Reebok 2014 Annual Report Download - page 178

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2014
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03.5
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adidas Group
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2014 Annual Report
Group Management Report – Financial Review
Risk and Opportunity Report
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Financial Risks
Credit risks
A credit risk arises if a customer or other counterparty to a financial instrument fails to meet its
contractual obligations. The adidas Group is exposed to credit risks from its operating activities
and from certain financing activities. Credit risks arise principally from accounts receivable and,
to a lesser extent, from other third-party contractual financial obligations such as other financial
assets, short-term bank deposits and derivative financial instruments. Without taking into account
any collateral, the carrying amount of financial assets and accounts receivable represents the
maximum exposure to credit risk.
At the end of 2014, there was no relevant concentration of credit risk by type of customer or
geography. Our credit risk exposure is mainly influenced by individual customer characteristics.
Under the Group’s credit policy, new customers are analysed for creditworthiness before standard
payment and delivery terms and conditions are offered. Tolerance limits for accounts receivable
are also established for each customer. Both creditworthiness and accounts receivable limits are
monitored on an ongoing basis. Customers that fail to meet the Group’s minimum creditworthiness
are, in general, allowed to purchase products only on a prepayment basis.
Other activities to mitigate credit risks include retention of title clauses as well as, on a selective
basis, credit insurances, accounts receivable sales without recourse and bank guarantees.
Objective evidence that financial assets are impaired includes, for instance, significant financial
difficulty of the issuer or debtor, indications of the potential bankruptcy of the borrower and the
disappearance of an active market for a financial asset because of financial difficulties. The Group
utilises allowance accounts for impairments that represent our estimate of incurred credit losses
with respect to accounts receivable.
Allowance accounts are used as long as the Group is satisfied that recovery of the amount due is
possible. Once this is no longer the case, the amounts are considered irrecoverable and are directly
written off against the financial asset. The allowance consists of two components:
(1) an allowance established for all receivables dependent on the ageing structure of receivables
past due date and
(2) a specific allowance that relates to individually assessed risk for each specific customer –
irrespective of ageing.
At the end of 2014, no Group customer accounted for more than 10% of accounts receivable.
see Note 29, p. 228