Annual Financial Report

Risk

Description

Mitigating Action

Strategic Risks

Growth strategy

Jimmy Choo's long term growth is dependent on making strategic moves into new territories, channels, and products. The wrong strategy or poor implementation could put future growth at risk.

The Board has approved well-structured growth plans and ensured they are adequately resourced.

The Board regularly challenges the strategic plans to ensure downside risks are mitigated.

The Board closely monitors the progress against the strategic plan, redirecting strategy or implementation effort when required.

Competitive environment

Jimmy Choo competes with other luxury goods companies for end clients, talent, retail sites, wholesale customer accounts and supplier capacity. Failure to compete well in any of these areas risks future growth.

Senior Management monitors competitor movements and ensures Jimmy Choo hires and retains top staff to stay ahead of the competition in each area - including:

· Design and Merchandising staying ahead of future design and consumer trends;

· Supply Chain negotiating and building strong relationships with current and future suppliers;

· Retail acquiring top sites in new areas; and

· Wholesale nurturing strong relationships with key customers.

Changes in consumer preferences and trends

Future success depends on Jimmy Choo's ability to shape, predict and respond to fashion trends and consumer preferences on both products and channels. Failure to do so risks surplus inventories, missed sales opportunities and a reducing salience of the brand with clients.

Design and Merchandising teams have a structured approach to monitoring trends internally and externally and use the feedback to develop each collection to stay ahead of future design and consumer trends.

Retail teams monitor consumer channel preferences.

Marketing and Brand Image teams ensure the brand book and marketing are aligned and relevant to the market place.

Operational Risks

Key personnel

Jimmy Choo needs to attract and retain the best people in each area.

HR policies and management culture are reviewed regularly to ensure they continue to be effective in keeping Jimmy Choo as an attractive place to work.

Bonuses and incentive plans are reviewed regularly to ensure they remain competitive with the industry.

Third party production

If suppliers do not produce product on time, to the right quality levels, or fail to meet local laws and regulations, this would constrain the availability of stock in stores and for delivery to our wholesale customers. If Jimmy Choo requires production beyond current capacity this risks constraining growth.

Jimmy Choo has dedicated supply chain and quality assurance offices, close to where the suppliers are located. This helps to build strong relationships with suppliers and manages those suppliers tightly to production deadlines and contracts.

To ensure supplier availability, Jimmy Choo plans volume and capacity clearly in advance.

Jimmy Choo maintains knowledge of supplier capability on an on-going basis to determine where constraints could arise in future.

IT systems

Critical data losses or delays in operations if Jimmy Choo's IT systems are not robust against power outages; computer, network and telecommunications failures; computer viruses; security breaches and user errors could interrupt the business operations.

Senior management reviews the IT strategy and operations plan regularly to ensure IT systems continue to be appropriate for the size and complexity of Jimmy Choo's business.

In addition, Jimmy Choo maintains a disaster recovery plan.

Outsourcing services to Global Business Services ("GBS")

Logistics, IT and transactional accounting activities are outsourced to the JAB Luxury's shared services company, LLX Global Business Services SA ("GBS"). Reductions in GBS performance risk impacting Jimmy Choo's operations and reductions in GBS efficiency would lead to increased costs for Jimmy Choo.

Legal contracts and service catalogues have been signed between Jimmy Choo and GBS. Both parties are committed to improving the KPIs over time.

Performance is monitored on a daily basis and reported to senior managers monthly.

A clear remediation process is in place if required.

Programme risk

Interruption or reduced performance during implementation of the operational transformation programme would impact current operations. If the scope of transformation reduced, future development plans of the business would be put at risk.

Senior management have put in place a strong programme management team and structure in Jimmy Choo, linking project delivery teams (from GBS) to key staff in the Jimmy Choo business.

A clear programme structure, planning processes, reporting framework and communication plan have been put in place and are regularly monitored.

Senior management are prepared to enact decisions and actions quickly as required to ensure the programme is implemented successfully.

Compliance Risks

Compliance with laws and regulations

Changes in laws and regulations could result in Jimmy Choo being non-compliant or incurring costs to be compliant (e.g. system changes). If third parties (e.g. suppliers) are not compliant, there would be a risk to brand image or of financial penalties.

Employees in each area monitor regulatory requirements in their area (e.g. Design, Merchandising and Supply Chain on consumer product safety; Retail on health and safety in stores; Supply Chain and Logistics on import and export requirements).

The Jimmy Choo legal team liaise with these teams, provide an overall review and act swiftly should instances of non-compliance arise.

Customer confidentiality

Failure to comply with restrictions on the use of customer data could harm Jimmy Choo's brand reputation and credibility and level of customer trust.

The new CRM system which has been implemented with the roll-out of SAP has been designed to handle customer information securely.

The Chief Information Security Officer within GBS undertakes regular PCI audits.

Financial Risks

Exchange rate fluctuations

Products are purchased in euro and sold in local currencies. In addition, our DOS costs are incurred in local currencies. Adverse movements in foreign exchange rates would impact revenue growth reported in sterling, as well as gross and net margins.

The Board has approved a hedging strategy to minimise impact of exchange rate fluctuations.

Economic downturn and international market risk

Economic downturns in countries where Jimmy Choo sells products may reduce sales and increase inventory.

Changes in international trade laws, transportation costs, or local government instability could all impact financial results.

Economic environment and international market risks are regularly reviewed by senior management, with appropriate action taken as required (e.g. reallocation of product or resources between regions and active management of inventory).

Reputational Risk

Image and reputation of brand

If Jimmy Choo's products, stores, marketing, customer service and corporate profile fail to retain the distinctive Jimmy Choo character, quality and values, brand equity could be reduced and sales impacted.

Brand quality is placed at the core of everything the business does.

This ensures close management by all areas of business concerned to retain reputation (e.g. design of products, quality of marketing, store environment and client service).

Jimmy Choo's contracts with licensees are drafted to ensure retention of control of the brand and are rigorously enforced.

Control of wholesale distribution channel

Third party multibrand and franchisee stores could present the brand in a manner not in keeping with Jimmy Choo's brand positioning and DNA, damaging the brand.

Senior management review distribution partners in advance of accepting them as a Jimmy Choo partner.

Jimmy Choo's contracts with distribution partners are drafted to ensure control of elements of the brand presentation and are rigorously enforced.