As Fiskars produces and sells consumer goods, weak market conditions in key market areas could have an adverse effect on the Company’s net sales and profitability.
Prolonged economic downturn or uncertain geopolitical situation could have a material adverse impact on Group net sales and profit.
Fiskars strives to continuously diversify its commercial footprint both in terms of geography and product portfolio, which will balance demand fluctuations between markets.
Low consumer confidence could have an adverse effect on the sales of the products marketed and sold by the Company.
Prolonged low consumer demand in several key markets could have a material adverse impact on Group net sales and profit.
Fiskars is engaged in strong brands and product categories which are relatively resilient to moderate decline in consumer confidence. Active collaboration with key retail customers can drive sales for both the brand and the retailer.
Fiskars products are primarily sold to wholesalers, retailers, and directly to consumers through the company’s own stores and webstores.
Many large retailers decide on their product range and suppliers only once annually, and failure to meet customer needs may result in Fiskars losing customers or listings at customers. Retailers, especially in ecommerce, can also have a significant influence in directing consumers’ purchasing volumes.
Fiskars is exposed to risks from structural changes in retail landscapes and changes in retail business models. These include for example consolidation among retailers and international retailers’ increasingly centralized purchasing activity.
As a supplier Fiskars is also exposed to retailers shifting strategic focus to own private label businesses.
Although Fiskars has a diversified customer base, loss of any its largest customers, loss of significant category listings at key channels or decrease in business volume at key customers would have a material adverse impact on the Group’s net sales and profits.
Market consolidation among retailers increases Fiskars dependence on individual customers and strengthens retailers’ purchasing power. This may in turn impact Fiskars profitability.
Fiskars’ core competence lies in building strong brands that people desire and are willing to pay a premium for. For retailers, specialist brands offer a higher return.
Although sales to large individual customers are significant in some of Fiskars businesses, none of the individual customers account for more than 10% of the total net sales of the Group.
Fiskars mitigates risks associated to customer relationships and distribution by building best-in-class trade relations and excelling in sales and execution. In recent years, Fiskars has consistently invested in its sales organization and supply chain to meet the evolving customer demands effectively.
Fiskars can differentiate from competitors by combining extensive consumer insight with unbiased trade insight. Through our expertise in category management, we aim to assume a trusted advisor role and strengthen our partnership with selected retailers. This will enable us to build the brand experience and expand our retail presence while providing retailers with increased turnover.
Any adverse event affecting consumer confidence in our brands or corporate reputation could have a negative impact on our business.
Usually the negative impact would relate to a specific brand in a specific market. A major reputation crisis could, however spread across markets and have a significant negative impact on Group net sales and profits.
A major part of the Group’s net sales and profits are generated by the six global brands of the company, of which the Fiskars brand is the biggest. Fiskars has established processes to monitor their performance closely. Determined action is taken to mitigate any threat to brand value.
Fiskars has established crisis management and crisis communications procedures to mitigate the potential negative effects of a crisis situation on its corporate and brand reputation.
Intellectual property rights
Fiskars owns and develops a valuable portfolio of strategic intellectual property rights (IPR), which is a key tool for the Group’s brands’ differentiation.
Fiskars is exposed to infringement of its intellectual property rights and failure to protect those rights could lead to counterfeit products gaining market share.
In its own product development activities, Fiskars is also exposed to the risk of unintentionally violating other parties’ intellectual property rights.
Violation of Fiskars intellectual rights can lead to loss of sales and profits. The insufficient quality or safety of counterfeit products may undermine consumers’ confidence in Fiskars brands.
Violation by Fiskars of other parties’ rights could lead to increased costs and damage to Fiskars reputation.
Fiskars has established cross-functional processes and systems to proactively and effectively manage its global IPR portfolio.
Fiskars uses an optimized combination of different types of IPR protection to get the best possible protection for its innovations. Fiskars has monitoring processes and action plans in place to prevent and stop infringing products and practices.
