Financial risks

Financial risks mainly comprise economic conditions, wage inflation, raw-material prices, transport costs and exchange-rate exposure.

RISK

DESCRIPTION

RISK MANAGEMENT

ECONOMIC CLIMATE

The retail market in general is adversely affected by a weak economy and although Clas Ohlson sells products for everyday use, a weak retail market will have a negative impact on sales.

Our broad and affordable product range is less sensitive to cyclical fluctuations than that of many other competitors. More than 80 per cent of our products are priced at less than 300 SEK. Clas Ohlson’s broad product range, with five different product categories, also entails lower risk since demand in one product category could increase while demand in another category falls.

WAGE INFLATION

Clas Ohlson is affected by wage-level changes in countries where the company’s products are manufactured. This can vary between products depending on how much labour is involved in the manufacturing process.

Clas Ohlson works continuously to find new purchasing markets in Europe and Asia.

RAW MATERIAL PRICES

Purchase prices for the company’s products are largely determined by the price of individual raw materials in global markets. This applies particularly to electronics (copper), batteries (zinc), lighting (aluminum) and plastic products (oil). Hedging against raw material prices is not carried out directly by the company. This entails a risk since the purchase price of the items concerned is affected by the price development of raw materials.

Clas Ohlson has a broad portfolio of products and is therefore less impacted by changes to a specific raw material. Some of Clas Ohlson’s suppliers purchase raw materials/materials at fixed contract prices, which means some indirect hedging.

TRANSPORT COSTS

Freight shipping prices can vary considerably depending on the global market price, and currency fluctuations.

Clas Ohlson handles changes in freight shipping prices by actively monitor and assess the market.

CURRENCIES

The company’s currency exposure is high, primarily due to sales in Norway and the Group’s purchasing. About half of the company’s purchases are made in currencies other than Swedish kronor. The principal currencies for purchasing are the US dollar (USD), Hong Kong dollar (HKD) and euro (EUR). Movement of the SEK against the Norwegian Krona (NOK) is also important for the Group, since Norway accounts for approximately 40 per cent of sales. Net exposure to EUR is low, since the company is increasing its sales in EUR through its expansion in the Finnish market and the German market. The Group is also exposure to the pound sterling (GBP) via sales in the UK. The table on page 77 shows how profit is affected by changes in principal currencies, excluding hedging.

Futures hedging is performed monthly in USD and NOK, with a maturity of six months, against half of the expected flow in each currency. In this way, the company is guaranteed the forward rate on a major proportion of its purchases, but also acquires the risk of paying for the remaining purchases at the current rate.

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