Agrupación de baterías

Strategic risks

One of the reasons why tom tailor has grown so successfully is that trends in the market are identified quickly, acted upon and put through to the points of sale extremely swiftly. Should tom tailor fail to identify current trends quickly and match the tastes of its target groups in its target markets, or fail to set prices acceptable to the market or develop and supply new products successfully, this could have a negative effect on the Group’s competitive position, growth chances and profitability. However, its closeness to its customers through its own retail stores also opens up opportunities for tom tailor, as customer reactions are used to identify and implement new trends swiftly.

The further establishment and reinforcement of the tom tailor Casual and tom tailor Denim brands could fail in spite of the careful brand strategy, which would impact on growth perspectives. For this reason, great value is placed on protecting and maintaining tom tailor’s brand image. In its Wholesale segment, tom tailor deals with major accounts which could cease to be customers: this would lead to significant reductions in revenues. Insolvencies amongst major customers would also pose a significant risk of revenue loss in the Wholesale segment. tom tailor hedges against the loss of receivables outstanding in various ways, including transferring the risk to trade credit insurers. In addition, the increasing expansion in the Retail segment reduces dependence on major accounts.

tom tailor is in a position to exploit opportunities arising out of the expansion of the controlled retail space. Difficult market conditions in the recent past and the withdrawal of some competitors from the market have opened up new opportunities for growth. For example, there are now prime locations available which make it easier for tom tailor to site its own retail stores. When selecting sites and opening new stores, tom tailor follows a rigid qualifying process with regard to economic criteria, location and investment parameters, so as to counter the risk of opening a badly located or unprofitable store from the outset. tom tailor can exploit the increased media interest caused by the successful ipo in the Prime Standard segment and its inclusion in the sdax® _{to increase brand awareness and improve its brand profile. The} dynamic growth of the Group likewise contributes to heightened brand awareness. This presents tom tailor with the opportunity of further increasing visibility amongst its target groups.

Financial risks

As an international company, tom tailor is exposed to interest rate, liquidity, currency and counterparty risks during its ordinary business activities which could have an influence on the financial position and results of operations of the Group. In order to limit interest rate and currency risk in operations, derivative financial instruments are specifically deployed. The tom tailor Group does not trade in financial instruments, but undertakes targeted hedging of the risks arising from operations. When contracts are concluded in a foreign currency, futures are transacted in order to minimise unquantifiable future currency risks. The transactions involving financial instruments are monitored and checked on an ongoing basis by the Management Board within the framework of the risk management system.

Finance and liquidity risks

The management of liquidity risks is one of the main responsibilities of the Treasury Department. Liquidity risk is the risk that payment obligations cannot be met or not met on time because of insufficient funds.

ANNUAL REPORT 2010

Dividend payment risk

The payment of dividends is dependent on the financial position and results of operations of tom tailor Holding ag and the distribution of profit or the profit transfer made by its subsidiary operations, and is subject to restrictions due to existing and future loan agreements.

The decision on future dividend payments is always dependent on the circumstances at the time, which includes the earnings situation, the Company’s funding and investment requirements, and the availability of net profit (each as reported in the Company’s financial statements prepared in accordance with hgb accounting).

Interest rate risk

The Group is exposed to interest rate risk primarily in the eurozone. To hedge against the resulting risks, tom tailor uses derivative financial instruments to hedge the interest on loans with variable interest rates. Both interest rate cap and swap transactions are implemented for the period of the bank loan to limit the risks of interest rate changes. A detailed table showing the interest rate caps and swaps that have been concluded can be found in the notes to the consolidated financial statements.

Currency risks

As a result of the international nature of tom tailor’s business activities, risks may arise due to exchange rate fluctuations. The majority of tom tailor’s invoicing is in euros and the risk of exchange rate fluctuations is therefore of minor importance. A greater risk overall is posed by exchange rate fluctuations on the procurement side of the business. tom tailor sources a large amount of its procurement volumes in us dollars. To hedge against the resulting risk, futures contracts for us dollars are concluded at the time of concluding the procurement contract in order to minimise or exclude unquantifiable future risk.

Credit risks

Credit risks exist in regard to financial institutions and customers. The credit risk in regard to financial institutions, which has grown in significance as a result of the global banking crisis, arises primarily in the investment of liquid funds as part of liquidity management. With financial instruments, tom tailor is exposed to a risk of default which can arise from non-performance by a contractual partner. In order to minimise this risk, transactions involving financial instruments are only concluded with counterparties of good credit standing.

The credit risk with regard to customers arises from the granting of payment periods and thus the default risks associated with this. In order to minimise default risk in operations, outstanding payments are monitored centrally on a continual basis. The Group only transacts business with creditworthy third parties. All customers wishing to do business with the Group on a credit basis are subject to a credit assessment. Over and above this, the risk is countered through credit insurance and through obtaining collateral.