Fiskars also actively monitors competitors’ intellectual property rights to gain an understanding of the competitive landscape and to avoid the risk of infringing third parties’ rights. Training on immaterial rights is mandatory for Fiskars personnel in relevant functions and Fiskars has established processes to ensure that other parties’ immaterial rights are respected.
People and culture
The successful execution of Fiskars growth strategy and related change programs depends on the extent to which the company succeeds in appointing and retaining talented and committed professionals.
Inability to maintain and further develop engagement and inspiring corporate culture may lead to loss of critical competencies and key personnel in strategic positions.
Fiskars is undergoing a major transformation, and loss of key personnel in strategic positions, low employee engagement and failure to maintain a high performance culture could impact Fiskars ability to achieve its goals.
Strong leadership and building a shared culture continue to be in Fiskars focus. The company invests in leadership practices and competence development, and the management is committed to promoting employee engagement. Development is followed up regularly through various measures.
Fiskars’ production strategy is based on combination of own manufacturing and carefully selected supply partners, whose share has increased. Fiskars purchases components and raw materials from several suppliers.
Changes in the marketplace can be rapid, and this exposes Fiskars to a risk of failing to ensure that design, quality, price and availability of products at the right place at the right time are in balance.
Through diversifying its manufacturing footprint the company is increasingly exposed to risks related to its supply chain. The company has own manufacturing operations in several locations, and most of its suppliers are located outside Fiskars key markets.
Disturbances at the source of supply or in the logistics chain could prevent the orderly delivery of products to customers.
Fiskars is also increasingly exposed to legal, economic, political and regulatory risks related to the countries of its own or its suppliers’ manufacturing facilities, which may impact product availability.
Failure to deliver products at the right time could lead to loss of listings or even loss of customers.
Insufficient product availability or other non-compliance with customer agreements can also lead to penalty payments.
Failing to meet with consumer expectations on the sustainability on our supply chain could have a negative impact on consumers’ trust on our brands.
Our supply chain priorities include efficient and flexible manufacturing capabilities and flexible logistics structures as well as the consolidation of supplier portfolio and ensuring sustainability of our supply chain.
Fiskars’ goal is to build a strong partner network which lives up to our corporate values, high quality standards and our customers’ expectations. We require our partners to commit to principles covering labor and human rights, health and safety, the environment, and business ethics. Suppliers are required to follow Fiskars’ Supplier Code of Conduct, and audits are carried out to verify compliance.
The importance of a seamlessly functioning supply chain continues to increase and we are continuously strengthening our global sourcing operations. Fiskars currently runs regional sourcing offices in Shanghai, Bangkok and Helsinki and focuses on value creation by harmonizing sourcing processes and supplier-base management principles on a global scale.
Raw materials and components
Sudden fluctuations in the most important raw material, component and energy prices or availability can have an impact on Fiskars profitability.
The cost of raw materials is a relatively small part of Fiskars cost base, and even significant increase in price of an individual raw material would have fairly limited impact on profitability. Long term availability issues would possibly have a greater impact on sales and profits.
Fiskars uses long-term contracts with its preferred raw material suppliers to manage price risks, and derivatives are used to hedge the price of electricity for production plants in Finland. In order to limit the availability risks the company aims to avoid relying on a single source in any of the critical material areas.
Fiskars’ brands communicate a promise of high quality and functionality, and all products need to be right for their purpose and fulfill all material and quality requirements. For example many of Fiskars homeware products are used in connection with food, and many garden and outdoor products are intended for demanding cutting activities.
Failure to meet demands on performance and safety could expose Fiskars to the risk of product recall and even liability for damages in the event that its products had caused injury to consumers or damaged other property.
Legislation in many countries may also require Fiskars to recall products in other specific circumstances.
A product recall induces costs that could be material if a large number of defective products were to be recalled from several geographical locations. In the worst case defective products might result in personal injury and therefore an obligation for the company to pay damages to consumers that could be substantial and include punitive elements in some jurisdictions.
Respectively, in some jurisdictions, government authorities may claim and if successful, collect substantial penalties payable for alleged violation of product safety related regulation.
