RISK MANAGEMENT
New Nordic is a business operating internationally in a changing world, in highly dynamic, high growth health and beauty markets. In order to ensure the sustainability of its development and the achievement of its objectives, New Nordic strives to anticipate and manage the risks to which it is exposed in its different areas of activity.
Risk management consists of identifying, assessing and controlling risks that may affect the smooth running of the Company. At New Nordic, it is understood that poor risk management can result in a deteriorating business. New Nordic’s sales are expected to grow and the Company can not grow without taking new risks. New business of any kind implies increased risks, and these risks has to be dealt with Ad Hoc on at the highest level in the organization, at the board of directors and the executive management.
New Nordic’s internal control procedures, planning and reporting is the basic tools for the internal risk management. The internal control and risk management is dealt with by the executive management and management team on an ongoing basis.
There are other risk and opportunity factors that occurs in the changing environment in which New Nordic operate. The external risk factors are also dealt with on an ongoing basis. Such risks can occur suddenly, or they can develop slowly without anybody noticing them. Covid-19 is a god example of a major change in external factors. Changes in consumer behavior like increasing preference for vegan products and sustainable brands are other examples. Changes in import taxation, regulatory requirements, marketing laws etc are yet other examples. These more and more dynamic risk factors are increasingly becoming a part of the daily work.
For the risks identified and listed below, New Nordic is doing their best to manage the risks and many employees are involved in this process. New Nordic employees are urged be observant to spot when these risks emerge and take action to deal with them immediately, to avoid that they rise to bigger risk problems.
The objective of risk management is to identify, assess and prioritise risks with all those concerned, and keep the risk mapping analysis up-to-date. The aim is to promote optimal use of resources to minimise and control the impact of negative events and maximise the realisation of opportunities.
HOW NEW NORDIC HANDLE RISKS
To detect risks and to manage them and mitigate the consequences, New Nordic have procedures and responsibilities in place. The risks related to business growth and progress actions, the risks threatening the Company’s existing business and adapting the business model to the changing world around New Nordic has been identified and prioritised. Methods of control has been put in place to minimise any impact of the risks and responsibilities has been clearly defined. Some risks are analysed and controlled on a daily basis and they are part of regular reporting. Other risks are controlled and evaluated yearly and compiled at group level with a view to getting an overall picture of the group’s main risks – and thereby shedding light on the mitigation plans that are in place to manage these risks.
Internal risks, arising from within the New Nordic organisation, are controllable and ought to be eliminated or avoided. Examples are the risks from employees’ and managers’ unauthorised or inappropriate actions and the risks from not following routine operational processes.
RISK management
New Nordic seek to eliminate these risks through the way they perform their daily work by following New Nordic’s Financial policy, procedures and authorisation manual. Achieving complete avoidance of risks would be too costly, bureaucratic and against the New Nordic management style. New Nordic have a zone of tolerance of making defects and errors that will not have severe consequences and the Company focus on reducing risks by having a passionate team of employees with high integrity who care and do their job with excellence and precision.
PERSONNEL WITH AN ACTIVE ROLE IN RISK MANAGEMENT
The Board of Directors and the Audit Committee have the ultimate responsibility for the risk management. They will secure that effective systems for risk management has been adopted in the organisation. Together with the Executive Management Team, consisting of the CEO, CFO and COO, they will also be responsible for risk management in relation to acquisitions and new business ventures. On the day-to-day level, The Executive Management Team is responsible to ensure that all New Nordic companies have access to tools and methodologies for the identification and evaluation of risks.
The Executive Management Team is responsible for the implementation of action plans for the management of the major risks they identify. The Executive Management Team defines and definition and implements evaluation methods and processes for handling certain major or large-scale risks, and they promote effective loss prevention practices, and advises on risk coverage, transfer and financing.