Operational risks

Sales and inventory risk

As a consequence of expanding its own retail space in the Retail segment, shop-in-shop sales and the revenue sharing model in the Wholesale segment, tom tailor is exposed to growing sales and inventory risk. Additionally, the opening up of new stores is linked to increased expense and uncertainty with regard to future profitability.

see page 113 et seq.

see page 112 et seq.

The Company cannot rule out incorrect assumptions when forecasting actual customer demand and expected sales. If goods delivered to the Company’s own stores at the beginning of the month do not sell steadily up to the next delivery of goods, there can be a resulting inventory surplus which could lead to a reduction in revenues or to lower retail space productivity (revenues per square metre, or net selling space, i.e. retail space excluding changing rooms, till areas, lounges and shop windows).

The opening of more own stores as part of retail expansion also calls for increased investment and leads to increased personnel and rental costs. There is no guarantee that this increased expense compared with the Wholesale segment can be compensated for with higher margins, nor that new own stores can be run as profitable units. The expansion in the Retail segment therefore constitutes a higher business risk for the tom tailor Group. This risk is generally a more direct and a greater risk for the tom tailor Group in its Retail segment than in the Wholesale segment.

In the Wholesale segment, the sales risk is normally carried by the wholesale customers, in particular in relation to pre-orders, i.e. the ordering of items which tom tailor only has manufactured once the order has been placed. tom tailor may have to bear the sales risk (in whole or in part), however, depending on how a contract is worded. The tom tailor Group bears the sales risk in particular in relation to shop-in- shop sales and revenue sharing models.

Quality risk

Assuring the consistent high quality of tom tailor products calls for close collaboration with suppliers and other contractual partners. This engenders procurement, production and logistics risks. One risk factor is the potential loss of product quality. In order to ensure stable supply relationships resulting in consistently high product quality and attractive prices for its constantly changing collections, in the area of sourcing tom tailor works with an international network of purchasing agents and manufacturers, and has required them to comply with the tom tailor Code of Conduct. There are currently some 150 manufacturers in 12 different countries working for tom tailor. The Code of Conduct covers all the core working standards drawn up by the International Labour Organization (ilo) and is binding for all partners. This Code of Conduct is intended to ensure that tom tailor products from all production units have been manufactured in humane working conditions. Audits are carried out regularly at all the production units to ensure that high standards of quality, employment law provisions and internationally recognised standards are being upheld. Each manufacturer is responsible for quality control in the first instance, manufacturing and checking the goods according to precise quality benchmarks.

Working conditions are checked by independent accredited auditors. tom tailor is an active member of the Business Social Compliance Initiative (bsci). The bsci is a Europe-wide initiative for retail organisations, which have joined forces to impose a uniform monitoring system on their suppliers. There are also further quality checks carried out at the central warehouse and in the Company’s own laboratory in Hamburg.

Business-related risks

it risks

It is essential that modern it systems are available and functioning if business processes are to be managed properly and costs controlled. In particular, the it systems for both merchandise management and the sales of tom tailor products on the Internet (e-shop) are extremely important. A failure of these systems

ANNUAL REPORT 2010

Legal risks

Legal risks typically arise from issues connected to industrial law, industrial property rights, product liability and warranties, or through the introduction of new laws or changes to existing laws or the interpretation thereof. The violation of an existing regulation may result from ignorance or negligence. In order to counter these risks in an appropriate and timely manner, potential risks are analysed thoroughly, calling on the expert knowledge of the Legal Department and, if necessary, external specialists. Despite these measures, the outcome of any ongoing or future proceedings cannot be predicted with certainty. Only a few companies within the Group are involved in legal proceedings at present. Legal disputes can be costly, even if the Company’s case is upheld, and could damage tom tailor’s image.

In order to protect its trademark rights, tom tailor monitors the markets globally for trademark registrations that could be mistaken for its brand names or the T logo. If a confusingly similar brand is discovered or the tom tailor brand name is used without permission, the necessary legal steps, i.e. usually the registering of objections, are taken immediately.

Employee risks

tom tailor is a successful medium-sized company and promotes a corporate culture which is based on and benefits from respectful treatment of all employees. tom tailor is nevertheless particularly dependent on its Management Board members and on other managers. If managers were to leave, this could have a negative effect on the development of the business. tom tailor counteracts this risk by creating a good working environment and by offering attractive remuneration together with long-term performance objectives.

Assessment of the overall risk position

At the time of writing, there are no individual or aggregate risks that could jeopardise the continued existence of the tom tailor Group in the foreseeable future. There have been no significant changes to the risk situation of the tom tailor Group since the end of the 2009 financial year. Thanks to the ipo and the subsequent repayment of financial liabilities, finance and liquidity risks in particular have been reduced.