Principal uncertainties

Macroeconomic risk

Prolonged economic downturn and prolonged low consumer demand or uncertain political situation could have a material adverse impact on the Group’s net sales and profit. Macroeconomic risk is mitigated by diversifying commercial footprint, both in terms of geography and product portfolio. Fiskars Group’s strong brands and product categories are relatively resilient to moderate decline in consumer confidence.

Consumer behavior and competition

Development of new technologies and new retail channels has increased the role of online shopping, social media advertising and selling, and use of mobile applications. Increasing emphasis on sustainability is expected to add demand for services and new business models around circular economy.

Failure to answer the changing consumer behavior or increased competition may weaken Fiskars Group’s competitive position and thus lead to potential loss of net sales and profit. While physical stores remain our key retail channel, we are increasing our focus in e-commerce and sustainability by innovating new business models, conducting research on new materials and investing into actions aligned with the brands’ purpose and vision.

Customers

Fiskars Group’s products are primarily sold to wholesaler and retailer customers, and directly to consumers through the company’s own stores and webstores. Fiskars Group is exposed to risks from structural changes in retail landscape. Consolidation among retailers and international retailers’ increasingly centralized purchasing activity may impact Fiskars Group’s profitability. As a supplier, Fiskars Group is also exposed to retailers shifting strategic focus to own private label businesses.

Sustainability requirements for manufacturing practices, materials used, certifications of the raw materials and substances of concern are increasing. Failure to meet customer demand may result in Fiskars Group losing customers or listings at customers. Loss of any of Fiskars Group’s 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 profit.

Fiskars Group maintains excellent relationships and trade relations with a diverse customer base. Fiskars Group’s core competence lies in strong and desired brands, and constant development of sales organization and supply chain operations to meet the evolving customer demand.

People

Inability to attract and retain talented and committed professionals could have an adverse impact on achievement of strategic objectives. Failure to provide inspiring and motivating working environment, may lead to loss of critical competencies and key employees in strategic positions.

Sustainability, ethical business practices, respecting human rights and anticorruption and anti-bribery are demanded by different stakeholders. Occupational health and safety risks can cause severe harm to employees and operations. Fiskars has set a group level target of achieving zero lost time incidents. Failure to respond to these expectations may have reputational and financial impact, and lead to decrease in employee motivation.

Fiskars Group has several policies and a strong corporate culture, where the topics mentioned above are mitigated and managed through regular trainings. Fiskars Group is committed to take corrective actions when needed, and has a governance model in place, where any misconduct can be reported anonymously. Employee engagement is promoted by committing to set targets and investing in a strong corporate culture and talent development.

Supply Chain

Fiskars Group’s production strategy is based on combination of own manufacturing and carefully selected supply partners. Own manufacturing takes place in the United States, Europe and Asia and most of the suppliers are located in Asia.

Fiskars Group’s is exposed to rapid changes in the marketplace, leading to disruptions in design, quality and price, as well as availability of products. Failure to deliver products at the right time could lead to loss of listings or even loss of customers and non-compliance with customer agreements can also lead to penalty payments. Fiskars and its suppliers are also exposed to changes in legal, economic, political and regulatory landscape in the operating countries.

Failing to meet consumer expectations on the sustainability requirements in our supply chain could have a negative impact on reputation and consumers’ trust on our brands.

Fiskars Group strives to build strong and long-term relationships with trusted suppliers that live up to our corporate values and commit to timely delivery of products and materials. Fiskars Group’s suppliers are required to follow Fiskars Group Supplier Code of Conduct, and the company regularly audits its finished goods suppliers. Currently, transparency is limited mainly to Fiskars Group’s direct suppliers and the challenge is to manage the risks beyond our direct suppliers.

Raw materials and components

Sudden fluctuations in price or availability of the most important raw materials, components, and energy can have a negative impact on Fiskars Group’s profitability. Examples include, but are not limited to, steel, water, sand, wood, certain chemicals, and new renewable-based raw materials.

Water scarcity and resource scarcity related to exhaustible fossil based nonrenewable materials are growing global challenges in the long-term, leading to increased cost of raw materials and possibility of production interruptions. Currently, the challenge is the limited stocks and higher prices of more sustainable raw materials such as; certified wood materials, renewable-based plastics and recycled raw materials.

The cost of raw materials is relatively small part of Fiskars Group’s cost base, however long-term availability issues and regulative actions could have a negative impact on Fiskars Group’s operations. Multiple source contracts and on-going research on alternative sustainable materials are used to manage price and availability risks.

Weather and seasonality

Demand for some of the company’s products is dependent on the weather. Unfavorable weather conditions such as cold spring or snowless winter, may have a negative impact on the sale of e.g. garden and snow tools. Extreme weather conditions and prolonged cold or dry seasons are expected to increase in the future due to climate change.

The sale of homeware products is heavily geared towards the last quarter of the year, and any issues related to product availability or demand during this quarter could affect the full-year result of this business significantly.

Fiskars Group’s strategy is to balance seasonality and impact of changing weather conditions by diversifying and developing its product portfolio.

Environment and climate change

Climate change is one of the most pervasive and threatening issues and may impact Fiskars’ performance. Impact of climate change to well-functioning ecosystem, temperature changes and sea-level rise can cause unforeseen challenges to the company.

