Hornbach-Baumarkt-AG Group

70 GROUP MANAGEMENT REPORT Risk Report
External risks
Macroeconomic and sector-specific risks
The dependency of HORNBACH DIY megastores with garden
centers on general macroeconomic developments and levels
of disposable household income could become apparent in the
form of unwillingness on the part of customers to make purchases
in periods of low economic growth. In particular, the
different duration of the impact of the global financial and
economic crisis and the subsequent European debt crisis on
economic performance figures and employment statistics
within Europe would appear to indicate that the risks in terms
of stagnating or declining DIY sales in those European countries
in which HORNBACH operates are still present.
Irrespective of this, a major dependency on economic developments
in Germany has been identified. The further expansion
into other European countries is intended to achieve an
ongoing diversification of risk. Furthermore, the company
generates a substantial share of its sales with seasonal
articles whose turnover is significantly affected by external
factors, such as weather conditions.
Natural hazards
The climate change observable around the world also directly
affects HORNBACH locations in Germany and other European
countries. In addition to potential natural catastrophes (e.g.
flooding), the Group is also exposed to risks resulting from fire
and explosions. The principal insurable natural hazards and
any potential interruption to operations arising as a result are
covered by group-wide insurance policies.
Operating risks
Location and sales risks
Investments in unsuitable locations could have a significant
negative impact on the Group’s earnings power. To minimize
such risks, investments in new locations are therefore prepared
on the basis of detailed market research analysis, with
investment decisions being taken on the basis of dynamic
investment calculations and sensitivity analyses. The risk of
unsatisfactory sales performance due to additional existing
factors, such as customer behavior and the local competitive
situation, can nevertheless not be excluded entirely. Ongoing
investments therefore have to be made in locations, enhancing
customer service levels, and in new concepts in order to
maintain the company’s competitiveness, especially in countries
with low market growth and intense competition.
Procurement risks
To avoid the loss of major suppliers, the Group has developed
an efficient early warning system that monitors suppliers
continuously on the basis of various quantitative and qualitative
criteria. The implications of any potential supplier loss
are further reduced by probing the market for alternative
substitutes at an early stage. Should there be any deterioration
in the macroeconomic situation, however, then the risk of
the Group losing suppliers and being unable to procure such
products elsewhere at short notice cannot be excluded entirely.
The overall Group has a total of four central warehouses in
order to reduce the risk of any interruption to the logistics
chain and optimize the supply of merchandise. In its procurement
of merchandise, HORNBACH is subject, among other
risks, to increasing purchasing prices for articles involving a
high share of crude oil, copper or steel as a result of volatile
prices on the international commodities markets. Furthermore,
higher prices for products involving energy-intensive manufacturing
processes could lead to an increase in overall procurement
costs, one which it might not be possible to pass on
to customers, or only following a certain delay.
Legal risks
Legislative and regulatory risks
As a result of its business activities in various countries, the
HORNBACH-Baumarkt-AG Group is subject to various national
legislative frameworks and regulations. Legislative amendments
may therefore lead to higher compliance costs. Alongside
risks such as those relating to damages claims due to
infringements of patents or industrial property rights, or of
damages resulting from environmental or product liability, the
Group’s future earnings situation may also be negatively affected
in particular by any tightening up of national construction
laws or regulations governing the acquisition of land. To
help avert fraudulent actions, the Board of Management