Commercial risks  

Flügger operates in a mature market for decorative paints, wood stain, and natural accessories primarily in Scandinavia. The customers are professional painters and consumers, i.e. a very wide target group where no single customer has purchase which constitutes a substantial part of the sales of the group. More than 85% of the turnover are used for repair and maintenance works. This means the group is only influenced by changing market trends in building starts to a limited extent.

The demand for paint, etc. is fairly stable, but it can fluctuate in short periods of time depending on weather or other circumstances which cause possible maintenance works to be postponed. Changes in fashion, conversion waves, etc. may result in a rise in turnover, whereas long durability in modern paints has a tendency to reduce the volume sold. The competitors are other Scandinavian producers of decorative paints, because transport costs normally block for transport over long distances.

The Management evaluates that the Flügger Group is well prepared to meet an intensive competition on the basis of an efficient production apparatus, well-known products, and a well organized distribution. The fact that the Group has production of supplementary products to decorative paints and is vertically involved in distribution with own net of shops, is also evaluated to give the Group a competitive advantage.

Both the market and the legislation increasingly demand products friendly to the environment. The view of the Management is that the group is ahead in this development and therefore not exposed to any risks in particular. The main brands have been registered and are continuously supervised.

Financial risks

The financial strength of the group, a positive cash flow, leads to the group working without interest-bearing liabilities most of the year and therefore, the group is not sensitive to interests in particular. The group mostly has transactions in DKK, SEK, NOK, and EUR, the latter primarily on purchase of raw materials. Under normal circumstances it is the policy of the group not to have net positions covered against exchange risks.

The cash reserve of the group consists partly of securities and liquid reserves and partly of unused credit facilities as stated in the statement of cash flow. The securities are normally Danish and Swedish government or property bonds with a relatively long duration with the risk of price loss.

Due to the fact that the turnover of the Group is divided on many customers and that a substantial part of the Group turnover is made on the basis of cash payment, the Group has a low credit risk. It is the policy of the Group to seek minimal dependence on one single supplier. We aim at having at least two suppliers on all purchases of materials and costs.

The Group has chosen to be solidly insured against large environmental and product liability damages and against fire and property losses. On the basis of the solid liquidity position of the Group the Management has chosen to operate with substantial own risks with consequently lower premium rates.