Risk

In accordance with the UK Corporate Governance Code (the "Code"), the board understands the need for a robust system of internal control and risk management. Following a review of risks to the Group, a further assessment of the key risks and uncertainties facing the Group has been undertaken. This is reviewed on a regular basis at executive committee and board level.

The directors consider the following matters to be the principal risks and uncertainties to the Group. These may not be exhaustive and there might be additional unknown risks that could have an adverse effect on the Group:

External

Changing fashion trends

Risk descriptionPotential impactMitigation
The Group may fail to respond in a timely fashion to changes in consumer preferences or, additionally, fail to anticipate increased consumer demand for its products.The Group may experience inventory shortages or excesses that could result in lost revenue or cash and customer goodwill.The Group will continue to design new and innovative products, and will ensure a high level of market awareness and understanding of fashion and consumer trends by carrying out market research, brand tracking, visits to trade fairs and product research.
The Group is constantly refreshing and updating its product range and this assists in differentiating the product to meet evolving consumer needs.

The Group bears a risk of unfavourable changes in currency exchanges despite its foreign exchange contracts

Risk descriptionPotential impactMitigation
The Group pays for a large proportion of its goods and receives a proportion of its revenues in foreign currency and is potentially vulnerable to adverse movements in exchange rates. In particular, euro exchange rates have a potential for greater volatility as a result of continuing economic and financial instability within the EU.The Group's operating results become unpredictable due to changes in exchange rates that are outside our control.The Group has a documented foreign exchange policy and maintains constant management oversight, including monthly board review, of foreign exchange exposure and opportunities. The Group's policy is to hedge these risks by using forward foreign exchange contracts.

EU economic and financial conditions

Risk descriptionPotential impactMitigation
The Group expects that the current economic conditions, made more uncertain through the ongoing debt crisis in the EU, will mean trading conditions remain extremely challenging.The Group's results can be affected by the impact of economic conditions on consumer confidence and buying habits.The Group will continue to monitor and assess the status of the EU economic and financial environment and potential impacts.
The Group will implement its strategies to develop and strengthen the Superdry brand globally and therefore reduce dependency on specific markets.

Internal

The significant growth of the Group puts pressure on key resources

Risk descriptionPotential impactMitigation
Growth will depend on the ability of the Group to expand operations and to develop its supply base, Group infrastructure and people.Failure to manage the pace of change effectively could impact on the Group's financial results.The Group's strategic objectives are reviewed continually for their impact on the infrastructure. The process of investment in infrastructure is a high priority and recent senior appointments will reduce execution risk.

Business systems changes are not implemented effectively

Risk descriptionPotential impactMitigation
Growth will depend on the ability of the Group to manage and effect, significant business change programmes.Failure to manage necessary business change could impact on the effectiveness and efficiency of business operations and on the Group's financial results.The Group is focused on the development of robust planning, programme and project management capabilities and in ensuring it has appropriate resource capacity, skills and effective third party relationships to manage and implement change effectively.

The Group may not be able to effectively control and monitor its suppliers to comply with labour, employment and other laws

Risk descriptionPotential impactMitigation
While the Group requires its suppliers to operate in compliance with local and international legislation and with an internationally accepted code of practice, it may not be able to control these manufacturers and so cannot ensure absolute compliance.There is potential for the Group to suffer negative customer and stakeholder sentiment with associated impact on customer and investor appeal.The Group actively engages and expects its supply base to operate in accordance with its ethical trading code of practice. The Group assesses the status of operating practices through a schedule of focused audits and company visits, where necessary, working with suppliers on improvement plans.

Business interruption at the Group's distribution centres

Risk descriptionPotential impactMitigation
As a major retail and wholesale business, the Group relies on the effective operation of its distribution centres which could be disrupted through a major incident such as a fire.There is potential for the Group to suffer loss or damage to stock holding and disruption to its store and customer replenishment capability.The Group recognises the reliance it has on its distribution centres and has invested in a number of major improvements to protect these facilities. During 2012 the Group placed its retail distribution requirements under a managed service agreement with a leading dedicated logistics provider. Where the Group utilises third party storage and logistics services, which will provide some additional contingency, it ensures that standards are appropriate and regularly monitored.

Loss of a key factory or supplier at a critical point in the design and manufacturing process that leaves no time to arrange alternative sources of supply

Risk descriptionPotential impactMitigation
As the business grows it is crucial that a robust, flexible and cost effective supply base meets the Group's needs for volume growth, quality, timeliness and accuracy.The Group may potentially lose, at a critical time, one or more of its suppliers, through a break down in the contractual relationship, the supplier being no longer commercially viable, or as the result of a major incident.If the Group fails to manage its supply base effectively, or events occur that are outside of its control, product volume, delivery and quality issues may arise with associated reputational damage within its customer base.The Group has a number of long-standing and closely monitored relationships with suppliers with whom it continually seeks ways to improve capability and in 2012 has further developed its supply base to build multi-sourcing capability, and reduce over-reliance on single suppliers and factories. This process is ongoing.

The Group's disaster recovery plans may not be sufficient

Risk descriptionPotential impactMitigation
The Group depends on the availability of its facilities (both in-house and outsourced) and the performance reliability and availability of its information technology and communications systems. Any damage or denial of access to these systems could disrupt operations.Should any of these facilities be damaged or lost the Group's ability to trade will be impaired.The Group continues to invest in improving the availability, integrity and confidentiality of its business systems and has a roadmap for business system replacement and updates going forward. The Group requires that third parties have robust contingency plans in place.

Loss of key individuals

Risk descriptionPotential impactMitigation
The Group will always carry the risk of loss of one or more of the executive directors or senior managers.In particular, the loss of Julian Dunkerton and/or James Holder, who are both held to be synonymous with the Superdry brand, would potentially be of greater significance.There could be significant focus from investors and stakeholders relating to our ability to maintain and expand the brand and Group.The board have made a number of senior appointments throughout the year, including, most recently the appointment of Susanne Given as COO and Shaun Wills as CFO.

Breach of intellectual property and counterfeit product

Risk descriptionPotential impactMitigation
The retail clothing and fashion industry and, in particular, iconic brands such as Superdry, will continually be a target for both large and small scale counterfeit operations. Additionally, the Group must actively monitor and assess its designs to ensure that it does not infringe intellectual property of others.Copied or counterfeit Superdry branded products, with inferior quality and design, reach both existing and future sales territories with a potential to damage brand integrity.
Infringement by the Group of third party intellectual property may result in costly legal proceedings and damages.
Working with third party services the Group constantly monitors its supply chain and the global sales of Superdry branded product by unlicensed parties, taking necessary action to both stop and where possible take proceedings against them.

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