We believe the IFRS 7 interest rate analysis represents a realistic if rough estimate of our current interest rate risk.
To moderate interest rate risks and maintain financial flexibility, a core tenet of our Group’s financial strategy is to continue to use surplus cash flow from operations to reduce net borrowings see Treasury. Beyond that, the adidas Group is constantly looking for adequate hedging strategies through interest rate derivatives in order to mitigate interest rate risks.
In 2010, interest rate levels in North America and Europe reached new all-time lows. In the light of the low interest rate levels, the easing of government fiscal action to stimulate economic growth and rising inflation, the risk of upward interest rate adjustments compared to the prior year has increased. Therefore, we now believe that the likelihood of a Group-wide interest rate increase is highly probable. Nevertheless, given the increase in our Group’s portion of longer-term fixed rate financing in 2010, we project any potential interest rate increases as having a moderate financial effect.