Page 76 - Kitron Annual Report 2011

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76
Kitron annual report 2011
Risk management and internal control
Kitron’s business model is to provide manufacturing
and assembly of electronics and industrial products
containing electronics, including development, in-
dustrialisation, purchasing, logistics, maintenance/
repair and redesign. The board sees no unusual risks
beyond normal business risks that any light industry
operation is exposed to.
EMS is a highly competitive industry, presenting the
company with an inherent business risk related to
Kitron’s ability, firstly, to attract and retain customers
who are and who will be predictable and successful in
their respective markets and, secondly, to make a fair
profit margin on its business. The group’s customer
portfolio consists of reputable companies operating
in various segments. Several of the group’s custom-
ers are world leaders in their respective fields. It is
Kitron’s perception that the customer portfolio is ro-
bust and well balanced. Kitron’s value proposition to
its customers includes flexibility, competence, quality,
closeness and full value chain capability. The board
is confident that Kitron is able to maintain a viable,
leading and adaptive business. Kitron is organised in
distinct manufacturing sites, each fully accountable
for its own revenues, profitability and level of capital
employed. The structure facilitates closeness between
management and the operation, which in turn pro-
vides good oversight and adequate internal business
control.
Kitron’s cost base for operations consists of mate-
rial cost, employee cost and plant and machinery
cost. The material cost is to a large degree priced in
international currencies, with prices set or derived
from global raw material and component markets. Em-
ployee and plant costs are incurred in respective local
currencies, mainly NOK, SEK and LTL. Machinery
investments are predominantly internationally priced.
Kitron’s revenues are mainly booked in NOK and SEK,
but also in USD and EUR, with currency fluctuation
and raw material price clauses included when appro-
priate. The company considers the mix as reasonably
balanced.
To balance the financial risk and shareholders’ inter-
ests, the equity ratio should be above 25 per cent.
Kitron’s equity ratio was 41.1 per cent at the end of
2011. Kitron’s debt is predominantly short-term. The
equity ratio and liquidity has been stable and on a sat-
isfactory level in the past year.
Kitron does not employ any off balance sheet financial
instruments for hedging or leverage, or for funding.
The company has entered into conventional financial
leasing agreements, which are reported in the finan-
cial statements.
The health, safety, and environmental risks are limited
and well managed, and Kitron’s ISO quality systems
are certified by certification agencies and also in-
spected and approved by several of the group’s cus-
tomers.
Kitron’s customers are professional product-owning
companies, which purchase the manufacturing and
related services from Kitron. Kitron is not the product
owner and the group’s product liability risk is thus
negligible.
Remuneration of the board of directors
The remuneration of the board members reflects re-
sponsibility, expertise, time spent and the character
of Kitron’s business. The remuneration is not linked to
the company’s performance or share price.
Board members may perform special assignments for
the company in addition to their directorship. Such
assignments, if any, are reported to the full board and
disclosed in the annual report. Information about each
director’s remuneration, including shares and sub-
scription rights, is provided in the notes to the annual
financial statements.
Remuneration of senior executives
The board has resolved guidelines to the CEO for re-
muneration to senior executives. The salary and other
remuneration of the CEO shall be decided by a con-
vened meeting of the board.
At present Kitron does not have any outstanding
share option schemes or other arrangements to award
shares to employees.