • 20. Employees

    Employees

    20. Employees

    Close

    Risk

    Employees are one of our most important assets – their decisions and actions run the business. The largest risk is to fail to recruit, develop and retain employees and senior executives with the right skills, which may lead to underachievement at Castellum.

    • Risk category
    • Employees
    • Impact
    • Serious
    • Probability
    • Likely
    • Priority
    • Monitor
    • Development
    • Reduced

    Risk management

    • Castellum’s common value-system
    • Open and transparent work environment
    • Skills and leadership development
    • Employee Satisfaction Survey (NMI)
    • Succession plan for key employees/management positions
    • Market and competitive remuneration
    • Analysis of employee turnover

    Exposure

    Bad hires in the wrong place, disgruntled employees, poor leadership and an organization that fails to encourage open dialogue and stimulate development can lead to employees being discontented, underperforming or quitting. In turn, dissatisfied employees and high employee turnover lead to increased costs, poorer customer relations, reduced internal efficiency and – ultimately – to lower profitability. Castellum is in a process of change with both reorganization and an integration of Norrporten in progress.
  • Impact Serious
  • Probability Likely
  • Priority Monitor
  • Development Reduced
  • Read more

Financing

Castellum’s single greatest risk is not to have access to financing. Lending conditions, as well as credit market rules can change quickly, thus affecting Castellum’s interest rate risks, financial costs and ability to extend existing credit agreements and sign new ones.

  • Financing
  • 21. Financing

  • 21. Financing

    Financing

    21. Financing

    Close

    Risk

    Liquidity and financing risk: Financing is either not available or conditions are very unfavourable at a given time. Selected capital structure: Castellum violating the 55% limit for LTV or the covenant of 65% could affect the market’s confidence in Castellum, with potential results: - violating the 55% limit for LTV leads to more expensive financing costs for some contracts - violating the 65% limit for covenants means that they expire for a number of contracts Interest rate risk: the risk that a change in market interest rate will affect income and cash flow. Castellum may violate the established mandate of an interest coverage ratio of no less than 200% or corresponding covenants of a minimum of 175%.

    • Risk category
    • Financing
    • Impact
    • Serious
    • Probability
    • Possible
    • Priority
    • Focus
    • Development
    • Unchanged

    Risk management

    • A finance policy defines that determines risk mandates
    • Liquidity reserves/unutilized credit facility
    • Multiple sources of financing (bank, MTN, commercial paper programs)
    • Several lenders, and only counterparties with high credit ratings
    • Continuous renegotiation of credit agreements
    • Security through pledged mortgages
    • Strong balance sheet
    • An interest-rate maturity structure spread over different terms
    • Long-term credit agreements with fixed margins
    • Revolving loans in order to obtain maximum flexibility
    • Only marketable instruments used in the market, so that listed prices can be obtained
    • Established formulas for handling calculations
    • Reconciliation between internal and external valuations
    • A compliance function to ensure independence

    Exposure

    Property ownership is a capital-intensive business that requires a well-functioning credit market. Access to finance is fundamental for Castellum and for continued growth. Insufficient liquidity reserves could result in Castellum missing out on business opportunities. Furthermore, all lenders are not equally strong financially, which means that counterparty risks are built into the system. Changes in capital structure might cause Castellum to violate the agreed-upon financial key ratios of the loan conditions, which would lead to more expensive loans or to credit agreements maturing. In addition, confidence in Castellum within the capital market could be negatively affected by not ensuring an appropriate capital structure. The market interest rate is affected by the Riksbank’s monetary policy, expectations of economic development – nationally as well as internationally – and other unforeseen events. The acquisition of Norrporten means a significantly larger credit portfolio, and thereby a increased refinancing risk.
  • Impact Serious
  • Probability Possible
  • Priority Focus
  • Development Unchanged
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  • Change in value
  • 22. Changes in value – derivatives

  • 22. Changes in value – derivatives

    Financing

    22. Changes in value – derivatives

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    Risk

    Changes in value of Castellum’s interest-rate derivatives or currency derivatives arising from changes in market interest rate or from the exchange rates between SEK/DKK.

    • Risk category
    • Change in value
    • Impact
    • Medium
    • Probability
    • Likely
    • Priority
    • Monitor
    • Development
    • Unchanged

    Risk management

    • A financial policy regarding fixed interest terms and currency risks
    • Marketable instruments – exclusively – used in the market, so that listed prices can be obtained
    • Established formulas for handling calculations
    • Reconciliation between internal and external valuations
    • A compliance function to ensure independence

    Exposure

    Changes in market interest rate and exchange rates affect the market value of the derivatives portfolio. Improper valuation of derivatives may provide an inaccurate picture of the Group’s financial position.
  • Impact Medium
  • Probability Likely
  • Priority Monitor
  • Development Unchanged
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