The Management Team consisting of the Functional, Country and Area Managers, are responsible for the risks inherent to their businesses and the companies that they run. Area and Country Managers are closer to the markets where risks initiate. Sometimes on a national basis and sometimes on regional or international shifts in consumer retailers or end consumers behaviours. It is important that the Area and Country Managers are observant on emerging risks and report
and discuss these risks with the Executive Team. New Nordic encourage that all Managers on all levels encourage an open and transparent culture where every individual employee is observant and report emerging risks and opportunities immediately. This is a part of the internal education and company culture.
RISK EVALUATION CYCLUS
New business and acquisition risks are analysed ad hoc by the Execute Team and the Board of Directors when needed prior to decisions. Risk connected with preserving the existing business is done thoroughly by the Management Team continuously during the operations during the year including monthly reportingand as a more in dept Risk Analysis and Management during each year. The analysis is updated in respect of the main operational risks – in the short and long term – and also the risks within financial reporting. This is carried out in a group-wide risk analysis, based on the probability and impact of each risk.
Risk to New Nordic’s business model from changes in the world around the Company is done immediately if a substantial risk seems to build up and discussed yearly in connection with the summer Management Meeting by the management and the executive management and then at the October Audit Committee and Board Meeting by the Audit Committee and the Board of Directors.
WHEN A RISK BECOMES A REALITY
If internal and external risks, as described later, occur, this will be reflected in the accounts and / or the conditions that the management and the rest of the company measure on a daily basis. In summary, the most important issues that New Nordic must be aware of can be prioritized and listed as follows:
Brand attractiveness: The New Nordic’s brand or their products are no longer attractive, or more attractive than competitors, to their consumers. Marketing effectiveness: New Nordic lose the high effectiveness of their marketing and the ability to convince customers to buy their products in a cost-effective way.
Decrease in gross margin: New Nordic’s profitability in terms of gross margin is decreasing due to that they sell at a lower net price because of giving to high discounts, because of increasing cost price or because of developing too expensive products. In-effective and costly administration: Personnel, administration and other costs are increasing as a percentage of sales and New Nordic is becoming less profitable because of these fixed costs.
Poor cashflow: New Nordic run out of cash because they are giving to long credit, receiving too short credit, having too much inventory, investing in an acquisition or other not liquid assets or paying out to high. High debt: New Nordic take on too much debt in connection with investments in assets.
Staff without passion: New Nordic’s staff and in particular their management is “getting tired” or loose their New Nordic spirit, integrity, creativeness, and entrepreneurial mood or that New Nordic as a company introduce to much hierarchy and bureaucracy to run efficiently.
For each point, New Nordic has defined which people are responsible for being aware that the situation is not deteriorating and from which sources they must collect the information in order to be able to assess it. In this way, the company can react quickly and efficiently if one or more risks become a reality.
ABOUT NEW NORDIC AS A BRAND
New Nordic is a beloved international health and beauty brand deeply rooted in the Scandinavian heritage of integrity, quality, and naturalness. The New Nordic brand will be durable beyond any cyclical technical or manufacturing advantage, beyond any patent or design that is due to run out and beyond any brilliant manager that is momentarily lifting the company to extraordinary performances. It is a heritage brand that goes more than 30 years back in time and if managed well the robust New Nordic brand can be durable for generations.
The New Nordic brand has not been created quickly by fancy advertising slogans. The New Nordic brand is built over years by offering meaningful substance to the consumers. The Company continue to add value to the New Nordic brand through product innovation, quality, the values and the way that all employees behave towards New Nordic consumers and all the people the employees meet in their daily business lives, and the way they communicate.
The New Nordic brands lives deeply in the minds of consumers. It is a story that travel across geographical borders and cultures A brand like New Nordic, that consumers like, trust and support is the best and most durable asset a company can have, and New Nordic is very observant not to put the brand at risk. The business that can be carried out in the name of the New Nordic brand is the Company’s biggest opportunity and the damage that can be done to the New Nordic brand is the Companys biggest risk.
