Principal uncertainties

Fiskars Group has identified the following uncertainties that may have an adverse impact on the business and financial performance of the company. Sustainability related uncertainties are reviewed as a part of Fiskars Group’s annual risk management process and as such also described below. Risk management practices are explained in a separate Corporate Governance Statement.

Macroeconomic risk
A prolonged recession and weak consumer demand, as well as political uncertainty including trade disputes, sanctions, import restrictions and geopolitical tensions may have a material adverse impact on the net sales and profit of Fiskars Group. A global pandemic slowing down the world economy, as witnessed with Covid-19, may impact the operations of the company. In addition, negative consumer reactions towards a situation created by geopolitical tensions, can be harmful to business. In the long-term, these risks are mitigated by having a diversified commercial footprint, both in terms of geography and product portfolio.

The current changes in geopolitical environment have increased the political and country risks substantially. There is a political risk to sanctions or import restrictions, especially with China. The realization of this risk would have a negative impact on the Group’s net sales and profit as China is both a key supplier market and one of the strategic focus countries.

Supply chain and suppliers
Fluctuations in the price, availability or quality of the most important raw materials, energy, components and finished products from suppliers can have a negative impact on the profitability of Fiskars Group. Furthermore, global supply chain disturbances, increases in shipping costs and regulatory actions, such as tariff increases, and emission trading systems can affect profitability negatively. Dependency on any single source of supply can cause business interruptions and result in lack of product supply for several months.

Fiskars Group manages the price, availability and quality risks inherent in contracts with multiple suppliers and by continuously seeking alternative sustainable materials. The company also mitigates the dependency on any single source of supply by mapping possible suppliers and by maintaining an extensive business interruption insurance. In addition, to secure product availability, the company may also prepare for potential disruptions with safety stocks.

Fiskars Group’s production strategy is based on a combination of its own manufacturing and carefully selected supply partners. Own manufacturing takes place in Europe, Asia and the United States, and most of the suppliers are located in Asia. The company’s suppliers are exposed to changes in the legal, economic, political and regulatory landscape in the operating countries.

Consumers have increasing expectations regarding sustainability requirements. Failure to meet these expectations or a lack of transparency in the supply chain may have a negative impact on the Group’s employer or brand reputation and on consumers’ trust in the brands. Fiskars Group strives to build strong and long-term relationships with trusted suppliers that live up to our corporate values and commit to a timely delivery of products and materials. Suppliers are required to follow the Fiskars Group Supplier Code of Conduct which sets the non-negotiable minimum standards regarding topics such as health and safety, environmental protection, and human and labor rights. The company conducts audits on its finished good suppliers. Currently, transparency is mainly limited to Fiskars Group’s direct suppliers, and the challenge is to manage the risks beyond direct suppliers.

Consumer behavior
The development of new technologies and new retail channels has increased the role of online shopping, social media advertising and selling, as well as the use of mobile applications. An increasing emphasis on sustainability is expected to add demand for new services and business models that support circularity and extend the lifecycle of products. Related to this, Fiskars Group has also identified the risk of decreasing demand for traditional products. In addition, the fast pace of change in consumer trends puts pressure on new product development and speed-to-market processes.

Failure or slowness to respond to changing consumer behavior, changing preferences or increased competition may weaken the competitive position and thus lead to a potential loss of net sales and profit. Fiskars Group’s focus is on growing in the direct channel, including e-commerce and own stores, as well as on sustainability by innovating circular designs and new business models to address the needs of the modern consumer.

The geopolitical tensions, broad-based inflation and rising interest rates witnessed in 2022 in many markets have reduced consumer confidence and can further weaken the demand for Fiskars Group’s products.

Fiskars Group’s products are sold to wholesale and retail customers, as well as directly to consumers through the company’s own stores and e-commerce. Fiskars Group is exposed to risks from structural changes in the retail landscape. Consolidation among retailers and the increasingly centralized purchasing activity by international retailers may have an impact on the net sales and profit of Fiskars Group. As a supplier, Fiskars Group is also exposed to retailers shifting their strategic focus to their own private label businesses. As an outcome retailers may lower the level of the Group’s products in their own stock, decrease the level of shelf space reserved for the Group’s products or even discontinue selling the Group’s products.

Failure to meet customer demands may result in Fiskars Group losing customers or category listings with customers. The loss of any of the largest customers, the loss of significant category listings with key channels, or a decrease in business volume with key customers may have a material adverse impact on the net sales and profit of Fiskars Group. There is also a risk of customer bankruptcy due to the challenging economic environment.

Fiskars Group maintains relationships and trade relations with a diverse customer base and no single customer represents more than 5% of the Group’s revenue. Fiskars Group is constantly developing its sales organization and supply chain operations to meet the changes in customer demand.

People are at the core of Fiskars Group’s strategy as the most important asset and enabler. The execution of the Growth Strategy is heavily reliant on employing the right people in the right positions.

