ANNUAL REPORT 2012

Governance

Principal uncertainties

Customer relationships and distribution

As Fiskars produces and sells consumer products, general market conditions and a decline in consumer demand in key market areas in Europe and North America could have a material adverse effect on the Company’s net sales and profitability.

Fiskars’ products are primarily sold to wholesalers, retailers, and directly to consumers through its stores. Sales to large individual customers are significant in some businesses, but none of the customers account for more than 10% of the total net sales of the Group. As some major customers decide on their product range and suppliers only once annually, failure to meet customer needs may result in Fiskars losing customers, and the loss of even a small number of major customers or disruption in the activities of a specialized distribution channel could have an adverse effect on Fiskars’ business and profits.

Supply chain

A significant proportion of the products sold by Fiskars are manufactured by external suppliers and, in addition, the Company purchases components and raw materials from several suppliers. By making greater use of outsourcing the Company is increasingly exposed to risks related to its outsourced supply chain. Most of the suppliers are located in Asia, which is far from the Company’s key markets, and disturbances at the source of supply or in the logistics chain could prevent the orderly delivery of products to customers.

Fiskars is also increasingly exposed to legal, economical, political and regulatory risks related to the countries of its suppliers. When selecting its suppliers, the Company emphasizes delivery performance, suppliers’ ability to react to changes in demand, quality and ethical aspects of suppliers’ operations. Fiskars requires its partners to commit to principles covering labor and human rights, health and safety, the environment, and business ethics. Suppliers are required to follow Fiskars’ Supplier Code of Conduct, and audits are carried out to verify compliance.

The importance of a seamlessly functioning supply chain continues to increase and Fiskars is continuously strengthening its global sourcing operations. The Company currently runs regional sourcing offices in Shanghai, Bangkok and Helsinki and focuses on value creation by harmonizing sourcing processes and supplier-base management principles on a global scale.

Raw materials and components

The most important raw materials used in Fiskars’ products are steel, aluminum, and plastics. Sudden fluctuations in raw material, component and energy prices or availability can have an impact on the Company’s profitability. Fiskars uses long-term contracts with some of its raw material suppliers to manage price risks, and derivatives are used to hedge the price of electricity for production plants in Finland.

Currency rates

A significant part of the Group’s operations are located outside of the euro zone. Consolidated financials are reported in euros and changes in foreign exchange rates may have an adverse impact on the reported net sales of the Group, its operating results and balance sheet. Changes in foreign exchange rates may also impact Fiskars’ competitiveness negatively. The Company aims to manage currency risks related to commercial cash flows primarily through business means. Acquisition of production inputs and sale of products are primarily denominated in the local currencies of the Group companies. Most of the estimated exports and imports in foreign currencies are hedged up to 12 months in advance.


Brands and corporate reputation

Fiskars has a number of global, regional and local brands in its portfolio. Any adverse event affecting consumer confidence could have a detrimental impact on its business. Fiskars monitors the performance of its leading brands closely, and is committed to taking appropriate action to mitigate any threat to brand value.

Weather and seasonal dependence

Some product groups, particularly garden tools during the spring and snow tools during the winter, can be affected by the weather. Unexpected weather conditions can have a negative impact on sales of these products. Sales of homeware products are heavily geared towards the last quarter of the year, and any negative issues related to product availability or demand during this quarter could affect the full-year result of this business significantly.

Investment program in the EMEA region

In December 2010, Fiskars launched a five-year develop mentprogram in the EMEA region with an investment of approximately EUR 50 million. This program will enable the Company to create a more streamlined supply chain and improve transparency using common processes and IT systems, including a new common enterprise resource planning (ERP) system. The program may be delayed or not achieved if the Company fails to execute the program as planned. A dedicated project team, also including external advisors, has been established to implement the program. The corporate management team monitors the progress of the program and the project’s status is regularly reported to the Board of Directors.

Acquisitions

Despite a careful due diligence process, all acquisitions include risks. Fiskars mitigates these risks by planning the integration of acquired businesses in advance, by establishing Fiskars’ corporate governance principles immediately after the takeover, by setting up a joint integration team and by following the integration and the development of the new company intensively within its corresponding management team, the Executive Board and the Board of Directors of Fiskars.

Associated company

Fiskars has a substantial investment in an associated company, Wärtsilä Corporation. Major changes in Wärtsilä’s share price, profitability, or dividend would have a material impact on Fiskars.