Carphone Warehouse 2011 Annual Report Download - page 24

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BUSINESS REVIEW
BEST BUY EUROPE: RISK
20 Carphone Warehouse Group plc Annual Report 2011
Best Buy Europe has a well-established risk management
function, which monitors the key risks facing the business.
The table below summarises the most material risks identified,
and the ways in which the business seeks to mitigate them.
Consumer environment
Risk
Best Buy Europe’s major markets have suffered low
or negative economic growth since 2009, and there is
uncertainty surrounding the economic outlook. Some
of the products and services offered by the business
may be viewed as discretionary, and may therefore be
particularly affected by consumer confidence.
Mitigation
The business undertook a major reorganisation programme
in 2009, and maintains an ongoing programme to try to
improve efficiency, and to ensure that it is well-positioned
to deal with an uncertain environment.
Dependence on key suppliers and customers
Risk
Best Buy Europe’s principal revenue streams are
from mobile network operators, and any change in
their strategy could affect the revenues and profits
of the business.
The business is also dependent on relationships with
key suppliers to source products on which availability
may be limited.
Mitigation
The business has moved towards commercial
arrangements that provide a closer alignment of interests
with the network operators, whereby the risks and rewards
of customer ownership are shared, and has focused on
the high value postpay and smartphone segments to help
to drive economic value for the networks.
The business seeks to increase and leverage the scale of
its operations to support global strategic relationships.
Competition
Risk
Best Buy Europe operates in markets that are highly
competitive, in which the behaviour of competitors
may damage revenues and margins.
Mitigation
The business has sought to differentiate itself through
innovative propositions, high quality customer service,
and a good supply of scarce products.
Regulation
Risk
Best Buy Europe is subject to regulation in a number
of areas, including insurance operations, information
security and customer management.
Mitigation
The business has internal committees and control
structures to manage these requirements, to ensure
appropriate compliance, and to react swiftly should
issues arise.
Operations
Risk
Best Buy Europe’s operations are dependent on internal
and external IT systems which could fail or be unable
to keep pace with the needs of the business.
Mitigation
A significant investment has been made over recent years
in the IT infrastructure of the business, supported by testing
processes and ongoing business continuity planning.
Foreign exchange
Risk
A material part of Best Buy Europe’s earnings are
denominated in US Dollars and Euros, giving rise
to exposure to foreign currency fluctuations.
Mitigation
The business may hedge a proportion of such earnings,
to provide certainty of their value.