An inability to attract and retain talented and committed professionals with the needed capabilities in the competitive employee market may have an adverse impact on the achievement of Fiskars Group’s strategic objectives. Failure to provide an inspiring and motivating working environment may lead to a loss of critical competencies and key employees in strategic positions. The growing demands of working life can result in loss of employee engagement, increased absence rates and high turnover. Employee engagement is promoted notably by providing opportunities for professional growth through leadership training and skills development and by committing to a diverse and inclusive culture. The “Our Voice” employee surveys are carried out regularly to monitor the engagement and well-being of the company’s employees.

Occupational health and safety risks may cause severe harm to employees and endanger the continuity of operations. Fiskars Group has set a Group-level target of achieving zero lost time accident frequency. The company is committed to ethical and responsible business practices and to respecting human rights, anti-corruption and antibribery activities. The same is also expected of the Group’s suppliers. Failure to keep these commitments can lead to a decrease in employee motivation and well-being as well as reputational and financial damage to the company. Any misconduct can be reported anonymously through a whistle-blowing channel, and the company is committed to taking corrective action when needed.

The risk of human error is prevalent in all business operations. This is mitigated by designing and implementing appropriate processes for all businesscritical operations.

IT systems and cyber security
Fiskars Group is increasingly dependent on centralized information technology systems and suppliers that hold and process critical business information. Breaches, malfunctions, cyber-attacks and fraud attempts towards Fiskars Group or its suppliers may cause interruptions in the company’s operations on either a regional or global level. Such interruption may have a material adverse effect on the net sales, profit and reputation of the Group.

Risks related to major system implementations, such as conflicting or missing data, budget overspend and delay of the project may affect business negatively. Operating against IT best practices, such as following poor lifecycle management, may leave systems vulnerable and cause compromised security. The risk applies both to own and suppliers’ or other third parties’ IT environment.

Fiskars Group mitigates IT-related risks by deploying high-quality IT solutions and by maintaining, developing and testing their function and integrity according to internal IT control framework and industry best practices. Critical service and technology providers are required to have continuity and recovery plans for their services in the event of disruptions. Changes to new and existing IT systems are made according to standard processes and procedures.

Fiskars Group’s information and cyber security governance works towards integrating risks into corporate decision-making. Security posture and capabilities are ensured with different security technologies including network, endpoint and cloud detection and response, firewalls, threat intelligence and security operations. Security awareness program develops and promotes cyber security and data privacy mindset for all Group’s employees.

Environment and climate change
The impact of climate change on well-functioning ecosystems, temperatures and sea levels may cause unforeseen challenges to Fiskars Group. Regulations aiming to decrease dependency on fossil fuels and to reduce emissions, including the introduction of new tax policies, may increase energy prices. As regulations are tightening and public awareness and expectations are growing, past measures to contain the environmental impact may prove insufficient. The increasing frequency of natural catastrophes, such as floods and typhoons, and loss of biodiversity may interrupt and impact the operations of Fiskars Group. 

Water scarcity and resource scarcity related to exhaustible fossil materials are increasing global challenges in the long term, leading to an increased cost of raw materials and risk of production interruptions. Currently, the challenge is the limited availability and higher prices of more sustainable raw materials such as certified wood materials, renewable plastics and recycled raw materials.

Fiskars Group needs to enhance climate change resilience by adapting to changing weather patterns and shifting customer expectations. The Group is constantly increasing its sustainability efforts and aims to minimize environmental risks through systematic risk management. Fiskars Group is committed to promoting a circular economy through the value chain, combating climate change by taking actions to mitigate emissions, reducing the use of energy and promoting renewable energy sources. Also, the expectation to acquire green and sustainability linked funding is increasing, and a demand for showing performance in ESG matters is growing. Financial implications of business interruptions caused by natural hazards are mitigated by insurance.

Multiple source contracts and ongoing research carried out on alternative sustainable materials are relied on to manage price and availability risks.

For the gardening category in the Terra segment, the second quarter of the year is seasonally the most important. The back-to-school and holiday seasons are important for the sales performance of Crea during the second half of the year. For the Vita segment, the fourth quarter of the year is the most important.

Any negative developments related to product availability, demand or increased costs in manufacturing or logistics during the important seasons can significantly affect the full-year net sales and profit. The seasonality of demand can differ from a typical year due to current volatile market conditions. Fiskars Group’s strategy is to balance seasonality by diversifying and developing its product portfolio according to customer needs.

Demand for some of Fiskars Group’s products depends on the weather conditions, especially for garden tools during the spring and snow tools during the winter. Unfavorable weather conditions, such as a cold and rainy spring and summer and snowless winter can have a negative impact on the sale of these products, whereas favorable conditions can boost their sales. The company seeks to balance the impact of changing weather conditions by having
a broad and diverse product portfolio and broad geographical footprint. Extreme weather conditions, for example storms and wildfires, are expected to increase in the future due to climate change and may also have local impact on business operations.

