Business opportunities and risks

As a global organisation, we have many business opportunities yet face various types of risk, which may have a greater or lower impact on the Group. The risks are mainly defined as factors that can affect our ability to achieve the targets set for the Group. This applies both to financial targets and sustainability goals and goals in other areas. Our ability to manage different risks also determines our success, that is, our ability to achieve and even surpass the set goals.

Structure and value chain

NIBE’s organisational structure, with dispersed global operations, helps to reduce risk. NIBE operates in three business areas that deliver wholly or partly to different customer segments and end users. The operations are, therefore, affected differently in the business

cycle and the competitive landscape varies. Sales through many different channels and distribution routes increase flexibility.

Our operations have a substantial geographical spread, with companies and a market presence throughout the world. Having production units in different currency zones provides great flexibility and increases our competitiveness.

Risk management

The Board decides the Group’s strategic direction based on Group management’s recommendations. Responsibility for long-term and overall risk management follows NIBE’s organisational structure. To counteract the effects of the various business risks facing the company, NIBE takes a systematic, proactive approach. The common framework and the NIBE internal control standard (NICS) tool were created to secure the process and facilitate ongoing efforts.

In accordance with NICS, the process starts locally and then rolls up to Group level. Risks and opportunities are divided into four sections: business, finance, IT and sustainability.

Identified risks are classified according to the probability that the risk materialises and how the criteria are met, after which action plans are drawn up. The outcome is evaluated annually at Board level,

after which decisions are taken concerning prioritised issues in the different areas.

NIBE’s business risks are managed locally at the company level but are coordinated if deemed necessary. The tools consist mainly of

the companies’ current reporting, risk assessment, risk management and action plans.

Financial risks are managed in accordance with the Group’s financial policy and manuals governing annual accounts, system access, authorisation routines and system changes. Sustainability and IT

risks are largely coordinated at Group level, but risk assessment and action plans are designed and implemented locally by each company’s Board. These risks are managed in accordance with our values and guidelines. We are also continuing our work on development of risk scenarios at group level.

For more information on NIBE’s external risks and financial risk management, see page 98-99.

Shared opportunities and risks

Each business area works systematically to identify opportunities for further developing their own areas based on the environment in which they operate. At the same time, there are several opportunities and risks that

are common to all three business areas*.

Opportunities

• Great market potential • Great interest in and need for renewable energy and energy efficiency

• International market presence • Broad range of products • Strong brands • Intensive product development • Access to effective production

• Synergies • Expansion through acquisitions • Energy prices Risks

• New laws and government decisions with a short-term perspective for product adaptations • Weak economic climate • Energy prices • Price trends of raw materials • Currency fluctuations

• Dependence on suppliers • Human resource management • Climate impact on operations • Pandemics • Geopolitical forces Overall, NICS clarifies roles and responsibilities, increases risk awareness, provides improved decision-making support and improves all round process efficiency. NICS is based on the internal

control framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The

framework covers these components: control environment, risk assessment, control activities, information and communication, and monitoring.

Opportunities and risks of climate change

Climate change is a complex, global problem and when the world needs to reduce carbon dioxide emissions demand for energy-efficient products that use renewable energy rises, which benefits our operations.

Stricter laws and requirements for lower emissions from products give us an opportunity to strengthen our market positions globally because all our business areas have a product portfolio that contribute to reduced carbon dioxide emissions. This increases our resistance.

By investing in energy-efficient climate control in our own operations, using our own products, we are able to offer an attractive working environment to current and future employees.

By adapting our supply chain to the climate risks we have identified, we have an opportunity to maintain diversification of the supply

chain and promote global resource security. Through our mapping of climate risks we can see that we are not exposed to extreme risks in the areas where we have operations and there is, therefore, little need for us to change our operations on the basis of different climate scenarios.

Before investments in new production of buildings, we must carry out an evaluation of climate risks during the technical life cycle of the building, focusing on precipitation, extreme weather events and floods, thereby ensuring that production can continue. By conducting energy reviews, we can identify energy efficiency measures and reduce the need for energy in our operations. An additional step is being able to produce our own renewable energy by e.g.

installing solar panels to ensure we have access to energy to be able to produce our products.

*See page 98–99 for more information on our risks.

