ANNUAL REPORT 2013
ANNUAL REPORT 2013
IV | Adidas Annual Report
Table of Contents Financial Highlights
1
Letter from the CEO
5
Our Story
15
Financials
26
Our Share
38
Group Strategy
44
Financials | V
Wholesale Net Sales by Quarter (€ in Millions)
NET SALES
€11,013
MILLION
VI | Adidas Annual Report
Q1 2013
2,481
Q2 2013
2,014
Q3 2013
2,553
Q4 2013
2,063
2013
Net Income Attributable to Shareholders (€ in Millions) 796
2012
798
NUMBER OF EMPLOYEES
48,842
AVERAGE NUMBER
OF SHARES
209,216,186
Financial Highlights
2 | Adidas Annual Report
LETTER FROM THE CEO
4 | Adidas Annual Report
from the
The key financial highlights of the first nine months were as follows: • Sales remained stable on a currency-neutral basis or declined 4% in euro terms to $11 billion. It has been a busy, exciting and challenging third quarter and first nine months for the adidas Group. Despite the mounting
• Gross margin increased 2.1% percentage points to a record nine months level of 49.8%.
headwinds from negative currency movements as well as a
• Operating margin increased 40 basis points to 10.5%.
softer than originally expected performance in some of our key
• Net income attributable to shareholders was virtually
markets and segments, I am pleased to report that we delivered stable earnings for the first nine months. While I am disappointed we had to reduce our 2013 full year guidance in September, on balance, we continue to make good progress on our most
unchanged at $796 million. • Operating working capital as a percentage of sales increased 70 basis points to 20.6%. • Equity ratio expanded 80 basis points to 49.3%.
important Route 2015 strategic initiatives. Letter from the CEO | 5
Adidas Annual Report
To start with the negatives, three areas in particular impeded our initial growth plans in the quarter and also for the year as a whole. Firstly, and most severely, the persistent weakening of several currencies versus the euro throughout 2013, such as the Japanese yen, Brazilian real, Argentine peso, Turkish lira, Russian rouble and Australian dollar, has put a significant strain on our reported results in
“
euro terms. In the third quarter alone, Group sales suffered a 7 percentage point negative
We already see some notable improvements in momentum in several key markets.
�
impact from currency movements. Accumulated for the first nine months of the year, currencies wiped out $500 million from our top-line result. Secondly, in one of our most important Route
2015 markets, Russia/CIS, we had an unexpected shortterm distribution constraint in Q3 as a result of the transition to our Group’s new distribution facility in Chekhov, close to Moscow. This significantly impacted the quantity of new product deliveries to stores, which was a major contributor to the double-digit comp store sales decline we saw in that market during the third quarter. Our Global Operations and local management teams have worked speedily to rectify the matter, and I am pleased to report that we are making good progress on returning the shipping quantities back to normal levels. Nevertheless, as we communicated in September, due to the sales shortfall and the further weakening of the Russian rouble, we will not achieve our original goal for Russia/CIS this year.
These include: • The continuation of our industry-leading momentum in key emerging markets, with sales in Latin America and Greater China increasing 15% and 7% on a currency-neutral basis, respectively. • Strong growth in our focus adidas performance categories, where running revenues in particular were up a healthy 14% currency-neutral due to Thirdly, due to the continued softness in the global golf market, where TaylorMade-adidas Golf is the dominant leader, we took the
groundbreaking product innovations such as Boost and Springblade.
decision in the third quarter to be more consequent and accelerate
• Continued success in sports lifestyle with Originals &
the rebalancing of inventories to healthier levels in the marketplace.
Sport Style sales up 4% currency-neutral, driven by
As a result, sales declined 16% currency-neutral in the segment in
strong market share gains in the action sports category,
the third quarter and gross margins decreased over 10 percentage
where sales jumped over 60%, and the further roll-out
points due to additional markdowns and incentives. Again here,
of our highly successful teenage sub-brand, the adidas
our actions have delivered the desired result, and I am confident we will see a solid fourth quarter driven by highly innovative recent
NEO label, where sales expanded 12%. • And finally, further strong improvements in the
product launches such as the SLDR driver and fairway woods, as
quality of the Reebok business. Sales grew 5% in
well as our new Speedblade family of irons.
the third quarter and gross margin expanded 6.4 percentage points to 40.4%, the highest level we
Quick and focused actions like these show our Group’s determination
have achieved with the brand. Excluding the NFL
to always be at the forefront of creating consumer excitement in
license impact, Reebok revenues are up 3% year-
our industry. And while we had our challenges in the period under
to-date, and I can confirm that Reebok will grow for
review, these were definitely outnumbered by considerable and
the year as a whole.
broad-based successes in many categories and regions. Letter from the CEO | 7
“
To continue to lead the game on our home turf we have decided to go forward with one aligned strategy
.