Fiskars’ product development process is based on continuous testing and learning, and the company has invested in product development and quality assurance resources. Fiskars ensures by careful quality and product safety related processes that a product is safe and right for its purpose and that all the material and quality requirements are fulfilled.
Weather and seasonality
Demand for some of the Group’s products is dependent on the weather, particularly garden tools and watering products during the spring and snow tools during the winter.
Unfavourable weather conditions such as cold and rainy weather during spring or no snow in the winter can have a negative impact on the sale of these products.
The sale of homeware products is heavily geared towards the last quarter of the year, and any negative issues related to product availability or demand during this quarter could affect the full-year result of this business significantly.
Weather impact would typically be limited to a certain part of the business portfolio. A longer period of unusually poor weather in a larger geographic area could however affect overall traffic in stores.
Seasonal variations and weather conditions can lead to short-term fluctuations in demand which may in turn lead to excess inventory of products or lost sales.
Fiskars’ does not hedge weather risks. Risks associated with demand and product availability during peak season are managed by active sales and marketing activities and by systematic supply chain management. Fiskars strives to have a flexible production structure which can be adjusted at a short notice to meet actual demand.
Fiskars’ strategy is to balance seasonality by developing its portfolio and also by creating secondary seasons through marketing activities.
Fiskars is increasingly dependent on centralized information technology systems and breaches, malfunctions or disruptions could have a material adverse effect on Fiskars results.
The company is also exposed to information security risks including increasing global cyberattacks and various fraud attempts.
Malware, software defects or lack of access to centralized IT systems may cause unavailability of critical business information which can prevent the execution of the required business processes. This could impact business operations and thus financial performance either regionally or globally.
Cyberattacks and frauds may cause significant financial losses.
Fiskars mitigates the risk by building the IT solutions using industry best practice processes and proven technologies. The solutions are regularly audited and tested. Training is organized for core competences, which are required for maintaining the functionality and security of the IT solutions. The processes for managing emergency situations and recovery are documented and key personnel have been trained.
The company has increased its investment in IT security mitigations based on findings of regular security audits and reviews.
Changes to new and existing IT systems are done according to standard processes and procedures. All changes are approved, validated and tested before execution to production.
Legal and regulatory compliance
Complex international legal and regulatory environment exposes the company to compliance and litigation risks, including competition compliance and data privacy.
Our products and operations are subject to certain legal requirements relating to health and safety.
Increasing regulatory requirements may add operative costs and exposes the company to criminal penalties and civil liabilities. Failure to comply with these requirements may have a material adverse effect on Group profit.
Additional investments and increased costs may be realized if any of our products becomes subject to new regulations, e.g. with regards of hazardous materials.
Fiskars has implemented various compliance programs and controls to mitigate compliance risks. The company is further developing its Group wide compliance practices with an aim to ensure that its employees worldwide are aware of relevant requirements and act accordingly.
Acquisitions are a part of Fiskars growth strategy. Despite a careful due diligence process, all acquisitions and integration of acquired businesses include risks. Brands or sales may be adversely affected, key individuals may decide to leave the company, the costs of the integration may exceed expectations and synergy effects may be lower than expected.
Acquired businesses may not perform as expected, loss of key individuals and failure to meet integration targets may lead to Fiskars not achieving the strategic and commercial objects for the acquisitions. This may affect Fiskars net sales and profitability.
Fiskars mitigates these risks by planning the integration of acquired businesses in advance, by establishing Fiskars’ corporate governance principles immediately after the takeover, by setting up a joint integration team and by following the integration and the development of the new company intensively within its corresponding management team, the Executive Board and the Board of Directors of Fiskars.
Climate change is a crucial global issue and may impact Fiskars’ economic activity and corporate performance.
Most of the environmental risks are described in other strategic or operative risk categories, such as disruptions in Supply Chain. Fiskars has evaluated potential environmental liabilities at its manufacturing sites and does not currently have any major environmental investment needs. However, some of Fiskars manufacturing sites have been operating for more than 100 years. Typically the historical handling, disposal, and use of hazardous chemicals were not regulated, controlled or monitored during the sites’ early operational history as they are today.