Regulations on renewable energy, energy efficiency and emissions as well as potential new taxes may increase energy prices. Potential environmental liabilities may increase third party actions, remedial measures, capital expenditures and other compliance costs, and cause damage to the reputation. Increasing natural catastrophes such as floods and typhons may interrupt and impact Fiskars Group’s operations.

Fiskars Group is constantly increasing its sustainability efforts and aims to minimize environmental risks through systematic risk management. Fiskars Group is committed to promoting circular economy through the value chain, combatting climate change by taking actions to mitigate emissions, reducing the use of energy and promote renewable energy sources. Business interruption caused by natural hazards is hedged by an insurance.

Product liability

Fiskars Group’s brands commit on high-quality and functional products that are safe to use, fit for the purpose and fulfill all material and quality requirements. Failure to meet these safety and quality requirements could expose Fiskars Group to delivery stop or product recall, reputation loss, and even to liability costs. These costs can be substantial and include punitive elements in some jurisdictions. In certain circumstances, country specific legislation may also require Fiskars Group to recall products.

A product recall induces costs that could be material, however a comprehensive insurance and a product recall policy are in place to mitigate the financial impact of the recall and fasten the process of recalling potentially harmful products from the markets. Fiskars Group’s product development process is based on continuous testing and learning, and the company has invested in product development and quality assurance resources to mitigate the recall risk in early stage of the product development.

Cyber and information security

Fiskars Group is increasingly dependent on centralized information technology systems that hold critical business information. Breaches, malfunctions,  cyberattacks and fraud attempts could have a material adverse effect on Fiskars Group’s results, reputation and cause business interruptions either regionally or globally.

Fiskars Group mitigates IT related risks by testing and auditing industry best IT solutions. Training is organized for core competences, which are required for maintaining the functionality and security of the IT solutions. Appropriate data handling and management is expected from every employee. Changes to new and existing IT systems are done according to standard processes and procedures.

Intellectual Property Rights

Fiskars Group’s well-known and strong brands are exposed to infringement of intellectual property rights (IPR). Counterfeit products that manage to gain market share expose quality and safety related risks to consumers. Fiskars Group is also exposed to the risk of unintentionally violating other parties’ intellectual property rights. All these actions could lead to loss of net sales and profit,and decrease in consumer confidence in Fiskars Group’s brands.

Infringement of IPR is monitored through cross functional processes and systems, clear action plan is in place to prevent and stop infringing of products and practices. Fiskars Group has a good understanding of the competitive landscape and provides its employees training on immaterial rights.

Taxation

International tax environment creates uncertainties related to tax obligations. Increasing 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 Fiskars Group’s reputation.

Changes in tax or import duty liabilities in countries where Fiskars operates may affect the Group’s profit. Especially the increasing uncertainty regarding trade in the form of e.g. tariffs might have an impact on the company’s business in the US, as part of the product portfolio sold in the country is imported.

Fiskars Group plans and manages its tax affairs efficiently and in compliance with laws and regulations of the jurisdictions in which it operates. Changes in the tax environment are monitored and the impact to Group’s effective tax rate is identified.

Legal and regulatory compliance

Changing legal and regulatory environment may expose Fiskars Group to compliance and litigation risks, including competition compliance, anti-corruption, human rights, security and data privacy.

Climate change, environment, and health and safety related legislation and regulation are expected to tighten. Increasing regulatory requirements, new reporting and disclosure 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 the Group’s profit.

Fiskars Group’s products and operations are subject to certain legal requirements relating to health and safety. Additional investments and increased costs may be realized if any of our products becomes subject to new regulations. Fiskars Group has implemented various compliance programs, policies, training and the mandatory Code of Conduct training for all employees and Supplier Code of Conduct for all our finished goods suppliers.

Currency rates

A significant part of the Group’s operations is located outside the euro zone. Changes in foreign exchange rates may have an adverse impact on the reported net sales of the Group, its operating results, balance sheets and cash flow. Changes in foreign exchange rates may also impact Fiskars Group’s local competitiveness negatively. Less than 20% of Fiskars Group’s commercial cash flows are exposed

to fluctuations in foreign exchange rates. The most significant transaction risks relate to the appreciation of THB and depreciation of JPY, AUD and SEK. The most significant translation risks relate to depreciation of USD.

Currency risks related to commercial cash flows is managed primarily through business means, meaning that 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.

Financial investments

The financial investment portfolio of Fiskars Group 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 investments may lose value e.g. due to decline in financial markets, changes in interest rates or in foreign currency rates and defaults risks. The shares in Wärtsilä together with the other financial investments form an active investment portfolio. Other financial investments are treated at fair value through profit or loss, whereas the shares in Wärtsilä are treated as a financial asset at fair value through other comprehensive income.

Acquisitions

Acquisitions are a part of Fiskars Group’s growth strategy. Despite a careful due diligence process, all acquisitions and integration of acquired businesses include risks. Acquired businesses may not perform as expected, key individuals may decide to leave the company, the costs of the integration may exceed expectations, and synergy effects may be lower than expected.

Updated April 4, 2019