Employees have to have the highest integrity, the right attitude and the right energy to continue to build theNew Nordic brand. The Company’s reputation and its brand image may be compromised at any time in a globalised world where information is disseminated rapidly. New Nordic is not safe from an undesirable event, whether this involves the use or misuse of a product or reprehensible individual conduct. Circulation of detrimental information in the media, regardless of whether or not such information is founded, has been facilitated by the introduction of new technologies and the development of social networks, and could also affect the New Nordic’s reputation and brand image. The development of collaboration with influencers whose behaviours, actions and positions may not be in line with New Nordic’s ethical principles may adversely affect New Nordic’s reputation given their position as opinion leaders for a significant subscriber community.
CORONAVIRUS
The Covid-19 pandemic has resulted in a challenging and turbulent global market situation for New Nordic. The changing consumer behavior of consumers, the changing operating conditions for wholesalers and retailers and an uncertain supply chain affect New Nordic’s daily operations. New Nordic has implemented changes in the purchase of raw materials, production and media to prepare for the coming period. New Nordic has also taken steps to focus on continuing to be able to service and deliver to consumers through e-commerce. New Nordic is financially stable and the company does not expect Covid-19 to have effects in the medium and longer term. In the near future, the company will have a strong focus on the development of the risks caused by the pandemic and the management of these risks.
CYCLICAL ECONOMY
Demand for New Nordic’s products are affected, as are most consumer goods, by changes in the general economic situation. Sales of personal care products are traditionally considered to have a low sensitivity to economic fluctuations.
BRAND
The Company’s reputation and its brand image may be compromised at any time in a globalised world where information is disseminated rapidly. New Nordic is not safe from an undesirable event, whether this involves the use or misuse of a product or reprehensible individual conduct. Circulation of detrimental information in the media, regardless of whether or not such information is founded, has been facilitated by the introduction of new technologies and the development of social networks, and could also affect the Company’s reputation and brand image. The development of collaboration with influencers whose behaviours, actions and positions may not be in line with New Nordic’s ethical principles may adversely affect New Nordic’s reputation given their position as opinion leaders for a significant subscriber community.
PRODUCT QUALITY AND SAFETY
Consumer safety is an absolute priority for New Nordic: safety assessment is at the heart of the development of new products and a prerequisite before a product is launched on the market. The principles governing New Nordic’s quality and safety policy are:
· satisfaction of customer needs
- compliance with safety requirements
and legislation
- product quality and conformity across
the supply chain
RESPONSIBLE PRODUCT COMMUNICATION
New Nordic provides consumers with innovative products whose success is based on their quality and performance. The benefits of these products are highlighted in New Nordic’s communications. Despite all due care taken to guarantee the accuracy and fairness of the claims made in these communications, there is always a possibility that they may be challenged by the authorities, organisations or consumers.
SEASONAL NATURE OF BUSINESS
In certain cases and for specific products, the timing of sales can be linked to climate conditions, such as for example cosmetic sun care products or diet products. Products sought after by consumers as gifts see particularly strong sales at year-end and during holiday periods. This is the case for special gift packs. A major disruption in any of these factors could affect New Nordic’s sales.
GEOGRAPHIC PRESENCE AND ECONOMIC AND POLITICAL ENVIRONMENT
New Nordic has subsidiaries in 21 countries and the majority of its sales are generated outside Scandinavia. Global growth in the cosmetics market has led New Nordic to develop its activities in countries within the “New Markets” Zone, which represents a growing part of New Nordic’s business.
Besides the currency risks, political or economic disturbances in countries where New Nordic generates a significant portion of its sales could have an impact on its business activities
DISTRIBUTION NETWORK
Due to its innovative and effective products, extensive marketing and brand positioning, New Nordic is subject to constant pressure from local and international competitors across the globe. Competition is healthy: it drives New Nordic’s teams around the world to always do their utmost to serve the interests of consumers and the New Nordic brand. Winning market share, improving operating profitability and thereby ensuring growth are a permanent challenge in a context of the increased digitisation of consumer relationships, where companies constantly strive to obtain the best positions for their products and launch the most attractive and effective product ranges offering an optimal price/quality ratio.
