CORPORATE RISKS OVERVIEW
| Probability of occurrence |
Potential financial impact |
|
| External and Industry Risks | ||
| Macroeconomic risks | medium | medium |
| Consumer demand risks | medium | medium |
| Industry consolidation risks | medium | medium |
| Political and regulatory risks |
low | medium |
| Legal risks | low | medium |
| Risks from product counterfeiting | high | low |
| Social and environmental risks | low | low |
| Natural risks | low | low |
| Strategic and Operational Risks | ||
| Portfolio integration risks | low | high |
| Risks from loss of brand image | medium | medium |
| Own-retail risks | medium | medium |
| Risks from rising input costs | medium | medium |
| Supplier default risks | low | low |
| Product quality risks | low | low |
| Customer risks | medium | low |
| Risk from loss of key partnerships | medium | low |
| Product design and development risks | low | high |
| Personnel risks | low | medium |
| Compliance risks | low | medium |
| IT risks | low | high |
| Financial Risks | ||
| Credit risks | low | low |
| Financing and liquidity risks | low | high |
| Currency risks | low | low |
| Interest rate risks | low | low |
EXTERNAL AND INDUSTRY RISKS
MACROECONOMIC RISKS
Growth of the sporting goods industry
is influenced by consumer confidence and consumer
spending. Abrupt economic downturns, in particular in regions
where the Group is highly represented, therefore pose a significant
short-term risk to sales development. To mitigate this
risk, the Group strives to balance sales across key global
regions and also between developed and emerging markets.
In addition, a core element of our performance positioning is
the utilization of an extensive global event and partnership
portfolio where demand is more predictable and less sensitive
to macroeconomic influence.
In 2008, the Group expects global and, in particular, North
American economic growth to slow. 
see Outlook Similarly,
the risk of macroeconomic shocks has increased versus 2007.
However, economic expansion in emerging markets, including
China, Russia and India, is expected to continue. These markets
have overtaken North America and the European Union
as the largest contributors to Group revenue growth. Nevertheless,
we now assess the likelihood that adverse macroeconomic
events could impact our business as medium. The
materialization of such events could have a medium negative
financial impact on our Group.
CONSUMER DEMAND RISKS
Failure to anticipate and respond
to changes in consumer demand is one of the most serious
threats to our industry. Consumer demand changes can be
sudden and unexpected. Because industry product procurement
cycles average 12 to 18 months, the Group faces a risk of
short-term revenue loss in cases where it is unable to respond
quickly to such changes. Even more critical, however, is the
risk of continuously overlooking a new consumer trend or
failing to acknowledge its potential magnitude over a sustained
period of time.
To mitigate this risk, continually identifying and responding to consumer demand shifts as early as possible is a key responsibility of our brands. In this respect, we utilize extensive primary and secondary research tools as outlined in our risk and opportunity identification process.
As a leader in our industry, our core brand strategies continue
to be focused on influencing rather than reacting to the changing
consumer environment. We invest significant resources
in
research and development to innovate and bring fresh new
technologies and designs to market. see Research and Development In addition, we also seek to create consumer demand for
our brands and brand initiatives through extensive marketing,
product and brand communication programs. And, we continue
to focus on supply chain improvements to speed up
concept-to-shelf timelines. see Global Operations In 2007,
we implemented new consumer segmentation strategies at
both brand adidas and Reebok and combined Group resources
for market research and competitor research. In addition, we
increased and focused our marketing working budget spend
at Reebok, in line with the future positioning of the brand. We
plan further initiatives in this respect in 2008.
Given the broad spectrum of our Group’s product offering,
retailer
feedback, visibility provided through our order backlogs
and other early indicators, see Internal Group Management System we view the overall risk from consumer demand shifts
as unchanged versus the prior year. Changes in consumer
demand
continue to have a medium likelihood of occurrence
and could have a potential medium impact on our Group.
