Commercial risks

Nobia is exposed to both commercial and financial risks. Commercial risks can be divided into strategic, business development-related, operating, sustainability-related, political and legal risks as well as information and IT risks. Financial risks are attributable to currencies, interest rates, liquidity, borrowing and credit granting, financial instruments and pensions. All business operations are associated with risks. Risks that are well-managed can create opportunities, whereas risks that are not managed correctly may lead to damage and losses. The aim of Nobia’s risk management is to create awareness of risks and consequently limit, control and manage them, while safeguarding business opportunities and strengthening profitability. Identified materials 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 the Group’s 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 on page 98.

 

Business-development risks 

Risks associated with business development, such as acquisitions and major structural changes, are managed by the Group’s M&A department and central programme office, and by specific project groups organised for the various projects. Continuous follow-ups are carried out compared with plans and expected outcomes. More long-term risks are initially addressed by the Board in its Group strategy planning. 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 and mature markets, which means that underlying demand in normal market circumstances is relatively stable. The company’s cyclical nature does not deviate from that of other companies in the industry. Nobia has a structured and proactive method for following demand fluctuations. Robust measures and cost-saving programmes for adjusting capacity have proven that Nobia can adjust its cost level when demand for the Group’s products declines. Nobia works continuously to transfer price increases on materials to consumers where possible.

 


Demand is deemed to have gradually slowed in the ­Nordic and Central Europe regions in 2018. The market outlook for the new-build segment in the Nordic market has weakened compared with the preceding year. In the UK, which accounts for about 42 per cent (45) of the Group’s total sales, the macro­economic uncertainty resulting from Brexit had a negative impact on the kitchen market. Nobia has made preparations in the event of a no-deal Brexit, including building up a safety stock of components and fronts. Nobia is continuing to capitalise on synergies and economies of scale through harmonisation of the range, co-ordination of production and more efficient sourcing.
Demand for Nobia’s products is influenced by trends in the housing market, whereby prices, the number of transactions and access to financing are key factors. Four-fifths of the European kitchen market is estimated to comprise purchases for renovation, and one-fifth for new builds. Nobia’s strategy is based on large-scale product supply, product development and the utilisation of the positioning of the Group’s strong brands in the various markets and sales channels. Nobia’s various offerings are also based on the strategy of providing added value to customers in the form of complete solutions with accessories and installation
  

Customers

Kitchens to end customers are sold through 248 own stores and a network of franchise stores, as well as DIY stores, furniture chains and other retailers. Conducting sales through own and franchise stores is a deliberate strategy to achieve greater influence over the kitchen offering to end customers, which contributes to better co-ordination of the Group’s supply chain. A risk with franchises is that retailers are unable to fulfil their contractual commitments, which may have a negative effect on sales. However, the franchise solution involves lower fixed costs.


In 2018, nine Norema stores were converted to franchise stores and one Norema store was closed. All Norema stores were franchise stores at 31 December 2018. The background to the decision to convert own stores under the Norema brand to franchise stores is that this kitchen chain is not deemed large enough to generate synergies, and that the franchise model has proven successful in the Norwegian kitchen market.
Sales to professional customers are conducted with regional and local construction companies via a specialised sales organisation or directly through the store network. 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

Nobia’s cost structure in 2018 comprised about 61 per cent variable costs (raw materials, components, accessories), about 29 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 main markets, except that the UK region has a slightly higher percentage of fixed costs due to its extensive store networks.
Nobia’s proprietary manufacturing mainly comprises the production and installation of cabinets and doors, together with purchased components.


In 2018, Nobia purchased materials and components valued at about SEK 5.4 billion, of which some 21 per cent pertained to raw materials (such as chipboard and packaging materials), about 53 per cent to components (such as handles, worktops and hinges) and about 26 per cent to goods for resale (such as appliances). The underlying raw materials to which the Group is primarily exposed are wood, steel, aluminium and plastics. Cost variations can be caused by changes in the prices of raw materials in the global market or suppliers’ ability to deliver.
Nobia’s sourcing organisation works closely with its suppliers to ensure efficient flows of materials. In 2018, market prices increased for board material and components, as well as other raw materials, such as metals, oil, wood products and packaging materials. Demand for board material is expected to increase for reasons including higher demand from the housing construction industry, and weak competition and limited manufacturing capacity among suppliers. The Group’s sourcing and production functions are continuously evaluated to reduce product costs.


