Annual Report 2010 - CDON Group

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18 CDON Group AB Annual Report report 2010 � Common strategy and financial flexibility: Coordination of strategies between the Group’s business areas combined with financial capacity to use Group cash flows to establish new subsidiaries, geographic expansion of existing web sites, and add-on acquisitions. Risks and uncertainties Overview of risk factors A number of factors affect or may in the future affect the operations of CDON Group, both those directly related to the CDON Group and those that relate indirectly. Some of the risk factors considered significant to the CDON Group’s future development are summarised below, in no relative order. Other risks that are unknown to CDON Group or that CDON Group currently perceives as insignificant may in the future have a significant impact on the CDON Group’s business, financial position, or earnings. Industry and market risks � Market development for e-commerce � Seasonal variations � Fashion trends Operational risks � Disturbances or inadequacies in CDON Group’s IT and control systems � Distribution � Expansion into new markets and new segments � Structural measures and acquisitions � Returns and free shipping � Intangible assets Financial risks � Currency � Financing and interest rates Legal risks � Legislative, regulatory, and compliance � Intellectual property rights � Taxes
CDON Group AB Annual Report report 2010 Industry and market risks Market trend for e-commerce The market for e-commerce is undergoing change. In the Nordic countries, the average annual growth of the e-commerce market was 18 per cent between 2004 and 2009. In 2009 the e-commerce market in Sweden constituted 3.7 per cent of total retail sales, compared with 1.2 per cent in 2003, according to the Swedish Retail Institute (HUI). There are no assurances that the e-commerce market will continue to show the same positive trend, or that the products the CDON Group sells benefit from positive market developments. Seasonal variations In the Entertainment segment, which is heavily dependent on Christmas shopping, the CDON Group is exposed to large seasonal variations and a large portion of sales occurs during Q4. The Fashion segment also exhibits seasonal variations, where the second and fourth quarters are the strongest as summer and winter clothing exhibit the largest sales. Seasonal variations are relatively small in the Sports & Health segment. Fashion trends In the Fashion segment, CDON Group is also exposed to fluctuations in trends and fashion, as well as consumer preferences regarding design, quality, and price. If CDON Group misjudges consumer preferences and does not succeed in selling its products, this may lead to excess inventory of certain products and price cuts. Operational risks Disturbances or inadequacies in CDON Group’s IT and control systems CDON Group’s operations are highly dependent on reliable IT and control systems that are well suited for CDON Group operations. The CDON Group has made significant investments in sophisticated IT and control systems, including an integrated logistic system that automatically manages and forwards orders to its distribution centres. Maintenance, upgrades, and support of these systems are ongoing. However, despite this it cannot be ruled out that systems could suffer from operational disturbances or interruptions. Such disturbances or longer interruptions to CDON Group’s IT and control systems would lead to significant operational disturbances, and lower confidence in the CDON Group, with adverse effect on its competitive strength and market position as a result. Distribution CDON Group depends on a number of warehouses that are associated with the Company’s internet stores. If a warehouse for some reason should be destroyed or close, or if its equipment should be seriously damaged, the Company might not be able to deliver the products to its customers. Under such circumstances, and to the extent the CDON Group cannot quickly and cost-effectively find an alternate warehouse or repair the warehouse in question or its equipment, this may have a considerable adverse effect on the Company’s operations. The CDON Group has insurance policies for property and production stoppages for amounts that the Company has 19
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