Risks and risk management
Nobia is exposed to both commercial and financial risk. Commercial risks can be divided into strategic, operating and legal/political risks. Financial risks are attributable to currencies, interest rates, liquidity, credit granting, prices of raw materials and financial instruments.
Identified material risks are managed on an ongoing basis at all levels in Nobia and in strategic planning. The Board of Directors is responsible to the shareholders for the company’s risk management. Company management regularly reports on risk issues to the Board.
Strategic risks
Corporate-governance and policy risks
Corporate-governance and policy risks are managed by Nobia continuously developing its internal control.
The internal dissemination of appropriate information is ensured through the company’s management systems and processes. A more detailed description is provided in the Group Management section of the Corporate Governance Report.
Business-development risk
Risks associated with business development, such as company acquisitions, are managed by using a systematic process (known as due diligence) and subsequent follow-ups of acquisitions compared with original plans. More long term risks are initially addressed by the Board during its annual Group strategy planning meeting. In conjunction with this, Nobia’s business development is evaluated and discussed based on external and internal considerations.
Operating risks
Market and competition
Nobia operates in markets exposed to competition, many of which are relatively mature, meaning that underlying demand in normal market circumstances is relatively stable. However, price competition is intense.
Demand for Nobia’s products is influenced by trends in the housing market, as well as housing prices, the number of property transactions and access to financing for housing. It is estimated that four fifths of the European market comprises renovation purchases and one fifth new builds. Nobia’s strategy is based on large-scale product supply, product development and the utilization of the positioning of the Group‘s strong brands in the various markets and sales channels. Nobia’s offerings are also based on the strategy of offering added value to customers in the form of complete solutions with accessories and installation.
Customers
Kitchens to end-consumers are sold through almost 700 Group-owned stores and through DIY stores, furniture stores and other retailers. Having Group-owned and franchise stores is a deliberate strategy to influence the kitchen offering that will allow for such advantages as co-ordination of the Group’s supply chain. A higher percentage of Group-owned stores will entail a larger share of fixed costs, which increases risk but also provides more opportunities for Nobia to profile its concepts with greater added value. Another risk is that retailers are unable to fulfil their commitments under established contracts, which may have a negative effect on sales. New-build kitchens, also known as project sales, are sold directly to regional and local construction companies via a specialized sales organisation. Concentrating on these large separate customers entails an elevated risk of losing sales if a large customer is lost as well as increased credit risk.
Supply chain
A total of about 60 per cent of Nobia’s cost structure comprises variable costs (raw materials, components, accessories), about 30 per cent semi-variable costs (personnel costs, marketing and maintenance) and about 10 per cent fixed costs (rents, depreciation, insurance). The division of costs is relatively equal between the primary markets, except that the UK and France have a slightly higher percentage of fixed costs due to their extensive store networks.
Nobia’s proprietary production mainly comprises the production and assembly of cabinets and doors, together with purchased components. Production has sufficient flexibility to cope with fluctuations in demand and, accordingly, has a relatively high percentage of temporary labour. The underlying raw materials that the Group is primarily exposed to are wood, steel, aluminium and plastics. Cost variations can be caused by changes in the prices of raw materials in the global market or the company’s suppliers’ ability to deliver. Nobia’s sourcing organization works closely with its suppliers to ensure efficient flows of materials.
The Group’s sourcing and production are continuously evaluated to secure low product costs.
Property risks in the form of loss of production, for example, in the event of a fire, are minimised by the business units conducting annual technical risk inspections of manufacturing units jointly with the Group’s insurers. Preventive measures are continuously implemented to reduce the risk of disruptions in the operations.
Restructuring measures
Nobia’s ability to increase profitability and returns for shareholders is heavily dependent on the Group’s success in developing innovative products, maintaining cost-efficient manufacturing and capitalising on synergies. Managing restructuring measures is a key factor in maintaining and enhancing Nobia’s competitiveness.
Political and legal risks
Nobia’s products are encompassed by international and local regulations regarding environmental impact and other effects arising in the production of kitchens, for example, the release of exhaust fumes and emissions, noise and safety. Nobia works continuously with its operations to adjust to the necessary expectations and requirements. The company is well aware of the demands in these areas for the near future and, provided that they do not significantly change, the current products and ongoing development activities are deemed to be sufficient to meet such requirements.
Changes in local tax legislation in the countries in which Nobia conducts operations may affect demand for the company’s products. Subsidies for new builds and/or refurbishment or changes to the taxation of residential properties may influence trends in demand. The ROT tax deduction on home renovations in many of the Nordic countries is an example of this.
Human capital risks
Nobia endeavours to be an attractive employer, which is a key success factor. To ensure availability of and skills development for motivated employees, manager sourcing and managerial development is administered by a central unit at Nobia.
Financial risks
In addition to strategic and operating risks, Nobia is exposed to a variety of financial risks. The most significant financial risks are related to currencies, interest rates, liquidity, borrowing and credit granting, financial instruments and pensions. All of these risks are managed in accordance with the Finance Policy, which is adopted by the Board on an annual basis. Read more about financial risks in the Annual Report.
Latest update: 25 August 2011