�
8 | Adidas Annual Report
These positive developments clearly highlight the effective
To maximise the potential of both adidas and Reebok in
execution of our strategy to fundamentally improve the long-term
North America, we are uniting both organisations under one
sustainable profitability of our brands and our Group. And to
management team. Our goal is to strengthen both brands,
ensure we continue to drive these kinds of results, we also
to invest in both brands and to enable faster growth for both
have been working diligently during the year on the further
brands by winning with our key consumers – the High School
implementation of organisational measures to support our goals
Kid for adidas, the Fit Generation for Reebok and avid sports
to drive faster and more efficient decision-making processes for
fans through our Sports Licensed Division. To ensure our brands
the adidas and Reebok brands as well as ensuring we more fully
remain focused on their respective objectives, Portland will
leverage the power of our Group.
remain the home of the adidas brand in the U.S. and the Reebok brand will continue to be based in Canton. We want to continue
Here, I would like to inform you about two key strategic
to foster the positive effects of this energy and, at the same time,
initiatives that will help us get closer to our consumers and
harness the collective power of both brands. The dual location
customers than ever before in our two largest regions, Western
approach will also enable us to have a strong East and West
Europe and North America. To continue to lead the game on
Coast presence for our customers.
our home turf, we have decided to go forward with one aligned strategy across Western Europe. Europe is changing: country
I am convinced that both of these initiatives will drive our competitive
borders are becoming less relevant for both our consumers and
position to new heights over the coming years and give us a significant
customers. They want the best product and want it fast. This
platform to improve and extend our market shares. Staying on the
strategy combines the potential of our innovative brands and
future, with strong demand for our highlight concepts and innovations,
cutting-edge products with excellence in routes-to-markets and
momentum is clearly returning to our business. We already see some
back-office functions.
notable improvements in momentum in several key markets.
Letter from the CEO | 9
10 | Adidas Annual Report
Our relentless pursuit of creating premium experiences for our consumers. In the coming months, these will include: • A fully integrated global attack in the football category
• Leveraging the return of Derrick Rose as the centrepiece
beginning in the fourth quarter and every month thereafter
of our basketball offensive, as well as broadening our
up to and including the 2014 FIFA World Cup in Brazil. This
activities with our portfolio of next-generation NBA stars to
will consist of our most comprehensive footwear offensive
cultivate growth in both footwear and apparel.
ever, including all four of our football boot silos in a creative
• Continuing to amplify Reebok’s holistic fitness positioning
World Cup themed pack called the Samba pack, the launch
with the further global roll-out of our FitHub concept
of the federation jerseys, and the always highly anticipated
through own retail and shop-in-shops. Designed to inspire
official match ball.
the fit generation and to showcase the brand’s pinnacle
• Smart Run is the most advanced, intuitive wrist-based
footwear and apparel offering, Reebok FitHubs are changing
running device on the market today, eliminating the need
consumers’ perception of the brand by solidifying Reebok’s
for cables, straps and sensors.
image as the fitness brand.
In summary, we have dealt swiftly and decisively with our
Great success is achieved by those with the ambition, desire
challenges in 2013. There is no doubt that our industry-
and persistency to constantly improve, accept challenges and
leading innovations, strong partnership activations and keen
embrace change. This mentality is at the core of the adidas
understanding of the global consumer are clearly enhancing our
Group’s philosophy and why we are fully committed to the course
position as the premium multi-sports company in the industry.
we set out on with our Route 2015 strategic plan. I am confident
I am sure you agree, from the initiatives I have shared, we have
in the plan. I look forward to sharing more details on that front
great potential to continue on our journey towards long-term
with you at our Investor Field Trip which will take place here in
sustainable value creation.
Herzogenaurach on December 2–3, 2013.
Herbert Hainer adidas Group CEO Letter from the CEO | 11
12 | Adidas Annual Report
OUR STORY
Financials | 13
Adidas Annual Report
PROFILE At the adidas Group, our love for sport drives who we are and what we do. Every day.