Legal and regulatory compliance
A changing legal and regulatory environment may expose Fiskars Group to compliance and litigation risks regarding for example competition compliance, anti-corruption and human rights. Furthermore, environmental, social and governance (ESG) related legislation and regulations are expected to get tighter and may affect for example choices regarding product materials and manufacturing techniques. There are increasing regulatory requirements for data security and data protection, as well as accelerating changes in technology and heightened consumer and public expectations. These can lead to a need for data inventory and personal data processing activities and third-party audits. There may also be a need for increased resourcing to comply with new regulations and new reporting and disclosure requirements.

Compliance with the regulation may add operative costs and expose the company to the risk of criminal penalties and civil liabilities. Failure to comply with the legal and regulatory requirements may have a material adverse effect on the profit and brand reputation of Fiskars Group.

In order to enhance legal and regulatory compliance, Fiskars Group has implemented various compliance programs, policies, processes, and for example a mandatory Code of Conduct training program for all employees. All finished goods suppliers need to comply with Fiskars Group’s Supplier Code of Conduct requirements.

Intellectual property rights
The well-known and strong Fiskars Group’s brands are exposed to infringement of intellectual property rights (IPR). There is a risk that the company, its agents or suppliers can be harmed by employees, agents or third parties using company trade secrets or intellectual property to the Group’s detriment. Counterfeit products may present quality and safety risks to consumers and may damage consumer confidence in the Group’s products. Fiskars Group is also exposed to the risk of unintentionally violating other parties’ intellectual property rights. Infringement of IPRs may lead to loss of net sales and profit.

Potential IPR infringements are monitored through cross-functional processes and through online monitoring and systems. Fiskars Group has an enforcement policy in place governing the enforcement actions that are taken to protect the exclusivity of Fiskars Group’s IPRs.

Product safety and liability
Fiskars Group is committed to offering high-quality and functional products that are safe to use and fit for purpose. As a manufacturer and seller of an extensive portfolio (including sharp cutting tools, food contact items, children’s products) with a broad distribution, the Group carries a risk of product liability. Failure to meet safety, quality and legal requirements due to for example inadequate supplier selection, quality assurance or manufacturing process control may lead to a delivery stop or product recall, reputation loss, indemnities and lost sales. These costs can be substantial and in some jurisdictions, may include punitive elements.

Comprehensive insurance cover and a product recall policy are in place to mitigate the financial impact of a recall and to precipitate the process of recalling potentially harmful products from the markets. The product development process at Fiskars Group is based on continuous testing and learning, and the company has invested in product development and quality assurance resources to reduce the recall risk at an early stage of product development.

Currency rates
With a significant part of the business in the U.S. and in other countries outside the eurozone, Fiskars Group is exposed to fluctuations in foreign currency rates. A change in the exchange rate may have a material impact on the reported financial figures. A change in the exchange rate may also negatively impact the local competitiveness of a Fiskars Group company. The most significant transaction risks relate to the appreciation of IDR, THB and USD and the depreciation of AUD, CAD and SEK. The most significant translation risks relate to the depreciation of USD.

Currency risks related to commercial cash flows are first managed by offsetting cash flows denominated in the same foreign currency. Purchases of production inputs and the sales of products are primarily denominated in the local currencies of the Fiskars Group companies. The remaining net exports or imports in foreign currencies is hedged up to 15 months in advance using currency forwards and swaps.

Acquisitions are not a central part of the strategy of Fiskars Group; however, the company may also grow through acquisitions. Despite a careful due diligence process, all acquisitions and integrations 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.

Fiskars Group entities are subject to tax audits in several countries. It is possible that tax audits may lead to reassessment of taxes as the international tax environment creates uncertainties related to tax obligations. Increasing tax enforcement activity may lead to double taxation and additional costs in the form of penalties and interest. Eventual reassessments may have an impact on the reputation of Fiskars Group.

Changes in tax or import duty liabilities in countries where Fiskars Group operates may affect the company’s profit. Uncertainty regarding tariffs may have an impact on the company’s business, as part of the product portfolio sold is imported.

Fiskars Group closely monitors changes in tax regulations and international agreements in order to proactively manage risks relating to taxes and duties. Processes and controls are actively developed and maintained to ensure compliance with any local and international requirements. Fiskars Group promotes open dialogue with tax authorities and may seek
for advance tax rulings to secure its tax positions beforehand where deemed necessary.

Financial investments
The financial investment portfolio of Fiskars Group mainly consists of investments in unlisted private equity funds. The value of the investments is exposed to fluctuations in the financial markets, including changes in interest rates and foreign exchange rates, and increases in credit risk. The financial investments are treated at fair value through profit or loss.

Updated April 13, 2023