Risk and Risk Management

Like all companies and business operations, SkiStar is exposed to various risks related to the business. For SkiStar, it is important to identify the risks that may prevent the company from achieving defined targets and to determine whether the risks are in line with risk propensity.

Where necessary, measures are taken to avoid, minimize or monitor identified risks. The purpose of risk management is to continuously assess and manage the risks that arise in the operations and to ensure that it forms the basis for successful sustainability work.

Operational risks

Seasonality

The majority of SkiStar’s revenues are generated in the period December to April. SkiStar’s operations are well adapted to seasonal variations, particularly in terms of the workforce.

Most of the winter bookings are made before the season. An increased proportion of advance sales means that business transactions can be completed at an earlier point, which in turn reduces the operational risk. Seasonal variations are also managed by investing in snowmaking systems to guarantee skiing.

Dependence on climate and weather

The number of guests at SkiStar’s destinations is influenced by weather and snow conditions. A late winter with a lack of cold weather and natural snow in time for Christmas has an adverse impact on demand. Lower demand can also arise in winters with prolonged cold periods and good snow conditions in the southern, more densely populated parts of Scandinavia, as snow, cold weather and skiing opportunities are available closer to home.

However, in a longer perspective, it is positive for the industry if skiing is available throughout Scandinavia, as many new skiers will be recruited. SkiStar addresses these risks through continuous development of snowmaking systems to guarantee skiing, and through strategic sales to ensure that most of the accommodation capacity is booked before the Christmas week when the high season starts.

Economic cycle

Changes in people’s disposable income are reflected in private consumption, which in turn has a bearing on whether they can take a winter holiday. SkiStar’s historical sales and earnings trend shows that the Company has been able to deal with fluctuations in the economy. A large proportion of SkiStar’s guests are families who tend to return year after year and who see a winter holiday as a high priority. Sensitivity to economic conditions in Sweden is reduced by the existence of operations in Norway and Austria.

Competition

Sun and beach holidays and weekend city breaks are considered SkiStar’s main competitors, but other industries, such as durable goods and home investments, also compete for peoples’ disposable income. Other competitors include other alpine ski resorts in Scandinavia and the Alps. The alpine ski industry has a high entry threshold, which limits competition.

Extensive investments in service-oriented employees, leadership, modern lifts and snowmaking systems, IT and restaurants bring high quality to SkiStar’s destinations and enhance guests’ winter experience and comfort every year. SkiStar’s destinations have good accessibility to populated areas due to their geographical proximity and affordable transport solutions in the form of trains, aeroplanes and coaches.

SkiStar’s customers have easy access to the Company’s products and services via online marketing and sales systems that facilitate the booking process for them.

Other important competitive factors include a strong financial position, known and attractive brands and a strong cash flow.

Expansion

SkiStar’s strategy for growth includes better utilization of the existing destinations and development of the products and services offered. Growth is also created through the acquisition or leasing of other ski resorts. All the companies acquired by SkiStar have performed well and made major contributions to the Company’s successful development.

Accommodation capacity and occupancy rate

The profitability of alpine destinations is dependent on the number of available beds and the occupancy rate. For SkiStar, it is important to have control over a large accommodation capacity to optimise the occupancy rate by monitoring changes in demand and pricing accommodation correctly at all stages of the season. SkiStar works actively to increase the number of beds at the destinations and to increase the proportion the Company mediates itself. It is also important for older cabins and apartments to be modernised to maintain high demand. In addition to SkiStar’s own investments, new investments in cabins and apartments are mainly conducted by external parties or jointly-owned companies. The attractiveness of SkiStar’s destinations draws investment capital, which generates long-term growth in the number of beds and the development of different types of accommodation.

Employees

Payroll expenses are the Company’s largest individual cost item. SkiStar’s continuing success is dependent on motivated and committed employees.

To retain key personnel, SkiStar offers leadership development, succession planning, training and incentive programmes.

SkiStar’s Management Group consists of the CEO, CFO, Legal Counsel, Marketing and Sales Manager, two Norwegian Resort Managers and three Swedish Resort Managers. These individuals owned a total of 388,391 Class B shares in the Company at 31 August 2018.

SkiStar works on leadership issues and training to increase the efficiency, awareness and commitment of its employees. The level of service that guests receive from our staff plays an important role in their overall experience. There is therefore a risk that it will be harder to recruit qualified seasonal employees when the economy is strong and unemployment is low.

Safety and security

SkiStar works actively on safety by means of trade union cooperation, regular training, incident reporting and a systematic health and safety programme. Continuous risk analyses are conducted at all destinations to minimise the various types of risks and have the correct insurance cover in place.

SkiStar also has an extensive crisis plan to ensure that the Company is well prepared in the event of any accidents and incidents.

Sustainability risks

Sustainability is included as an evaluation factor in the Company’s business development and decisions. Management of sustainability risks is an integral part of the Group’s operations. SkiStar's sustainability work, including a description of risks and opportunities, are described more in detail here.

Financial risks and opportunities

Currency risk

Fluctuations in the value of the domestic currencies against other currencies affect travel patterns and therefore also the number of guests at SkiStar’s destinations. The Group is also affected by the relationship between the Swedish krona and Norwegian krone and euro. SkiStar does not hedge its Norwegian or Austrian operations. However, there may be some hedging of major investments, particularly in lifts, snowmaking systems and piste machines, which are usually conducted in euros. Bookings and payments are made in the currencies SEK, NOK, DKK and EUR.

Investments and interest rates

The alpine ski industry requires large capital investments to maintain and increase competitiveness. SkiStar has a strong cash flow, which means that investments can be largely financed with its own funds. If interest rates increase, the cash flow can be used to repay loans more quickly and reduce the financial burden. External borrowing is currently confined to the local currencies SEK, NOK and EUR. 

Other risks and opportunities

Electricity costs

SkiStar’s operations consume large amounts of electricity and changes in electricity prices therefore affect the Group’s costs and earnings. For SkiStar in Sweden, electricity is contracted through fund management, whereby the fund purchases most of the electricity at a fixed price. Fund management allows an outcome that is more closely linked to current market prices, although with the intention of obtaining a somewhat lower price than with a completely variable price. SkiStar is part owner of a wind turbine in Dalarna and operates three heating plants with other investors: two in Sälen, located in Lindvallen and Tandådalen, and one in Hemsedal. The plant in Lindvallen supplies power to large properties in the southern area of Lindvallen. The Tandådalen plant supplies power to the central part of Tandådalen and the cabin area of Tandådalen. The Hemsedal plant supplies power to the entire Alpine Lodge and has been adapted for future needs in Fjellandsby area. The heating plants are powered by locally produced renewable wood fuel.

Legislative and regulatory changes

Changes in laws and regulations that are relevant to SkiStar’s operations can obviously affect those operations and the Company’s financial performance. The Company is not aware of ongoing legislative and regulatory changes that could have a significant impact on the Company.

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