The brands of the adidas Group complement each other in a unique way to help athletes perform better, play better, feel better. Our products break records, set trends, make history. Every day. All over the world. Welcome to the adidas Group. It is not only about faster shoes and fashion statements. Just as a shoe is more than padding and foam, there is more to us than just the product. Everything we do is bound by one simple thought: we strive to help you perform at your best. Your success is our ambition. Your defeat spurs us on to be better. Our consumers’ brand love is based on our employees’ extraordinary passion for a sporting lifestyle. With dedication, commitment and team spirit, we continuously innovate to establish new benchmarks in everything we do. Shaping the sporting goods industry sustainably is more than a job. It’s our impulse, an attitude that is truly dear to our hearts. It drives us. We are laser-focused on our mission: we strive to be the global leader in the sporting goods industry with brands built on a passion for sports and a sporting lifestyle! Our Story
Employing more than 50,700 people in over 160 countries, we
CHANGING THE GAME. ONE INNOVATION AT A TIME.
produce more than 650 million product units every year and
Innovation has always been the centrepiece, the engine if you
generate sales of € 14.5 billion (all figures relate to 2013). These
will, that has kept adidas going through the decades.
numbers alone can easily suggest that our Group is quite a complex
Changing the game… What sounds easy, can be tricky. Because the
organisation. True. But we keep things simple, lean and fast. And we
challenge with innovation is that it does not happen on schedule.
will use this approach now to tell you what our company is all about.
It takes expertise, patience, dedication and, passion. Sometimes,
Ready ... set, go.
it is just learning by doing because there are no blueprints for innovation. Sometimes it takes trial and error. More often than not,
WE EMBRACE A MULTI-BRAND STRATEGY
we miss the mark (there are examples, trust us). But, just like in
We think you deserve choice. We believe no one should be
sports, we do not give up. We create the unexpected and come up
reduced to just one of many facets and talents. No matter whether
with the biggest running innovation in history. Being able to push
you are an athlete looking for the best equipment, or a fashionista
the envelope is a beautiful thing, isn’t it?
searching for the next trend, or both – we want to engage with you in a long-lasting relationship. Our multi-brand strategy enables us
IN THE NAME OF RESEARCH
to do just that because it allows us to tackle opportunities from
We define innovation as changing the game. Be it in marketing,
several perspectives, as both a mass and a niche player, always
product development or any other field of our game. There are
providing distinct and relevant products. In this way, our brands
countless facets to innovation. However, there is one team at
and their sub-brands all keep their unique identity. Let’s get
adidas that is especially dedicated to making innovation happen.
started with our two main brands: adidas and Reebok.
Our adidas innovation team’s relentless pursuit is to give athletes around the world what they deserve: state-of-the-art technologies
16 | Adidas Annual Report
assembled into world-class products. The 80-strong team, located equally at the global headquarters in Herzogenaurach, Germany,
DASSLER’S VISION MEETS 21ST CENTURY TECHNOLOGY
s been said many times that Adi Dassler’s vision is the heart of adidas. His desire
nnovation was remarkable. Oh, how he would have loved to see this: spread out 1,300m², the adidas innovation research lab at the adidas global headquarters
erzogenaurach is one of the biggest in the sporting goods industry.
vision is a research and development team rooted in collaboration, openness respect—where everyone works together at every stage from concept to
very. To create game changing innovations which create new experiences and
asurable benefits for you and your needs.
VE VINCENT, GLOBAL HEAD OF INNOVATION
Olympic 100m sprint track with force measurement fields, a motion analysis
ion for recording in 3-D entire motion sequences for scientific evaluation and
climate simulation chamber, in which performance diagnostics and product
ng are conducted together with athletes at temperatures ranging from -35°C
50°C, are all completely integrated in the Innovation Research Lab. With all machinery going on, no one would be surprised to see our lab in the next
ywood blockbuster ... with some secret agent picking his special equipment. yet, machines do not make innovations and innovations for innovation’s sake
not necessarily lift the benchmark. We want our innovations to be relevant for And when our developers, engineers and other brilliant minds come together, create innovations with one goal in mind: to make athletes better. To make you
er. Only then do you get the lightest sprint spike, the smartest football and, just
year, the running shoe with the highest energy return in the running industry.
