Operational risks are managed by the EMT, and by the business area and product line management. Corporate functions, such as Human Resources, HSEA, Internal audit, IT, Purchasing, Legal department, R&D, and the Investment Council are managing risks within their specific areas. The Risk Management function supports the risk management activities throughout the Group.

Ahlstrom has developed its operational loss prevention processes in order to identify and mitigate operational risks. Ahlstrom has an established group-wide insurance program for risks related to property damages and business interruption, liability exposure, and cargo transport. The main operational risks that Ahlstrom is exposed to are:

• operational efficiency risk
• sourcing and raw material pricing risk
• health, safety, environment and asset protection
• human resources
• IT risks.

Operational efficiency risk

Ahlstrom’s ability to utilize its production capacity efficiently may be affected by variations in customer demand or interruptions in production. Ahlstrom has a relatively versatile production base with 31 production facilities worldwide, which effectively use capacity by, for example, allowing for the redirection of resources to reflect changes in demand.

Ahlstrom typically only produces goods against orders received, rather than for stock. However, a variety of conditions may cause customers to reduce, delay or cancel anticipated or confirmed orders.

Sourcing and raw material pricing risk

Ahlstrom is dependent upon outside suppliers for its main raw materials, i.e. various wood pulps (Bleached Hard Wood Kraft Pulp and Bleached Soft Wood Kraft Pulp), other natural and synthetic fibers, such as cotton, abaca, rayon, polypropylene etc. and chemicals (e.g. latex binders, fillers, pigments and resins).

Wood pulp prices in particular are subject to substantial cyclical fluctuations. Ahlstrom takes proactive measures by actively transferring the impact of raw material price changes to the selling prices of its own products. In 2010, Ahlstrom started to implement a pulp price hedging strategy via the financial derivatives market (pulp swaps). Pulp swaps have been used to lock in margins of fixed price sales agreements. Ahlstrom’s energy costs are also subject to significant cyclical fluctuations. In the energy markets Ahlstrom is also reviewing physical and financial hedging strategies to ensure the existing risk strategy is aligned with corporate goals and objectives.

An interruption in the supply of raw materials, due to market shortages or natural disturbances, could significantly affect Ahlstrom’s ability to provide competitively priced products to customers at the time they are wanted, and could thus have an adverse effect on the Group’s financial performance. To mitigate the risk of a significant interruption in the supply of any raw materials, or of a significant increase in the prices of raw materials, Ahlstrom is working with long-term preferred supplier contracts, and has identified certain alternative suppliers and materials.

Health, safety, environment and plant asset protection

The business units’ site managers are responsible for ensuring that the sites comply with local regulations. In Ahlstrom, operational accident risks, including injuries to people and damages to property or the environment, are managed by each plant individually, while the corporate and business areas’ HSEA (health, safety, environment and plant asset protection) organization provides guidelines, and reviews the procedures that all plants have to follow. Natural catastrophic events, to which Ahlstrom could be exposed, and that are inherently unpredictable in terms of both their occurrence and severity, include windstorms, floods, earthquakes, and severe winter weather.

Human resources

Ahlstrom’s success depends, to a significant degree, upon the continued contributions of its key personnel, as well as on its ability to attract qualified new personnel. The annual management planning (succession planning) process ensures that an up-to-date career and succession plan is in place at all times.

Ahlstrom has established certain pension benefit and contribution plans in various countries, or has liability for such plans as part of its historical operations. The company is exposed to risks related to these defined pension plans, including the risk of actual investment returns being lower than assumed rates of return. In addition, fluctuations in interest rates may cause changes in the annual cost and benefit obligations.

IT risks

Ahlstrom has established a companywide integrated enterprise resource planning (ERP) system for managing and supporting its key operative business processes. A significant failure of Ahlstrom’s integrated information systems could negatively affect Ahlstrom’s business and cause operational difficulties. Ahlstrom’s IT function has implemented risk management procedures and controls in order to manage IT related risks. In addition, IT security processes protecting these systems are in place and subject to assessment as part of the review of internal controls over financial reporting.