Risk management

The target of risk management is to collect information on and to review and manage opportunities, threats and risks arising in the company’s operations in order that the company can reach its targets and carry out its operations without disruptions.

A risk can be defined as a matter or event that may, when realised, prevent or hinder the company to meet its strategic and operational targets, or result in missing business opportunities. Risks are classified as business risks (strategic risks), operational risks, risks of losses or damages and financial risks. Also other aspects than financial impacts are considered when assessing risks.

Musti Group’s Risk Management Policy describes the targets, principles, organisation, responsibilities and practices of Musti Group’s risk management. Risk management is a part of the internal control. The execution of the Risk Management Policy is monitored by the company’s top executive management and the Board of Directors.

Responsibilities

Under the Limited Liability Companies Act, the Board of Directors shall see to the administration of the Company and the appropriate organisation of its operations. In addition, the Board of Directors shall monitor and review the efficiency of the company’s internal control and risk management system. The Board of Directors shall confirm the company’s internal control and risk management policies and amendments to them, as well as address significant risks and uncertainties related to the company’s operations.

The company’s CEO with the assistance of the Group’s Management is responsible for the preparation of the Risk Management Policy and the systematic and appropriate implementation of the risk management. The CEO shall ensure appropriate coverage of the company’s risk management and assess the implementation of the risk management. The CEO reports on the risk management to the company’s Board of Directors. The members of the Management Team are responsible for the planning, implementation and follow-up of the risk management measures in their own area.

Risks and uncertainties

Musti Group’s risk profile follows the general risk level of the retail and grocery trade. The industry is not particularly cyclical and not subject to rapid changes. The company regularly monitors changes in the risks and their impact on the business. The company implements risk management continuously and systematically according to a scheduled process. The risk management process ensures that risks related to the Group are identified, estimated, and controlled in a proactive way and the management of risks is monitored. The company’s risk management includes, among others: identification and review of risks, risk assessment, determining and implementing control measures for the identified risks, and monitoring and reporting of risks.

The following describes the risks and uncertainties that are considered significant for Musti Group.

Risks relating to the macroeconomic environment and inflation

Increasing geopolitical instability could have a significant impact on the global economy and business environment. The European economies have been predicted to shrink or drift into a recession in 2022-2023 partly due to the war in Ukraine and energy crises. Although Musti Group sells products, a recession may have a negative impact on consumer confidence and sales.

General cost level has risen in 2022 following price increases in energy, raw materials, and freights. Musti Group’s cost level has increased accordingly and is reflected in higher retail prices to maintain profitability. Higher inflation will also contribute to higher interest rates. These may have an impact on consumer behavior and price competition. 

Risks relating to changes in the competitive environment

Pet products and services retail industry has become increasingly competitive. Musti Group’s competitors include large grocery retailers, smaller pet specialist stores, online competitors (including general online stockists and internet pure plays), home and garden stores, pet service providers, as well as veterinary clinics. Many are competing for the same customers with similar offerings, and it is easy to make comparisons between competitors. If Musti Group fails in this competition, its sales and profitability would decrease. 

Risks relating to quality of products and services

A failure in product safety control or supply chain quality assurance may result in financial losses, loss of customer trust or in the worst case, a health hazard to a pet. Customers or employees may also make allegations against Musti Group publicly concerning the quality of the company’s product or services. This could result in a reputational loss for Musti Group.

Risks relating to changes in customer preferences

Customers’ buying patterns may change more rapidly than what the company has anticipated. With the rising trend of online shopping customers expect a simple and consistent shopping experience and fast delivery regardless of the sales channel. Brick-and-mortar stores are expected to offer experiences, a place to meet, and information. Various sustainability aspects in products and services are increasingly important to customers. If the company fails to address the new purchasing patterns and sustainability requirements, there is a risk that the investment in assortment, sales channels and services will not generate the intended results.

Risks relating to sourcing of products

A loss of significant supplier or an inability to source products from such suppliers that meet Musti Group’s standards and requirements, or a supply reduction or cost increases demanded by suppliers may have a material adverse effect on the customer relationships and competitive position.

Risks relating to inventories

A lot of the company’s capital may be tied up in carrying the inventory if the company is unable to forecast accurately customer demand. Operative difficulties in managing the inventory and obsolescence may increase costs of inventory or result in selling the goods at discount which may have a negative impact on profitability. 

Risks relating to logistics

The company’s distribution center in Eskilstuna is its distribution hub. Most goods from suppliers are delivered to Eskilstuna and then distributed to shops and online customers. Collecting the logistics in one location carries certain risks, for example, disruptions to communications and information technology infrastructure, as well as fire and strikes, which may result in business discontinuity or lower sales.

Risks relating cybercrimes

The frequency of professional cybercrimes is growing. This has increased the risk relating to business continuity and loss of critical information. Cyber-attacks may target, for example, data systems critical for business continuity, or personal data. Cyber-attacks may result in disruptions in sales, personal data leakages, financial losses, compensation for damages or reputational damages.

Risks relating to employees

If Musti Group is not perceived as an attractive and sustainable employer brand, the company may not be able to safeguard skilled and motivated employees. The covid-19 pandemic has made the workforce more mobile and lowered the threshold of changing jobs. The prerequisite for execution of strategy and reaching the set targets is to be able to maintain insightful and motivated employees.

Risks relating to currency fluctuations

As a significant part of Musti Group’s business is in countries outside the eurozone, Musti Group’s balance sheet and results are exposed to fluctuations in foreign currency exchange rates. The main transaction exposure currencies are USD and GBP in which Musti Group of companies has outflows related to purchases. Translation exposure arises from subsidiaries reporting in SEK and NOK as results and balance sheet items are consolidated to Musti Group level.