The adidas Group is exposed to the risk of claims and litigation for infringement of third-party trademark, patent and other rights. ...

The adidas Group is exposed to the risk of claims and litigation for infringement of third-party trademark, patent and other rights. To reduce this risk, new product technologies, designs and names are carefully researched to identify and avoid potential conflicts with the rights of third parties. We have further strengthened our Intellectual Property department resources to drive enhancements in our patent portfolio, and in the reviewing and analysis of third-party patents.

Due to the safeguards in place and given that we are not dependent on single products or product groups, we believe that the likelihood that our Group might infringe third-party trademark or patent rights in a material way is only possible. Nevertheless, we believe that litigation could have a moderate financial impact on our Group.

We have a continuing responsibility to our employees, suppliers and the environment. ...

We have a continuing responsibility to our employees, suppliers and the environment. Malpractice in these areas, in particular human rights violations, dubious employment practices as well as environmentally harmful production processes can have a significant impact on the reputation and operational efficiency of our Group and our suppliers. To limit this risk, we have established Workplace Standards to which suppliers must conform before and during business relationships with the Group. Internal inspections of supplier factories verified by extensive independent audits are conducted regularly.
 
In the event of non-compliance with these standards, we develop joint action plans and set deadlines for compliance and further improvement. If these deadlines are not met, business relations are terminated.
 
In order to minimise the environmental impact of producing and distributing our products, in 2010 the adidas Group developed its first fully comprehensive environmental strategy (Environmental Strategy 2015). This strategy takes a holistic approach towards environmental issues such as sustainable resource use, climate change mitigation, emissions to water and air, waste treatment as well as hazardous substances. Part of this strategy is also to extend our “Better Place” initiative to more adidas athletic footwear and apparel products.
 
We currently believe that social and environmental malpractice may occur only in isolated cases. Therefore, we assess the likelihood of occurrence as unlikely. Nevertheless, we believe that, going forward, legislative measures as well as consumer expectations with regard to socially and environmentally sound business practices and behaviour will become more demanding, which will add to our corporate responsibility obligations. Due to this development we will, for example, have to cope with rising costs in order to fulfil more challenging environmental requirements. As a consequence, the likelihood of occurrence and the potential financial impact from social and environmental risks have increased and are now assessed as probable and moderate, respectively.

 

As popular consumer brands which rely on technological and design innovation as defining characteristics, the Group’s brands are frequent targets for counterfeiting and imitation. ...

As popular consumer brands which rely on technological and design innovation as defining characteristics, the Group’s brands are frequent targets for counterfeiting and imitation. To reduce the loss of sales and the potential damage to brand reputation resulting from counterfeit products, the adidas Group makes use of extensive legal protection (generally through registration) and works closely with law enforcement authorities, investigators and outside counsel. Although we have stepped up measures such as product security labelling with our authorised suppliers, the development of these measures remains a key priority on an ongoing basis. In 2010, more than 12 million counterfeit adidas Group products were seized worldwide.
 
We continue to regard the likelihood of counterfeiting and imitation as highly probable. However, we believe we have adequate costs budgeted to support our ongoing efforts to successfully combat counterfeiting and imitation, which also include adding more local brand protection officers. Therefore, we assess the risk from counterfeiting and imitation to potentially negatively impact our forecasted financial contribution as moderate.

The adidas Group faces a risk of selling defective products, which may result in injury to consumers and/or image impairment. ...

The adidas Group faces a risk of selling defective products, which may result in injury to consumers and/or image impairment. We mitigate this risk by employing dedicated teams that monitor the quality of our products on all levels of the supply chain through rigorous testing prior to production, close cooperation with suppliers throughout the manufacturing process, random testing after retail delivery, open communication about defective products and quick settlement of product liability claims when necessary. In 2010, we did not recall any products.

Our assessment of product quality risks remains unchanged versus the prior year. We regard the likelihood of occurrence of significant product liability cases or having to conduct wide-scale product recalls as possible. As we have insurance protecting us against the financial consequences of significant product liability cases, we assess the potential financial impact as moderate.
 

We face the risk that our employees breach rules and standards that guide appropriate and responsible business behaviour. ...

We face the risk that our employees breach rules and standards that guide appropriate and responsible business behaviour. In order to successfully manage this risk, the Group Policy Manual was launched at the end of 2006 to provide the framework for basic work procedures and processes. It also includes a Code of Conduct which stipulates that every employee shall act ethically in compliance with the laws and regulations of the legal systems where they conduct Group business. All of our employees have to participate in a special Code of Conduct training as part of our Global Compliance Programme.

We continue to regard the risks of grave misconduct as unlikely. In connection with the updated risk management methodology, our assessment of the financial impact on the Group, in case they should materialise, has decreased and is now regarded as minor.