Specific business area opportunities and risks

NIBE Climate Solutions

Opportunities

• Energy and environmental policies for accelerating the transition to renewable energy use • Low market penetration in North

America and in Europe in general • Most advanced product development centres for heat pumps in

Europe and North America • Most modern heat pump factories in Europe and North America

Risks

• New technologies outside our current areas of expertise • Reductions in new builds • Low gas and oil prices have historically usually meant continued use of fossil energy sources • Artificially high electricity prices in

several markets using the reasoning that the transition to less use of fossil energy sources should be paid for with taxes on electricity • Political risks on certain markets

NIBE Element

Opportunities

• Electrification is a globally expanding market • Market position as a front-runner among manufacturers worldwide • Increased growth through delivery of solutions, including measurement and control • Industry restructuring and expansion through acquisitions

Risks

• New technologies restricted by patents • Cost trends in our production countries • Disproportionate product liability in the event of quality defects • Payment problems among some major customers • Political risks on certain markets

NIBE Stoves

Opportunities

• Sales potential in new product segments • New political decisions relating to energy and the environment • Products already largely adapted to the Ecodesign Directive and the new environmental regulations in North America

Risks

• Local authority restrictions on the use of wood-burning products

Internal control

NIBE’s internal control process, which is ultimately the responsibility of the Board of Directors, is designed to provide reasonable assurance that the company’s efforts to achieve its goals are being implemented and that reporting is prepared in accordance with applicable laws and regulations and other requirements for listed companies.

Financial reports will also be prepared in accordance with generally accepted accounting principles.

Each employee in the Group is responsible for internal control at their own level: • The CEO and Group management for NIBE are responsible for overall internal control and implementing NICS (the NIBE internal control standard) at Group level.

• Business area managers are responsible for ensuring that the required process is in place in their own area, which in turn means that all local boards apply the process to each lower-tier subsidiary.

• Local boards are responsible for ensuring that NICS is implemented in their companies and, where applicable, at lower-tier subsidiaries. In addition, local boards must ensure that additional

national requirements are met. • The local management is responsible for internal control in its operations and owns the action plans for reducing risks within its individual areas of responsibility.

Monitoring occurs through a minimum of four annual board meetings in all companies, as well as through several internal control audits at the companies. As regards financial reporting, at NIBE it is a matter of principle for all commercial companies, regardless of their size, to undergo an annual audit by the auditors.

To minimise risk impact, a crisis management programme is also in place, with routines and policies for the local companies that cover the risk areas identified in the risk assessments. In the event of

major incidents that may affect the Group as a whole, the Group’s

crisis organisation including the Board of Directors must be informed and assess how to manage the incident.

NIBE’s shares prove to be good investment

Our focus on world-class sustainable energy solutions has produced 25 years of profitable growth and

a growing international presence. This has been a good investment for those who have been shareholders in NIBE Industrier since its initial public offering

back in 1997.

Ambitious financial targets with a high level of compliance

NIBE has had average annual sales growth of 17% since the initial public offering in 1997, combined with an operating margin of between 10% and 14%, excluding acquisition-related revaluations and an average return on equity of just over 16%. Since 1997, the share’s total return has averaged just over

28% annually.

Meeting the demand for energy conservation and reduced environmental impact

NIBE is well positioned since drivers for achieving the climate goals create ever rising demand for energy-efficient products.

We have long developed our products with the vision of creating world-class sustainable energy solutions in parallel with a focus on using resources in our business and value chain respectfully.

Economies of scale produce profit for the Group’s companies

NIBE’s size creates economies of scale for all companies in the Group in several areas: joint purchasing, production efficiency expertise and an open product development environment, which accelerates time-to-market and provides opportunities for technology transfer. Strong corporate culture and a long-term approach

With its roots in Småland, NIBE has an unmistakable entrepreneurial spirit and clear values that guide the entire global organisation.

It has helped that NIBE has had a very stable governance structure since its initial public offering.

Continued large market potential

Our ambitious growth targets stem from our view that the potential for both organic and acquisition-driven growth on a global scale remains significant.

NIBE’s markets are characterised by their fragmentation and, therefore, the scope for continued consolidation remains significant.

We have a well-developed acquisition process and clear, constructive objectives for the acquired companies and their existing management teams, which helps preserve market position and strong management.