For Grupo Lamosa, the effective management of the risks inherent in its operations is essential to ensure business continuity. The company has established robust internal processes for risk management, outlined in the Comprehensive Risk Management Policy, a document which sets out guidelines and procedures for evaluating probabilities using quantitative and qualitative methodologies.
Each operational area assumes responsibility for identifying potential risks in the company and its subsidiaries, collaborating with the Internal Audit team in their monitoring. Approximately 40 executives participate in an annual survey to prioritize categories representing hazards in the operations.
The results are identified and classified based on their impact and the likelihood of occurrence. They are shared with Corporate Comptrollership which, in collaboration with the areas responsible for risk monitoring and management, proposes and validates a work plan with mitigation measures. The main findings and identified risks are then reported to the Audit Committee.
Some of the main risks Grupo Lamosa is potentially facing are presented below, together with available mitigation measures for each of them.
MAIN RISKS – GRUPO LAMOSA
| Risk | Description | Management details |
|---|---|---|
| Financieros | ||
| Fluctuations in 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 Advisory Committee, which supports the Board of Directors, is the main body managing 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. |
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 growth. |
| Increase in input prices | There is a potential risk related to input 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 and thereby provide certainty in the cost of supply is evaluated. |
| 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 Adhesives Business, avoiding any potential negative impact on the health and safety of the end customer. | Specific innovation committees identify new market trends; co-creation initiatives with distributors are implemented in order to improve product quality and attributes; the company is introducing 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 thus 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 Fanosa and Baldocer. This has enhanced its competitiveness in the different countries where it operates. |
| 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 training and career development models are in place, as well as an attractive compensation scheme for all employees. |
| 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. | 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 interruptions in the supply chain, reflecting a lack of qualified local suppliers to guarantee a continuous and efficient supply both in Mexico and in 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 input planning and inventory management. In parallel, 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 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, and 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 related to possible impacts on the environment, especially in water management and use, and waste generation. | 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 legal incompliance. The Code also applies to the company’s business partners. Audit processes are 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. To ensure compliance with occupational safety and environmental regulations, in 2023 a digital platform was launched presenting the main regulations, standards and permits, making it easier to comply with them and anticipate potential changes. |
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.
Climate change: Climate change effects range from physical risks, such as floods or natural events that may affect production centers and compromise the availability of raw materials due to permanent damage to local biodiversity, to transition risks that progressively limit and/or penalize the use of traditional energies and fuels, while at the same time hindering access to renewable energies in some countries.
Cybersecurity: The protection of the personal data of distributors, suppliers, business partners and customers, as well as the company’s documents, processes and information, is of vital importance.
Technology for production processes: The company must keep abreast of technological changes and innovations in the sector that require the acquisition of new techniques, materials or tools, and seeks to remain at the forefront of the market, adapting to the changing demands of the environment.