Adidas 2001 Annual Report Download - page 54

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49
MD&A
Consumer Preferences and Brand Image Risks
The sale of adidas-Salomon products is dependent
both on consumer preferences and on brand image.
Changes in consumer sentiment with respect to brand
acceptance, competing products and market trends
have the potential to endanger sales and margins
globally or in individual markets. For this reason,
continuous market and trend research regarding
design, quality, image and price point issues is con-
ducted. Further, continuous technology and design
innovations ensure that new trends are taken up
and are managed in a risk-aware manner.
Supplier Risks
The vast majority of adidas-Salomon products are
sourced in third-party factories around the world.
Their delivery performance, pricing and product
quality are critical to adidas-Salomon. To ensure the
highest possible quality products, adidas-Salomon
employs around 200 quality control officers to monitor
factory performance. Detailed product cost analyses
are performed both before purchase and historically
to ensure competitive pricing and opportunities for
further margin improvements. To support best practice
standards in all regions, regular benchmarking analysis
of all suppliers identifies optimal product allocation,
cost, quality and delivery performance. To avoid
overdependence on individual suppliers, adidas-
Salomon maintains relationships with numerous
and geographically diverse manufacturers.
Social and Environmental Risks
Social issues such as working conditions or irrespon-
sible practices can have a significant impact on the
Company's reputation. The Company is aware of its
responsibility and a specialized Social and Environ-
mental Affairs Team monitors the factories of adidas-
Salomon suppliers to ensure compliance of the pro-
cesses and products 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
transparency in areas of potential risk.
Financing Risks
Interest rate changes and liquidity developments have
a direct impact on the Group's consolidated financial
statements. For example, the Group estimates that a
1.0 percentage point increase or decrease in interest
rates would cause after-tax earnings to change by
€12 million over a 12-month period. Financing as
well as currency risk is centrally managed at the
Group’s headquarters in Germany. To ensure best
response to changing market conditions, this risk is
closely monitored. When a relevant risk has been
identified, it is addressed with appropriately struc-
tured financing or derivative products.
Currency Risks
Due to the high share of production and sales which
are denominated in different currencies, the Company
is exposed to economic risks, including unexpected
changes in exchange rates. The sourcing organization
invoices Group companies primarily in their local
currencies. As a result, the currency risk is con-
centrated at the sourcing level. In order to reduce
exposure in these areas, natural hedges are pursued
wherever possible. For additional protection, common
market instruments such as options and forward
contracts are used.
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 for-
mulation of contracts, the protection of trademark
rights, the resolution of corporate legal issues and the
taking of legal action. In order to optimally manage
these tasks and reduce risk, internal and external
specialists are assigned to the respective affairs as
appropriate.