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ANNUAL REPORT 2007 --- adidas Group
RISKS FROM LOSS OF KEY EVENT OR PROMOTION PARTNER-
SHIPS Event and promotion partnerships play an important
role in building brand image and generating sales of licensed
product. The adidas Group faces the risk of either losing key
partnerships or having to accept unfavorable terms due to
intensifi ed competition for attractive contracts. To mitigate
these inherent risks, we regularly seek to extend our most
important partnership agreements before contract expiry. We
also regularly include change-of-control clauses as well as
non-cash compensation components in contracts to avoid the
risk that negotiations are reduced solely to price. In addition,
we follow a strategy of broadening the Group’s portfolio of
premium partnerships in order to reduce our reliance on
single affi liations.
During 2007, we successfully secured long-term contract
extensions with a variety of important partners and announced
several important new event and multi-year promotion partner -
ship agreements.  see adidas Strategy, p. 046 In 2007, competition
for top partnership assets within our industry increased nota-
bly. An example of this was an attempt from a major competitor
to sign the German Football Federation (DFB). Although we
successfully extended our contract with the DFB, we now
believe there is a medium likelihood of losing important individ-
ual promotion contracts. Nevertheless, given the maturity of
our most important contracts, we assess the potential fi nancial
impact of this risk to be low in the medium term.
PRODUCT DESIGN AND DEVELOPMENT RISKS Innovative and
attractive products generate strong sales and – more impor-
tantly – create a halo effect for other products. The speed with
which new product technologies and fresh designs are brought
to market is decisive for maintaining competitive advantage.
In 2007, all brands generated the majority of their sales with
products which had been brought to market over the last 12 to
18 months.  see Research and Development, p. 072 If the adidas Group
failed to maintain a strong pipeline of new innovative products
over a sustained period of time, we would risk a signifi cant
sales decline. We continue to invest in increasing our innova-
tional and design strength. To ensure we can quickly adapt
to changing consumer preferences, we focus on streamlining
research and development processes to speed up the time
to market.
We continue to assess the occurrence probability of this risk,
which could potentially have a signifi cant fi nancial impact, as
low.
PERSONNEL RISKS The adidas Group’s future success is
highly dependent on our employees and their talents. We thus
face the risk of being unable to identify, recruit and retain the
most talented people that best meet the specifi c needs of our
Group. To reduce this risk, and enable our employees to make
use of their full potential, we strongly engage in developing a
moti vating working environment. Our goal is to make the
adidas Group the “Employer of Choice” within our industry.
This is supplemented by offering attractive reward and incen-
tive schemes as well as
long-term career opportunities and
planning.
 see Employees, p. 068
In 2007, we believe our personnel risks have increased moder-
ately due to (1) growth of our own-retail activities where
employee turnover is higher than the Group average, and
(2) growth in emerging markets where higher levels of wage
infl ation increase the volatility of the employment market.
Nevertheless, we continue to regard the occurrence likelihood
of these risks as low. Should these risks materialize, they
could have a medium fi nancial impact on our Group.
RISKS FROM NON-COMPLIANCE We face the risk that our
employees breach rules and standards that guide appropriate
and responsible business behavior. In order to successfully
manage this risk, the Group Policy Manual was launched at the
end of 2006 to provide the framework for basic work procedures
and processes. It also includes a newly developed Code of
Conduct which stipulates that every employee shall act ethically
in compliance with the laws and regulations of the legal systems
where they conduct Group business. In 2007, the Group launched
a new Code of Conduct e-learning tool as part of our Global
Compliance Program to facilitate the ongoing training of our staff
in these matters.  see Corporate Governance Report, p. 026 The global
roll-out of this tool will be completed in 2008. Participation is
mandatory for all employees.
We continue to regard the likelihood of grave misconduct as
low. Should they materialize, these risks could have a medium
fi nancial impact on the Group.
IT RISKS A Group-wide breakdown of IT systems or a signifi -
cant loss of data could result in considerable disruptions to our
business. Insuffi cient project management could delay the
execution of projects critical to the Group or make them more
expensive than planned. To mitigate system default risk, we
review our IT policy on a regular basis and engage in proactive
maintenance and business continuity planning. We perform
scheduled backups several times a day and one full backup
daily, alternating between two different data center locations.
In addition, for the central enterprise resource planning sys-
tem, our contingency solution allows us to quickly switch to a
remote site if necessary – without any data loss. System secu-
rity and reliability are reviewed and tested internally and via
external audits on a regular basis. Our target availability of
99.7 % for major IT applications was exceeded in 2007. IT
pro ject risks are further mitigated by implementing a proven
project methodology for all IT projects and by performing
regular risk reviews for all major projects.
We believe the risk of a major IT default continues to be
extremely low. Such a default, however, would result in a
signifi cant potential fi nancial impact.
GROUP MANAGEMENT REPORT – OUR FINANCIAL YEAR - Risk and Opportunity Report