Adidas 2000 Annual Report Download - page 53

adidas-Salomon ANNUAL REPORT 2000
49
Management Discussion & Analysis
 Social and Environmental Risks: Environmental disasters and
incidents such as floods, earthquakes, hurricanes, fire or
unfavorable weather conditions can affect sourcing and
manufacturing in particular. However, they can also impact
the distribution of our products. Additionally, social issues
such as the working conditions of our employees or those of
our suppliers can have a significant impact on our corporate
reputation. Our Social & Environmental Affairs Team monitors
the factories of adidas-Salomon suppliers to ensure com-
pliance of our products, processes and labor with social,
environmental, health and safety standards. If necessary,
action plans are then put in place to ensure improvements.
The team communicates with stakeholders (including non-
governmental organizations and media) to create trans-
parency in areas of potential risk.
Market Risks
 Financing risks: Interest rate changes and liquidity develop-
ments have a direct impact on our consolidated financial
statements. For example, we estimate that a one percent-
age point increase or decrease in our interest rates would
cause our after-tax earnings to change by c11 million over
a 12-month period. Financing as well as currency risk is
centrally managed at the Group’s headquarters in Germany.
To assure best response to changing market conditions,
this risk is closely monitored by our Treasury Department.
When a relevant risk has been identified, we address it with
appropriately structured financing or derivative products. As
a result, adidas-Salomon believes that the Group’s capital
requirements can be covered through our use of current
cash balances, existing credit facilities and cash flow from
operations, without the need for additional permanent
financing.
 Currency Risks: Due to the high share of product sourcing,
which is invoiced in US dollars, and of sales, which are
denominated in other currencies, such as European cur-
rencies or the Japanese yen, the Company is exposed to
economic risks, including unexpected changes in exchange
rates, that have the potential to significantly affect our finan-
cial results. The sourcing organization invoices Group com-
panies primarily in their local currencies. As a result, the
currency risk is concentrated at the sourcing level. In our
efforts to reduce exposure in these areas, we have, wherever
possible, pursued natural hedges. For additional protection,
common market instruments such as options and forward
contracts are used. We employ these instruments in accor-
dance with our risk assessments and we observe the
detailed guidelines and rules established by our Treasury
Committee.
 Legal Risks: As a global corporation, adidas-Salomon
observes a wide variety of differing national laws and regula-
tions. Finding solutions for the various legal matters within
the Group entails risk, especially in the formulation of con-
tracts, the protection of our trademark rights, the resolution
of corporate legal issues and the taking of legal action. In
addition to relying on the experience of our in-house legal
departments, we consult external specialists as appropriate,
in order to optimally manage these tasks and reduce risk.
Risk Management Outlook
Integrated risk management is a critical requirement for sustain-
ing the Company’s success in an increasingly volatile business
environment. Going forward, adidas-Salomon will continue to
further formalize and document our risk management system.
We believe that organized risk management across all functions
and organizational levels is important and we are committed
to constantly enhancing this system. We view this as an
important part of our efforts to maximize earnings and enhance
shareholder value.