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, which is reviewed by the executive committee and board.

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

RiskPotential impactMitigationChange *
Fashion and design trends may not be responded to.The Group may experience inventory shortages or excesses that could result in reduced margins, lost revenue or 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.
As owner of the Superdry brand, the Group is less sensitive to fashion trends than many other clothing retailers.
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Risk of unfavourable changes in currency exchange rates.The Group's financial results become unpredictable due to changes in exchange rates.The Group has a documented foreign exchange policy and maintains constant management oversight, including board review, of foreign exchange exposure and opportunities.
The Group's policy is to hedge these risks by using forward foreign exchange contracts and this policy is set out in note 31 of this report.
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Economic and financial conditions result in challenging trading conditions.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 continues to implement its strategies to develop and strengthen the Superdry brand globally thereby reducing its dependency on specific markets.
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Ability to support planned growth of the Group by developing its supply base, infrastructure and people.Failure to manage the pace of change effectively could impact on the Group's ability to achieve planned growth targets.A five year plan is in place which sets out the key strategic initiatives which will be required to support the planned growth of the Group. These initiatives are owned by senior executives and are reported on regularly to the board.
The recruitment of experienced senior members of the management team will help drive the successful implementation of these initiatives as well as underpinning future operations.
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Failure to deliver business critical projects.Failure to manage key projects could impact on the effectiveness and efficiency of business operations or delay growth opportunities.Robust board level project approval processes are in place to ensure that appropriate due diligence is carried out before a project is undertaken.
Improvements have been made to the project governance framework. Enhanced project and risk management disciplines are in place and reviews are carried out at key checkpoints.
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Failure to ensure compliance in the supplier base to ethical trading policy.There is potential for the Group to suffer negative customer and stakeholder sentiment with associated impact on customer and investor appeal.Ethical Trading matters are led by the COO to whom a dedicated sustainability team reports. SuperGroup is an active member of Ethical Trading Initiative (ETI).
The Group actively engages with its supply base and expects 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.
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Key infrastructure or IT systems may be unavailable due to operational problems or a major incident.Should any of these facilities be unavailable for an extended time period, 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.
A phased approach is being taken to improve the reliability, efficiency and scalability of the Group's warehousing and distribution capabilities.
Enhancements to the Group's business continuity planning procedures continue to be developed.
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Loss of key individuals or the inability to attract and retain talent.There could be significant focus from investors and stakeholders relating to our ability to maintain and expand the brand and Group.
Lack of appropriately skilled and experienced resource could result in a delay in achieving the Group's strategic goals.
The management team has been strengthened considerably over the past 12 months. Susanne Given as COO and Shaun Wills as CFO are now well established in their roles. New executive appointments have been made in the areas of HR, IT, Logistics and Retail during the past year. The Design team also continues to be expanded and strengthened.
Following appointment of the new HR Director, the Group's recruitment and retention processes are being reviewed and enhanced.
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Brand damage may occur due to over-exposure of the Superdry brand or counterfeit product.The strength of the Superdry brand is fundamental to the business. There is a risk that the brand may be over-exposed or damaged by copied or counterfeit products, with inferior quality and design.Brand tracking and sales analysis occurs to ensure that the brand does not become over-exposed in any of its markets. Growth in more mature markets is carefully planned to avoid over-saturation.
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. A Brand Protection Manager has recently been appointed to strengthen these controls further.
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Regulatory and Legal Frameworks.Failure to comply with regulatory frameworks in the diverse markets in which the Group operates could result in financial penalties or reputational damage.When operating outside the UK, the Group works with experienced partners who bring significant local knowledge. Specialist professional and legal advice is also sought relevant to the local markets.
The Group has recently strengthened both its internal legal team and the external support partners used.
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Execution of international expansion.The Group fails to grow the international business successfully through franchise operations, wholly owned businesses and e-commerce.
Risks that the Group fails to prioritise the right territories or investment.
The international economic climate does not support the Group's growth aspirations.
Ownership of international strategic risks is held by the recently appointed Managing Director, International and Wholesale, who has extensive international retail experience.
Progress is regularly reviewed and discussed at the Group board.
Strong relationships developed with the key stakeholders and identification of established, experienced and successful partners.
Identification of appropriate ranges for the country or territory and identifying a cultural fit with the Superdry brand.
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* Indicates the change in overall level of risk assessment during the course of 2013.