Risks and Risk Management
The Rapala Group’s risks consist of strategic, operational and hazard risks, as well as financial risks.
The main strategic risks relate to the status of sport fishing as a leisure time hobby, environmental issues affecting fishing opportunities, success in developing new products, competitive landscape, changes in retail structure, value of the Group’s brands, corporate reputation and other intangible assets, managing costs and productivity, development of strategic supplier partnerships, country and political risks as well as success in mergers and acquisitions.
The main operational risks relate to the effects the changes in economic cycles may have on consumer demand and customer behavior, annual seasonality of the business, weather, high interdependency between the Group’s units and consequent supply chain, inventory and supplier management issues. The Group’s main hazard risks relate to fire or other similar disaster scenarios, which could lead to property damages and business interruption losses throughout the supply chain.
The main financial risks relate to market prices, liquidity and counterparty risks. The main market price risks relate to foreign exchange rates, interest rates and raw material prices. Liquidity risks relate to availability of sufficient funding even at the peaks of the seasons. Counterparty risk relates to creditworthiness of customers and other counterparties, such as banks.
The objective of the Rapala Group’s risk management is to support the implementation of the Group’s strategy and execution of business targets. This is done by monitoring and mitigating the related threats and risks and simultaneously identifying and managing opportunities. The Board evaluates the Group’s financial, operational and strategic risk position on a regular basis and establishes related policies and instructions to be implemented and coordinated by the Group management.
The Board of Directors evaluates the Group’s strategic risks on annual basis as part of the strategy process, operational risks at least once a year as part of the operational plans and budgets and financial risks several times during the year. The CEO and the Group’s finance management continuously monitor changes in business environment and coordinate the management of the Group’s strategic, operational and financial risks.
The daily risk management activity is primarily allocated to the management of the business units, who are responsible for managing the local strategic, operational and financial risks.
Internal Controls and Monitoring add
The aim of internal controls is to ensure the effectiveness and efficiency of the Group’s operations, reliability of financial and operational reporting, and compliance with the applicable regulations, practices and policies.
The Group has a harmonized chart of accounts, uniform accounting principles (IFRS) and related reporting process. The Group is developing its Group wide information technology system, which improves the transparency of supply chain and inventories. The Group’s financial management monitors the functionality and reliability of the financial reporting process.
The Board monitors the Group’s business risks on an ongoing basis. All Group companies report their financial performance and position at least once a month to the management that prepares for the Board a monthly management report, which explains the main recent developments in the business of the Group and the major Group companies.
Communication between the Group management and subsidiaries is frequent and close. Group management, managing directors, and financial management of all subsidiaries meet several times during the year and in these meetings, business performance and internal control issues are also reviewed. In addition, representatives of Group management visit subsidiaries regularly in different assemblies. These meetings enable Group management to monitor and give guidance to the subsidiaries.
Financial Risk Management add
The main objective of the Group’s financial risk management is to reduce the impact of price fluctuations in financial markets and other factors of uncertainty on earnings, cash flow and balance sheet, as well as to ensure sufficient liquidity. The Board has approved the Group’s risk management policy and the CEO is responsible, together with the Group’s finance management, for development and implementation of the financial risk management procedures. Group Risk Management reviews financial risks on regular basis to manage Group’s financial risk position and decide on necessary actions to manage financial risks.
Financial risks consist of market risks, credit and default risks and liquidity risks.
The Group’s market risks are mainly caused by changes in foreign exchange and interest rates.
Foreign Exchange Risks
The Group has a foreign exchange risk policy approved by the Board of Directors. The risk policy defines the framework for foreign exchange hedging. Foreign currency net transactions are hedged in all significant currencies for the next 12-15 months. The hedging policy is dynamic and provides certain ranges for the hedge ratio depending on market conditions and maturity.
Interest Rate Risks
The Group funds itself mainly in Euros and US dollars, but may use other currencies as well to utilize favorable market conditions. Group Risk Management decides the duration of the loan portfolio and cross currency swaps as well as interest rate swaps are used to manage currency and interest rate exposures of the Group.
Commodity Risks
The Group purchases some raw-materials, which are priced on global financial markets. These include commodity metals such as copper, zinc and lead, and some plastics. The value of these purchases is still relatively low and market price risk management actions are done in each manufacturing unit locally. No commodity hedging is currently carried out.
Liquidity Risks
Generally, the seasonality of the Group’s cash flow is fairly predictable and Group’s finance management monitors Group’s liquidity position using cash pooling systems as well as regular cash flow and liquidity reporting.
Credit and Default Risk
The Group’s accounts receivables are generated by a large number of customers worldwide. Consequently, the credit risk is spread against multiple counterparties. The credit risk management is delegated to each operative business unit. Before providing credit to any new customer, background checks are carried out. Cash, advance payments and letters of credit are also applied with new and existing customers. Customer specific credit limits and financial situation of the existing credit customers are monitored and set locally in each business unit. Customers’ payment behavior is monitored regularly and delays in payments may trigger payment reminders, stopping the shipments, requirements for advance payments for future shipments and eventually legal collection procedures. In significant cases, business units consult with the Group’s finance management before final decisions. In exceptional cases, payment terms may be renegotiated.
Group Risk Management manages most of the credit and default risk related to financial instruments. Group seeks to reduce these risks by limiting the counterparties to banks, which have a high credit rating. Majority of the Group’s bank deposits and derivative contracts have been made with the Group’s house banks, whose credit ratings are strong. Group’s all investments related to liquidity management are made in liquid instruments with low credit risk. For instance, commercial paper investments are not made.