Property risks in the form of loss of production, for example, in the event of a fire at manufacturing units, are minimised by Nobia conducting annual technical risk inspections jointly with the Group’s insurers and the risk consulting firm AON that reports on deviations from Nobia’s “Standard for Loss-Prevention Measures.” Preventive measures are continuously implemented to reduce the risk of disruptions in the operations.

 

Strategy and restructuring 

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. In 2018, the Group’s brand portfolio, innovation, product-­range development, production and sourcing continued to be co-ordinated. In 2018, Nobia continued to invested in digital aids, such as drawing tools and e-commerce services that allow customers to both draw and purchase their kitchen online. In 2017, Nobia launched a new store concept aimed at increasing customer participation, improving the customer experience and enhancing sales efficiency. This venture continued in 2018. The strategic direction is described in more detail on pages 14–17.
The implementation of these plans entails operating risks, which are addressed every day in the ongoing change process. Restructuring is a complex process that requires the management of a series of different activities and risks. 

 

Human capital risks

Nobia needs to attract and retain skilled and motivated employees to conduct its business operations with high long-term profitability and endeavours to be an attractive employer. To ensure availability of and skills development for motivated employees, manager sourcing and managerial development is administered by a central unit at Nobia. For a more detailed description, refer to our sustainability report on pages 39-40.

 

Sustainability-related challenges and opportunities 

Sustainability risks are related to all four areas of the UN Global Compact: environment, human rights, labour and anti-corruption. Risks related to climate change and global warming, the risk of shortcoming in the controls of subcontractors and suppliers, work-related accidents or serious environmental incidents at Nobia’s workplaces, and unforeseen increased customer demand for sustainable products and production processes are relevant risks for Nobia. Managing sustainability risks is an integrated part of existing central processes and a parameter in the central risk analysis. For a more detailed description, refer to our sustainability report on pages 30-40 and 104-105. 

 

Political and legal risks

Nobia operates in seven countries and is thus affected by country-­specific rules and regulations between countries. These include general regulations on trade barriers, taxes and financial reporting,
but also more specific rules, such as subsidies for new builds and/or renovation or changes to the taxation of residential ­properties, may influence demand. Tax deductions on labour
for home renovations, for example, have had a positive effect ­
on demand in several Nordic countries. All Nobia units are responsible within their individual area to monitor and evaluate changes in the business world and changes to legislation.

 


Information and IT risks

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. In 2018, the Group’s brand portfolio, innovation, product-­range development, production and sourcing continued to be co-ordinated.

In 2018, Nobia continued to invested in digital aids, such as drawing tools and e-commerce services that allow customers to both draw and purchase their kitchen online. In 2017, Nobia launched a new store concept aimed at increasing customer participation, improving the customer experience and enhancing sales efficiency. This venture continued in 2018. The strategic direction is described in more detail on pages 14–17.
The implementation of these plans entails operating risks, which are addressed every day in the ongoing change process. Restructuring is a complex process that requires the management of a series of different activities and risks.


Nobia is dependent on IT systems in its daily operations. Disrup­tions or errors in critical systems may have a direct impact on production. Incorrect handling of financial systems could impact the reporting of the company’s results. Risks linked to cyber security have generally increased in importance and could have a significant impact on our operations. The General Data Protection Regulation (GDPR) sets strict requirements on how companies process personal data. Non-compliance with the Regulation could result in high fines.
Nobia has established an IT model that includes governance, standardised IT processes and an information security organisation. Standardised processes are in place for implementing and changing systems and IT services, as well as the daily operations. Nobia’s IT system landscape is based on well-known products, such as SAP.

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