INNOVATION AND CONSUMER EXPECTATIONS
The development of innovative products and their adaptation to market requirements is an ongoing priority for New Nordic. If New Nordic fails to anticipate or interpret changes in consumer expectations, especially with regard to environmental issues, and new trends, notably digital solutions and connected tools, its sales could be affected.
EXTERNAL GROWTH TRANSACTIONS
No acquisition is planned currently. However, as part of its growth strategy, it is not inconceivable that New Nordic may have occasion to make No acquisition is planned currently. However, as part of its growth strategy, it is not inconceivable that New Nordic may have occasion to make acquisitions of companies or intellectual property rights or sign license agreements. However, implementation of this strategy depends on New Nordic identifying development opportunities at an acceptable cost and under acceptable conditions. These operations may have a negative impact on New Nordic’s results if New Nordic fails to successfully integrate the activities of the acquired companies and their personnel, products, and technologies under the expected conditions and in compliance with New Nordic’s standards, or if it fails to achieve the expected synergies or to successfully handle liabilities not anticipated when the transaction was completed and for which New Nordic has little or no protection from the seller. Within the normal framework of its activities, New Nordic has conducted and may conduct disposal operations for which the execution conditions may significantly affect its results.
H U M A N R E S O U R C E S MANAGEMENT
One of the keys to New Nordic’s success lies in the talent of its staff. The New Nordic’s ability to attract and retain qualified personnel is crucial to its future success. If New Nordic fails to identify, attract, retain and train competent employees who behave responsibly, particularly within the context of digital transformation, the development of its activities and its results could be affected.
SECURITY RISKS
New Nordic’s presence in 40 countries exposes it to a variety of risks inherent to the environments it works in (geopolitical, economic and social, malicious acts, climate and natural disasters). The direct and indirect consequences of these risks may adversely affect New Nordic’s resources: namely, people and tangible and intangible assets.
E M P L O Y E E H E A LT H AND SAFETY RISKS
The protection of employees’ health and safety is one of New Nordic’s priorities and is an integral part of New Nordic’s human and social relations policy. It is rooted in the evaluation and prevention of professional risks in the Company. Nevertheless, the risk of accidents at the workplace or occupational diseases cannot be entirely ruled out. Currently, New Nordic
does not have any manufacturing sites and New Nordic only have one warehouse run by the Company.The rest of the staff is working in office environments. As New Nordic is an international company many employees travel regularly.
INFORMATION SYSTEMS
The day-to-day management of activities such as purchasing, production planning and distribution, invoicing, reporting and consolidation, as well as internal data exchange and access, relies on the proper functioning of all technical infrastructure and IT applications.
As part of the digital transformation and ongoing development of information technologies and their applications, which are also factors of acceleration and mobility, New Nordic’s business activities, expertise and, more generally, its relations with all stakeholders in its social and economic environment, depend on being able to function in an increasingly virtual and digital environment. The malfunction or breakdown of these systems or the loss of data for exogenous or endogenous reasons (including intrusions, malicious acts, etc.) could have a significant impact on New Nordic’s business activities.
DATA
The data collected and processed by New Nordic and its partners, with a volume that increases along with the development of digital activities, may be used fraudulently, or be lost or degraded.
Furthermore, personal data protection regulations are being reinforced throughout the world. Specifically, the European General Data Protection Regulation (GDPR) which entered into force in May 2018, provides for significant sanctions. Any breach of data integrity or confidentiality, notably personal data processed by New Nordic or its partners, for exogenous or endogenous reasons (including intrusions, malicious acts, etc.) could have a significant impact on reputation and consumer confidence and, ultimately, on New Nordic’s business activities.
