For Grupo Lamosa, the management of the different risks inherent in its operations is a fundamental aspect to guarantee business continuity. To this end, the company operates with solid internal processes set out in its Comprehensive Risk Management Policy, which contains the guidelines and procedures required to establish probabilities based on quantitative and qualitative calculation methodologies.
The different areas of operation are responsible for mapping the possible risks in each of the areas of Grupo Lamosa and its subsidiaries, and the Internal Audit team collaborates with the follow-up. More than 40 executives participate in a survey to prioritize a series of categories that represent some type of threat to the operations. Given the proven effectiveness of the process, from 2023 it will be carried out more frequently.
The results of this process are communicated to the Corporate Comptroller’s Office, which is responsible for validating and proposing a work plan with mitigation measures, in conjunction with the areas responsible for risk management. The main findings and risks identified during the internal audit reviews are presented to the Audit Committee.
In 2023, the already-identified risks, presented below, will be updated.
| MAIN RISKS – GRUPO LAMOSA | ||
|---|---|---|
| Risk | Description | Management details |
| Financial | ||
| Fluctuations in the exchange rate | There is a potential risk due to Grupo Lamosa having a commercial presence in different countries and obtaining revenue streams in the local currency of each of them. Given that the financial results are reported in Mexico, the company’s income and financial performance could be affected by the strength of the peso against other currencies. | The Finance Committee, which supports the Board of Directors, manages financial risks.
Ultimately, financial derivative schemes are contracted to link debt repayments to the local currencies where revenue is generated. |
| Business liquidity and control of credit debt | There is a potential risk related to the company’s capacity to ensure the liquidity necessary to cover operating expenses and to settle the debt acquired by each of its subsidiaries in the different countries. |
Periodically, the company seeks to mitigate its businesses’ liquidity risk and control credit debt through its debt reprofiling strategy. This strategy consists of renegotiating debt conditions to obtain better terms and interest rates, thereby freeing up cash flow and contributing to company growth. |
| Increase in product prices |
There is a potential risk related to product price increases reflecting possible rises in the cost of natural gas and electricity, the company’s main energy sources, the cost of local primary inputs (inflation) and diverse other costs related to the production processes. | Ultimately, with the support of the Finance Committee, the need to hedge natural gas consumption through financial instruments is evaluated, to provide certainty in the cost of supply. |
| Strategic | ||
| Customer satisfaction and brand value | There is a potential risk related to the company’s ability to anticipate possible changes in tile trends, which would mainly affect the tile business. However, Grupo Lamosa encourages the development of new products that provide a differentiating value. It also focuses on product quality and safety, especially for the adhesive business, avoiding any potential negative impact on the health and safety of the final customer. | Specific innovation committees identify new market trends; co-creation initiatives are implemented with distributors in order to improve product quality and attributes; the company is opening digital sales channels; and brand perception studies are carried out annually. |
| Local and international competition | There are companies in Mexico and in countries such as the United States, Spain and Brazil whose products could compete with Grupo Lamosa’s in terms of quality and price, which could decrease customer preference and reduce the company’s market share. | Grupo Lamosa’s good financial performance has enabled it to grow geographically, with the acquisition of well-known companies such as Grupo Roca and Fanosa. This has enhanced the company’s competitiveness in new countries. |
| Intellectual property | The company’s property rights may be affected by potential imitations and replicas of its products and/or manufacturing designs and/or processes. Any of these possibilities could have an adverse effect on the business’s operating and financial results. |
Grupo Lamosa has a legal team specialized in the protection of intellectual property, in charge of registering patents and trademarks. It also has confidentiality policies which are communicated to Grupo Lamosa’s different commercial partners and to company personnel. |
| Operating | ||
| Attraction and retention of specialized technical talent | The lack of specialized personnel in the sector could significantly affect production processes and result in a potential loss of the company’s existing talent. | Specific innovation committees identify new market trends; co-creation initiatives are implemented with distributors in order to improve product quality and attributes; the company is opening digital sales channels; and brand perception studies are carried out annually. |
| Collective labor contracts | In order to avoid any type of interruption in the production processes, it is important to guarantee robust, fair and transparent relations with all employees who have a collective contract or are part of a workers’ organization. | The company complies with, and respects, the right of employees to form part of a labor organization, as indicated by Mexican Federal Labor Law and the applicable legislation in the countries where it operates. A legal team is in charge of preparing and transparently communicating the terms and conditions of collective contracts. |
| Raw materials shortage | There is a potential risk from the possibility of interruptions in the supply chain, reflecting the lack of qualified local suppliers to guarantee a continuous and efficient supply both in Mexico and the other countries where the company operates. | Grupo Lamosa operates with commercial strategies that enable the diversification of its portfolio of suppliers, as well as effective planning of inputs and inventory management. In addition, efforts are continuously made to train and strengthen local suppliers. |
| Regulatory | ||
| Political and economic context |
There is a potential risk that events, such as new trade agreements between countries or economic regulations, could affect or limit the company’s commercial activities, and that social or political instabilities that may arise in the different markets where Grupo Lamosa operates. | The company is present in nine countries, which reduces the impact that social, political and economic aspects in a given country can have on the business. It also constantly monitors the situation in the different countries. |
| Legal, environmental, health and safety incompliance | Grupo Lamosa operates with policies and procedures related to the health and safety of its employees and regulatory compliance. However, risks related to the health and safety of employees may arise, as well as those related to possible impacts on the environment, especially in the management and use of water and the generation of waste. | Grupo Lamosa strictly adheres to the regulatory and legal framework in force in the countries where it operates. Through the Grupo Lamosa Code of Ethics, company employees are trained to avoid possibly undesirable practices in the organization that could lead to any legal incompliance. The Code also applies to the company’s business partners. Audit processes are also carried out to identify possible internal risks. Regarding environmental issues, the company has implemented a sustainability strategy, which addresses environmental management aspects over and above compliance with the law, for the benefit of society. In terms of health and safety, Grupo Lamosa has a management system based on international Occupational Safety and Health Administration (OSHA) certification. |
In addition to the previously mentioned risks, Grupo Lamosa has identified three possible emerging risks that have become relevant in recent years, both at the sectorial level and in other related industries, and for which measures will be taken for the short and medium term.