Description of the risks and uncertainties that are considered significant for Tokmanni Group

Economic fluctuation

Changes taking place in the global economy and the Finnish economy could raise the costs of transportation, components, energy and materials and potentially result in shortages in these. Prolonged high prices, shortages of components, problems in the distribution of electricity and disturbances in logistics chains could, for example, delay deliveries and otherwise weaken the availability of products as well as result in additional costs that we are unable to pass along fully to customer prices. Economic slumps typically have less of an impact on variety discount retailers than other retailers, but they do have a significant impact on demand, especially for higher-priced products.

Geopolitical changes and sourcing risks

There are direct and indirect risks involved in the uncertain global economic conditions and in geopolitical developments, including slower economic growth and potential unexpected political decisions. These factors may have an adverse effect on Tokmanni Group’s business and on demand for the company’s products. In addition, China’s changing environmental legislation and the impact of the country’s political decisions on its economic development and legislation as well as political instability in other sourcing countries, such as Turkey, Bangladesh, Myanmar and Pakistan could increase sourcing prices or cause supply problems. Tokmanni Group’s joint venture with Europris in Shanghai, China, acts as a sourcing channel for almost all goods from East Asia. The possible termination of the sourcing cooperation may result in additional costs for Tokmanni Group and increase the purchase prices of the products.

Competitor and market risk

Tokmanni Group’s profitability and profit from operations as well as sales growth are dependent on the behaviour of consumers and competitors operating in the Nordic retail market. New international market forces and online stores are transforming the sector and its market dynamics, creating pressure in the market and they may further intensify competition in Tokmanni Group’s main market area.

Inventory turnover and working capital management

Tokmanni Group aims to improve the management of working capital by developing the processes and tools used in sourcing and in supply chain and product category management. A failure by the Group to manage its working capital could have a negative effect on its financial position and profitability.

Data system and data security risks

Dependence on data systems, data traffic and external service providers has grown. The interconnectedness of networks, the outsourcing of services and online retail mean that companies are required to carry out more effective monitoring of data security. Prolonged disturbances in data systems, payment transmission or elsewhere in the supply chain, or other exceptional situations such as a cyber-attack, could paralyse the company’s operations or halt the flow of goods within the entire Tokmanni Group, causing significant losses in sales and a weakening of customers’ trust in the company.

Failure in the execution of strategic projects, as well as the competence and availability of personnel

The execution of Tokmanni Group’s strategy and strategic transformation require new kinds of skills and competences from the personnel. In addition to organic growth, acquisitions are one possible way to achieve the Group’s strategic and financial targets. Acquisitions involve risks, which are related to, for example, the successful integration of sustainability work and purchasing operations and employees. If this integration is unsuccessful, it can be more difficult to achieve the required level of sustainability and the financial targets. Tokmanni Group has created operating models and actively allocated Group-level resources to support the implementation of acquisitions and integration. External advisors are also used to assess potential acquisition targets and related transactions.

Risks of loss or damage

Accidents, natural disasters and pandemics, as well as restrictions on travel and transportation resulting from these, can result in significant damage to people, property and the business. Moreover, risks of loss or damage can cause delays and interruptions in business and imports that cannot be prevented in advance.

Environmental risks

Extreme weather conditions, such as hurricanes and floods, can affect Tokmanni Group’s supply chain, for example, and suppliers’ production and warehouse facilities. Increased awareness and concern about climate change and knowledge about more sustainable products may change customer purchasing behaviour.

Interest rate, foreign exchange and commodity risks

Tokmanni Group is exposed to foreign exchange risks through its sourcing and foreign operations. The Group has external debt and its interest costs fluctuate with changes in market interest rates. The Group also purchases significant amounts of electricity and heat, the prices of which vary depending on market conditions.

Reputation risk

The importance of different aspects of responsibility in product manufacturing and sourcing as well as fair and equal treatment of employees is increasingly emphasised by stakeholders. If Tokmanni Group fails, for example, in its supervision of product safety or in controlling responsibility in the supply chain, it could result in financial losses as well as an erosion or loss of customer trust. Any failure to implement responsibility perspectives could result in negative publicity for Tokmanni Group and impact its reputation.

Brand image and marketing risk

One of the cornerstones of Tokmanni Group’s operations is a strong brand and perceived price image. Improving these requires successful marketing investments. If the marketing does not work as expected, Tokmanni Group’s brand image may weaken, and Tokmanni Group’s sales volumes and profitability may decline correspondingly.

Personnel risks

Widespread absences by employees in various employee groups (e.g. logistics, sales, customer service, management) may impact the company’s business operations. If Tokmanni Group is unable to recruit qualified employees, the company’s ability to operate may suffer. Failure to keep employees motivated and to provide them with continuous training to meet the growing demands of their work can undermine Tokmanni Group’s operations. Strikes may also significantly hamper the Group’s effective business operations and cause financial losses.

Destruction of or damage at the logistics centre

Tokmanni Group is dependent on the uninterrupted operation of its logistics centres. If a single logistics centre is destroyed or closed for any reason, or if its equipment is damaged to a significant extent, or if its operations are subjected to other disruptions, this may delay the distribution of products to stores according to timetable. Significant delays will lead to the loss of sales and to additional expenses.