financial report and registration document 2011 - Groupe SEB

for an amount of €465 million, most of this having been recognised at the
time of the All-Clad and Supor acquisitions.
Under IFRS accounting standards, the value of brands and goodwill must
be reviewed annually to check that the value entered in the balance sheet is
consistent with the actual performance of the brands and subsidiaries in their
own markets. Any signifi cant disparities, notably with regard to expected
cash fl ow, a brand’s commercial under-performance, or increased costs
incurred by the subsidiaries concerned, could require an adjustment in the
balance sheet which may involve a partial or total recognition of impairment
of the asset’s value. In 2009, the economic crisis had a high impact on
the trading activity and profi tability of All-Clad in the United States, as the
high-end segment suffered greatly from a pull-back in consumption and
a drop in visits to premium retail distribution outlets. In 2009, this underperformance
led the Group to recognise impairment losses for its All-Clad
assets (goodwill) to ensure prudence against the extent of the crisis period.
The partial recovery of operations and gradual improvement in profi tability
seen in 2010 and 2011 do not mean that All-Clad’s situation has returned to
normal, since its performance levels remain below the levels required under
the initial business plan. For this reason, the Group recognised additional
impairment for the goodwill of All-Clad during these two years in order to take
account of the residual difference between actual performance and forecasts.
Furthermore, with a view to creating value for its brands, the Group is
investing in R&D in order to supply its offering with innovative, groundbreaking
products, as well as in advertising and marketing with the purpose
of improving the visibility of its brands, boosting its sales and strengthening
its competitive positions in the fi eld.
Supplementary information is provided in Note 10 to the Consolidated
Financial Statements.
CLIENT RISKS
The Group’s broad geographical distribution, as well as the variety and
number of its retail distribution networks, limits risk and the probability of
major impact on a consolidated level. On a country level, however, a client
bankruptcy (especially a major client) may have signifi cant consequences on
the trading activity of the subsidiary in question. The fi nancial and economic
climate in 2008 and 2009 had already amplifi ed this risk, in particular due to
the fall-off in consumption in many countries and the credit crunch, which
had strongly affected certain retail chains. Over these two years, the Group
had to cope with the closure of Linens ’N’ Things in the United States and
Canada (385 stores in all), the discontinuation of Karstadt in Germany and
fi nancial diffi culties for major retailers in Europe and Russia. 2010 brought a
healthier fi nancial situation for retailers and no new defaults were observed
over the period. However, the crisis has left traces, retailers maintaining a
cautious stock policy and have not signifi cantly restocking since the recovery.
The situation became tense once again in 2011 with the downgrading of US
debt over the summer and the economic and fi nancial crisis plaguing various
countries including Greece, Spain, Portugal, and fi nally Italy. The possibility
that this crisis may spread to other European countries and a very lacklustre
economic situation in the United States caused household confi dence to
Financial Report and Registration Document 2011
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Presentation of the Group
Risk management
drop, affecting consumer spending and store traffi c. As a result, certain
stores were forced to close or were placed under administration.
In this context, the Group’s cautious policy toward its retailing clients, based
on the subscription of client coverage insurance, made it possible to limit
claims to a negligible sum. While, in 2009, the very harsh economic climate
in certain countries and the signifi cant increase in claim rates led to a sharp
reduction in coverage (COFACE or bank guarantees), coverage was restored
to a high level in 2010 and covered almost 90% of consolidated sales in
2011. At the same time, the Group maintained the policy adopted in 2009
and allowed client receivables to exceed the guarantees in certain cases
with a view to the long-term management of its relationships with retailers.
Nonetheless, these risks are subject to strict supervision at the Group level:
support from the “Credit Management” function and systematic validation
by two members of the Executive Committee of any non-covered risk greater
than €0.5 million. The risk of a major impact subsequent to potentially
inadequate results is therefore limited.
RISKS RELATING TO COMPETITION
In recent years, the competitive climate has become more severe in both
mature and emerging markets, although the issues faced by the Group differ
in both.
Given that mature markets are already well equipped, they are driven more
by supply than by demand and are clearly structured into three segments –
the entry level with plain, standardised products; mid-range, the largest in
size and where momentum is key; and premium, dedicated to exceptional
products (in terms of technology, design or status). Competition is particularly
fi erce in these markets: major established brands, whether national, regional
or international, compete alongside entry-level, low-cost no-brand products
and distributor brands, which are growing stronger, taking advantage of the
diffi cult times. In addition, retail distributors often and increasingly, play a
catalyst role in competition and can thus exert great pressure on prices.
Groupe SEB is long-established and occupies strong front-ranking positions
in mature markets thanks, in particular, to its powerful brand portfolio and
extensive offer which allows it to cover all segments.
Emerging markets are still in an equipment phase. Rapid urbanisation and the
development of a middle class with higher purchasing power generally foster
rapid growth in demand for higher-value product ranges. This phenomenon is
supported by the increasing implantation of modern retail distribution circuits
in these markets. Aware from the start that these countries had high potential
and that their consumers sought status through products, top brands built
up strong positions – in particular Groupe SEB, which is a leader in many
of these countries today. These markets have a pyramid structure, with a
broad though shallow base in entry-level products, a substantial mid-range
section, and a niche, high-end segment. Competition – especially in terms of
pricing – is fi ercer and fi ercer in these markets, as they quickly rise to meet
the standards of mature markets.
It is essential to gain market share in this highly competitive climate. This can
be achieved by brand reputation and the relevance of the product offer,
spurred by innovation alongside strong advertising and marketing support.
GROUPE SEB
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