6.4.3 Risk analysis and mitigation
The results of Accell Group are affected by the general economic conditions and the economic outlook of the countries in which the company is active. The conditions in the key purchasing markets also play a role. The following overview is not an exhaustive list of risks to which the company is exposed.
Strategic risks
Changes in the market
Behaviour in the market may change. Reduced consumer confidence may inspire consumers to postpone large expenditures, while dealers may reduce their stocks by postponing purchases when faced with more limited financing opportunities.
Mitigation
Accell Group devotes considerable attention to brand positioning and innovation to inspire consumer preferences for our products. Active dealer management ensures that dealers have the tools to increase their turnover of Accell Group products. The Accell Group organisation must be flexible, so it can respond quickly to changing market demands.
Acquisitions
Accell Group’s growth strategy is partly dependent on acquisitions. However, it is possible that acquisitions may not meet expectations and the goals set. This pertains to estimates and assessments made during the acquisition process and also to integration following the acquisition. Secondly, it is possible that Accell Group cannot execute its acquisition strategy because it is not sufficiently successful in acquiring suitable companies.
Mitigation
Accell Group uses varying internal know-how and experience, and also hires external experts. The Board of Directors is always directly involved in an acquisition project. The Supervisory Board is an active partner in the acquisition process and must approve acquisitions. Also in some cases the bank consortium must approve acquisitions.
New companies are generally integrated into the group in the short term. Accell Group is constantly looking for and in contact with potential acquisition candidates
The changing conditions in the worldwide economy and changing financing opportunities may make it more difficult or even impossible to finance acquisitions. Acquisition parties with greater capital strength may be at an advantage in those situations.
Operational risks
Marketing and development
The brand strategy of Accell Group demands continuous innovation and development of attractive products, due in part to developments at its competitors. This challenge must also be met in the long term. There is a risk that Accell Group will fail to develop and market sufficiently innovative products. Changes in consumer awareness of brands and products also play a role in this.
Mitigation
Accell Group continuously invests in the development of its brands and products. The availability of talented and motivated managers and staff is a key factor in this respect. The management teams of the companies are assessed periodically.
Competition
The bicycle sector is characterized by intense competition between existing providers, while at the same time new providers and sector related products enter the market. There is a risk that Accell Group is not sufficiently able to predict the behaviour of (potential) competitors or to respond to it adequately.
Mitigation
Accell Group spends a lot of time and money on market research, the outcome of which is used in the decision making process.
Seasonal sales and logistical risks
Turnover is subject to a great extent to seasonal influences. Bicycles are sold primarily in the spring and summer. There is a risk that the company will not be able to adapt quickly enough, which could put pressure on timely deliveries. The weather may also affect seasonal sales. Poor weather in the spring and/or particularly hot or bad weather in the summer may have a negative impact on the demand for bicycles.
Mitigation
Accell Group uses seasonal production and sales plans and aims to constantly improve the predictability of its sales. Long supply lines combined with the unpredictability of the weather and the sales can result in higher stock levels. The company therefore aims to be as flexible as possible in its response to supply and demand during the season. Accell Group does not use hedging products to cover the impact of the weather.
Product liability
Defects in products may result in injury to and claims from end users, which may lead to financial damage and/or damage to the company’s reputation. Increasing self-awareness among consumers is a key development in this respect.
Mitigation
The company takes great care to ensure the quality and safety of its products. To this end, it uses tools such as standards partly based on laws and regulations, test and control systems, and recall scenarios.
Import duties
Imports of bicycle components from outside Europe are subject to various types of duty. There is a general import duty (5-15%), while certain countries enjoy discount rates. In addition, an antidumping duty applies to imports of bicycles from China to Europe. The current duty for imports from China is 48.5%. The regulation also applies to imports of specific bicycle components from China to prevent the import of near-complete bicycles in the guise of components. The main purpose of the regulations is to prevent the import of complete bicycles at unfair price levels. The absence of such duties, or a substantial change to the level of the duty, could result in changes to the supply and demand structure in the European bicycle markets.
Mitigation
Bicycle manufacturers that import components for in-house assembly are exempt from this duty. All the Accell Group companies in Europe are exempt. Accell Group positions its bicycle range in the higher market segment. In terms of strategic positioning in this segment, quality and response time to market developments are of key importance. The share of assembly costs in the total cost price of bicycles in the higher segment is limited. This reduces the impact of a possible termination or substantial reduction of the import duty.
Financial risks
Currency and interest rate
Turnover, profit and cash flow of the company are subject to exchange rate fluctuations of non-functional currencies. This pertains primarily the American dollar and to a lesser extent the Japanese yen, the British pound, the Taiwanese dollar and the Chinese Yuan. Changes in interest rates also affect the company results and cash flow.
Mitigation
Accell Group seeks to minimise the impact of non-functional currencies and controls the transaction risk by covering its currency needs with derivatives. All derivatives used have an underlying economic basis. This principle is applied strictly to prevent potentially speculative positions. Accell Group has an active interest rate policy, partly through the use of interest rate swaps.
Financing risk
The company is partly financed via a banking facility, which is used to absorb the impact of seasonal fluctuations in working capital, or to finance (smaller) acquisitions. There is a risk that the company will not be able to obtain the required financial resources, or not obtain those resources on time, to meet its financial obligations, which may endanger the growth of the company.
Mitigation
Accell Group mitigates this risk with a committed group financing facility which has been agreed upon with a number of solid financing parties. The facility is in line with the characteristics of the company and provides the financing parties with sufficient transparency and security. The conditions of the committed facility are disclosed in more detail in the financial statements on page 101 of the annual report.
Further risk analysis
The Board of Directors and the local management conduct a bi-annual risk analysis as part of the risk management system, to assess the likelihood and impact of potential risks. Based on that assessment, they draw up an overview of the main risks.