RISK OF AN INTERNAL CONTROL FAILURE
However effective New Nordic’s internal control may be, it can only provide reasonable and not absolute assurance that the Company’s objectives can be achieved due to the inherent limitations of any control system. Thus, New Nordic cannot exclude the risk of an internal control failure likely to expose it notably to acts of fraud or corruption, that may have an impact on its activities, reputation and results.
INTELLECTUAL PROPERTY: T R A D E M A R K S , D E S I G N S & MODELS, DOMAIN NAMES
The trademarks, designs & models and domain names, and particularly the major international New Nordic brand and the characteristic Silvertree Mark, are strategic intangible assets of New Nordic, primarily owned by New Nordic Healthbrands AB. A few brands, primarily marketed by New Nordic in Sweden, Norway and Canada, including eye q® and Lyprinol, have been licensed to New Nordic. New Nordic does not have, however, a significant dependency situation with regard to these licences. In light of the large number of countries in which its products are sold and the multiple potential prior rights that may exist in each of these countries, it is impossible to rule out the possibility that third parties may initiate legal action to contest the registration and or use of New Nordic intellectual property rights. This potential risk has to be mentioned in order to provide a comprehensive account of risk. However, the likelihood of it occurring is low. The trademarks, packaging and the products themselves may be counterfeited by third parties wanting to illegally claim the benefits of their reputation and earn illicit profits from the work and investments of New Nordic.
I N D U S T R I A L P R O P E R T Y: PATENTS
Research and innovation are the historic pillars of New Nordic’s development. The dedication of New Nordic’s research team has made resulted in some patents. In addition to protecting the inventions of New Nordic, the goal is to check the free use of a technology prior to the launch of products and services, in a highly competitive environment in which an increasing number of patents are filed by an increasing number of different players.
REGULATORY CHANGES
The diversity of applicable local laws and regulations and their constant evolution expose New Nordic to a risk of non-compliance or increased compliance costs. New Nordic operate under 3 major groups of different jurisdictional principles: EU with its food authorities supervision, USA with FDA supervision and China with its food and health authorities supervision.
There in between, there are many variations. For example in Australia and Canada where supplements need to be registered and approved under Australian Department of Health and Health Canada respectively, before marketing.In addition, we will also operate under legislation governing finished cosmetics products such as the European Cosmetics Directive.
These regulations are amended regularly and can results in un-intentional non-compliance. Certain countries are, moreover, subject to export restrictions, embargoes, economic sanctions or other forms of trade restrictions levied by the European Union, the United States and other countries or organisations.
O T H E R L E G A L R I S K S AND LITIGATION
In the ordinary course of its business, New Nordic will potentially be involved in legal actions and is subject to tax, customs and administrative audits.
P R O D U C T I O N A N D SUPPLY CHAIN
Products must be made available on the market on the scheduled dates to meet time-to-market and customer demands, in order to enable new product ranges to be referenced by distributors in a cosmetics market that requires companies to be increasingly responsive.
New Nordic is dependent on its external manufacturers. A major stoppage of activity at a plant or distribution centre could therefore have an adverse effect on the achievement of commercial objectives.
SOURCING
New Nordic’s products consist of raw materials and ingredients from several different suppliers (raw materials and packaging items). New Nordic is dependent on deliveries from third parties live up to agreed requirements with respect to quantity , quality and delivery.
Incorrect or missing deliveries from suppliers might mean that New Nordic deliveries will in turn be delayed, which in the short term may result in reduced sales. Although New Nordic is thus not able to exercise full control over these goods, it is the Group’s opinion that no single supplier is unique, so a disruption in supplies need not involve long-term implications for the business.
ENVIRONMENT AND EMPLOYEE SAFETY
The food supplement and cosmetics industry has a limited environmental risk profile. New Nordic does not have any manufacturing sites of it’s own. However, as with any production, distribution, research and general administration activity, New Nordic is exposed to safety and environmental issues: fire, explosion, technical failure of facilities, information systems, or even human failure in the operation of existing facilities or works management.