Regulative requirements, like the Paris Agreement and EU Renewable Energy Directive, define targets for the use of renewable energy, energy efficiency and emissions. Additional taxes may increase energy prices.
Potential environmental liabilities may give rise to third party actions, remedial measures, capital expenditures or other compliance costs.
Changes in environmental regulation may lead to increased production and distribution costs, and additional investments may be required.
Fiskars is working on environmental matters through its sustainability efforts and the company aims to minimize environmental risks through systematic risk management. Fiskars is committed to promoting circular economy throughout the value chain, combatting climate change by taking actions to mitigate emissions, reduce the use of energy and promote renewable energy sources.
Fiskars monitors and drives good environmental management practices at both own manufacturing sites and works with suppliers to improve their performance and minimize the environmental impact.
Threat of international terrorism has increased and Fiskars is present in countries where terrorism presents a serious and sustained threat to supply of products.
Act of terrorism may cause loss of production and, consequentially, loss of sales and customer goodwill.
Fiskars works with anti-terrorist organizations to ensure that the most effective security is in place to limit such a risk.
A significant part of the Group’s operations are located outside of the euro zone. Consolidated financials are reported in Euros, which means that the Group is exposed to a translation risk. In addition less than 20% of Fiskars commercial cash flows are exposed to fluctuations in foreign exchange rates. The most significant transaction risks relate to the appreciation of THB and GBP and depreciation of JPY, AUD and SEK. The most significant translation risks relate to depreciation of USD.
Changes in foreign exchange rates may have an adverse impact on the reported net sales of the Group, its operating results, balance sheet and cash flow. Changes in foreign exchange rates may also impact Fiskars local competitiveness negatively.
Fiskars details its sensitivity to main currencies in its financial statements.
The Company aims to manage currency risks related to commercial cash flows primarily through business means. Acquisition of production inputs and sale of products are primarily denominated in the local currencies of the Group companies. Net estimated exports and imports in foreign currencies is hedged up to 12 months in advance using currency forwards and swaps.
The potential adverse impact on reported consolidated financials arising from changes in foreign exchange rates is left unhedged.
The financial investment portfolio of Fiskars consists of shares in Wärtsilä and of other financial investments. Other financial investments may include investments into funds, shares, bonds and other financial instruments denominated mostly in EUR and USD. The financial investment portfolio is exposed to risks generally related to financial investments and the investments may lose value because of several reasons. The most relevant risks are considered to be decline in financial markets, changes in interest rates or in foreign currency rates and default (issuer of a security not able to make timely principal and interest payments) risks.
The shares in Wärtsilä together with the other financial investments form an active investment portfolio which is treated as a financial asset at fair value through profit or loss.
Valuation of financial assets through profit and loss will increase the volatility of financial items in the profit and loss statement and thus volatility of Fiskars net result.
The investment management principles, including objectives, guidelines and risk management procedures, have been documented in an investment policy approved by the Board of Directors. The risk management measures include limits for various asset classes, instruments and counterparties and it defines risk measurement and risk reporting principles.
Complex and changing tax legislation in multiple jurisdictions where Fiskars operates may create uncertainties relating to tax obligations towards various authorities.
At the same time, governments seeking to cut budget deficits are increasing tax enforcement activities and disclosure requirements as they pursue new sources for tax revenues. This, in conjunction with unpredictable behavior or changing interpretation of tax authorities may cause unexpected tax challenges.
Fiskars faces an increasing administrative burden resulting from reporting and disclosure requirements.
Increased tax enforcement activity may lead to double taxation and additional costs in forms of penalties and interest.
Perceived non-compliance could have an impact on corporate reputation.
We strive to plan and manage our tax affairs efficiently and in compliance with laws and regulations of the jurisdictions in which we operate. In an increasingly complex international tax environment some degree of uncertainty is inevitable. Fiskars actively monitors changes in tax rates and regimes to identify impacts on the group effective tax rate and exercises its judgment and seeks professional advice in assessing its tax liabilities and assets.
Updated February 16, 2017