Adidas 2002 Annual Report Download - page 90

88 REPORTING MANAGEMENT DISCUSSION & ANALYSIS /// RISK MANAGEMENT
FINANCING NEEDS /// Due to high debt levels that are largely
related to the acquisition of the Salomon group in 1997,
interest rate changes can have a significant impact on adidas-
Salomon’s financial position and earnings. For example, we
estimate that a 1% increase or decrease in average interest
rates could affect after-tax earnings by € 11 million over a
12-month period. To minimize this risk, the vast majority of
our borrowings are protected with interest caps against a
major rise in interest rates. Under this protection, the risk is
closely monitored and managed with appropriately structured
financing, further interest rate hedging or other derivative
products (see note 21). Financing and currency risk are largely
managed centrally at Group level.
SOCIAL AND ENVIRONMENTAL FACTORS /// We have
continuing responsibilities to our workers and the physical
environment. Malpractice in these areas can have a signifi-
cant impact on the reputation and operational efficiency of
our Group and its suppliers. Our Social and Environmental
Affairs (SEA) team monitors the factories of adidas-Salomon
suppliers to ensure compliance with social, environmental,
health and safety standards, creating and implementing
action plans to ensure improvements where necessary.
The most sustainable way to enforce compliance with our
Standards of Engagement is by providing constant training,
communication and consultation for our suppliers’ manage-
ment and their workers. For this reason, the SEA team has
increased its focus on training our business partners in
developing systems for self-governance, in addition to moni-
toring them.
LEGAL MATTERS /// As a global corporation, adidas-Salomon
operates under a wide variety of legal and regulatory frame-
works. Finding solutions for various legal matters in numer-
ous countries entails risk for the Group, especially in the
formulation of contracts, the resolution of corporate legal
issues and the taking of legal action. To manage these tasks,
internal and external specialists are assigned to these
matters. Based on all outstanding litigation, we believe that
the ultimate liabilities resulting from any claims will not
materially affect the consolidated financial position of the
Group.
INTELLECTUAL PROPERTY PROTECTION AND PIRACY ///
For adidas-Salomon, the protection of product innovations,
patents, technologies and designs is crucial. Products such
as footwear and apparel are frequently manufactured and
distributed by third parties in violation of adidas-Salomon
trademark rights. To reduce the risks inherent in violation of
industrial property rights, which may lead to lost sales and
brand image impairment, we have created significant internal
resources to battle brand infringement. These teams work
closely with international institutions (such as customs
authorities) in countries where these violations occur.
PRODUCT LIABILITY /// As a supplier of consumer products,
adidas-Salomon can face legal action if and when defective
products are sold. Apart from the financial consequences of
product liability cases, for which we have adequate insurance
cover, these cases may damage market perception of our
products, resulting in image impairment. Through intensive
quality control we seek to minimize these risks.
INFORMATION TECHNOLOGY /// adidas-Salomon utilizes a
complex network of communications and applications in its
business activities. Therefore natural disaster, criminal
mischief or IT mismanagement could result in a severe
disruption of our business. We have employed various
methods to mitigate these risks and prevent or minimize
such disruptions. These actions include but are not limited
to hardware and software experts, firewall and encryption
technologies, and contingency business continuity planning.
PROPERTY /// adidas-Salomon products are manufactured,
shipped and stored all over the world. Physical damage to
premises, production units and warehouses can lead to
business interruption. These risks are mitigated by a variety
of loss prevention measures which include working with
reliable suppliers and logistics providers who guarantee high
safety standards. adidas-Salomon also maintains sufficient
insurance cover to prevent financial loss in the event of such
damage.
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