These industrial risks can result in human damage and/or accidental pollution (surface and groundwater, air, soil), within or outside New Nordic’s sites, particularly if these are located in inhabited zones. Insufficient consideration of these impacts related to the use phase during the design of products could represent a risk for sales in certain areas of the world where access to water is difficult (water stress, quality of drinking water, etc.). Similarly, the use of predominantly plastic containers may represent an environmental risk resulting from the disposal of plastic waste, depending largely on the collection and treatment channels available.
COUNTERPARTY RISK
New Nordic is exposed to the counterparty risk of financial institutions which it uses within the scope of its business activities. However, New Nordic considers that its exposure to this risk is low.
CUSTOMER RISK
Customer risk may result from a failure to collect receivables due to cash problems encountered by customers or to customers no longer being in business.
LIQUIDITY RISK
New Nordic’s liquidity risk is managed with the primary aim of ensuring continued financing and optimising the financial cost of debt.
FUNDING RISK
New Nordic operations might in the future need additional financial resources to achieve strategic goals. This may lead to additional capital has be required to New Nordic in order to develop its business in an appropriate way. New Nordic’s ability to meet future capital requirements are highly dependent on successful sales of their products. There is no guarantee that New Nordic will be able to raise the necessary capital even if progress is positive. In this regard, the general market for the supply of capital are highly significant.
FINANCIAL AND MARKET RISKS INTEREST RATE RISK
For the requirements of its development and its capital expenditure policy, New Nordic uses borrowings and the interest rates might fluctuate.
CURRENCY RISK
Most of New Nordic’s products are marketed and sold in different geographic markets with sales and purchases in local currencies. New Nordic is naturally exposed to currency fluctuations. Fluctuations between these currencies may in the future lead to a negative impact on New Nordic’s results and financial position. Currently the company does not hedge this type of
currency risks. Fluctuations between the main currencies may have an impact on New Nordic’s results when translating the foreign currency financial statements of subsidiaries into Swedish Crowns, and may therefore make it difficult to compare performances between two financial years. In addition, commercial flows resulting from purchases and sales of items, products, and services arise between subsidiaries in different countries.
Procurement by subsidiaries is mainly in the currency of the subsidiaries country. Significant changes in the monetary environment could have an impact on New Nordic’s results and shareholders’ equity.
RISK RELATING TO THE IMPAIRMENT OF IN TANGIBLE ASSETS
As stated in the section on legal risks, New Nordic’s brands are a strategic asset for New Nordic and may be subject to impairment.
EQUITY RISK
New Nordic does currently not invest its cash in shares. However, New Nordic expects that cash flow from operations will increase liquidity and the Company might invest in equities in the future.
RISK RELATING TO TAX REGULATIONS
Due its global presence, New Nordic is subject to different tax regulations. New Nordic follow the OECD guidelines and have implemented a transfer pricing policy. The procurement company New Nordic Manufacturing ApS operate under a cost plus principle whereas all subsidiaries operate under a guaranteed profit principle.
New Nordic is exposed to risks arising from the multiplication and complexity of tax standards and changes in tax regulations or their interpretation. An increase in existing taxes, the introduction of new taxes, or double taxation concerning in particular corporate income tax, customs duties, import taxes, the repatriation of dividends or social levies, could have an adverse impact on the Company’s results. The tax authorities in the countries in which New Nordic is present carry out tax audits that may lead to tax adjustments if there is a disagreement over the interpretation of the regulations. These audits may become disputes, and in certain countries, be subject to media coverage that may affect New Nordic’s reputation.
CORE COMMODITY RISK
The production of food supplements and cosmetics depends on the purchase of raw materials whose prices vary. These raw materials or components are used in the manufacture of products or in their packaging. An exceptionally sharp increase in the price of these raw materials or energy prices on the world market could have a direct effect on the manufacturing cost of the supplements and/or cosmetics. This might impact the gross margin.