, just like that, we change the game. Again.
18 | Adidas Annual Report
,
“
When our developers engineers and other brilliant minds come together they create innovations with one goal in mind : to make athletes better
,
.
�
Our Story
THE SPIRIT OF LEADERSHIP IN SUSTAINABILITY
adidas Group is famous for leading many fields. Whether it is nature or
We are not always perceived as being among the most sustainable companies
ure to create leadership, in other words whether leaders are born or made,
in the sporting goods industry, which is fine, because we don’t engage in this
thing is sure: if you want to be a real leader in the long run, behave like
field for the glory. Nevertheless, I have to admit that this top ten ranking feels
ally being on a long run. Sprint when necessary, but always keep the rest of
really rewarding for me, the team and the adidas Group as a whole. Especially
ace in mind if you want to make it to the finish line. True leaders don’t sprint
as this recognition is based on the most extensive data-driven, independent
to be seen in the front row. They trust their game plan because they have
corporate sustainability assessment in existence.
ght it through carefully. Unpretentious leadership pays off. This is the spirit
adidas Group’s “Social & Environmental Affairs” team believes in.
Frank has been with the company for more than 20 years, and has thus accompanied the adidas Group on a big part of its journey to becoming a global
y, this attitude was rewarded once again as the adidas Group has been ranked
responsible player. His team embodies the leadership spirit of the adidas Group.
th among the 2014 Global 100 Most Sustainable Corporations in the World. the last decade, the adidas Group has continuously improved its placement in
We work behind the scenes, but if we believe that something is the right thing to
anking as a side effect of improving its numerous initiatives in the sustainability
do and it is good for the cause, we are not afraid to take bold decisions – even
This is a clear sign of leadership, even though some would not think so.
if the decision puts ourselves under pressure.
20 | Adidas Annual Report
Adidas Annual Report
In 2001, the company decided to take such a bold decision when it raised the bar for the entire industry by publishing its first Sustainability Report. Even though this type of reporting has become best practice for many to follow, the adidas Group is still today the only company in the sporting goods industry which publishes a Sustainability Report on an annual basis. “As a global company, the adidas Group cannot afford to ignore the impact of its business practices. We recognise our responsibility to be accountable to all our stakeholders, which involves regular and open reporting about our social and environmental performance. As such, reporting became a natural extension of our work: by reporting regularly, we aim to build up a picture of our sustainability performance that can be tracked from year to year.� Sometimes though, it is creativity and pragmatism, not boldness, which make the difference. Faced with some concrete challenges, such as the need to improve communication with factory workers in order to better understand their concerns in the factory, or the extensive use of water in the dyeing process, the company identified creative ways to solve them: the adidas Group’s SMS for workers project as well as the launch of the adidas DryDye collection are good examples of this attitude.
Over the past two decades, the adidas Group has been very focused on
This explains why the adidas Group engages as an active member of m
driving change within the company’s global supply chain. To achieve this,
industry associations, all looking at embedding new thinking and way
the company’s Sustainability team has worked closely with its manufacturing
working within the industry. The FFC database is the most prominent tool in
partners to safeguard workers’ rights and reduce environmental impacts. New
industry for the sharing of audit results, which is key to more transparency
challenges are constantly knocking at the door though. With major learnings for
collaboration in the industry.
the company, as well as for the industry as a whole. Frank explains:
A lot has happened in the first two decades of sustainability work at the ad The management of issues such as working conditions in global supply chains or
Group, and significant efforts have been made to integrate sustainab
the environmental performance of companies themselves is a complex challenge,
measures in the company’s core operations. It is testimony that not only is
requiring many actors to work together and play a role in achieving effective and
company on the right track. This is an incentive to continue on this track on
sustainable solutions. There is no competition when it comes to sustainability.
journey to becoming a truly sustainable company. It is a marathon, not a sp Our Story
24 | Adidas Annual Report
FINANCIALS
Financials | 25
continued recovery of the US market and a stabilisation of inflation helped drive
umer spending which, in turn, benefited retailers and the industry. Sporting
ds sales continued to see positive trends in basketball, training and sporting
tyle. However, outdoor footwear and the golfing market were both weak spots for
ndustry during the quarter. Many sporting goods retailers remained focused on
-performance and technically innovative products to help support higher prices
to drive sales. In Asia, wage increases and rising consumer spending supported
nsion of the sporting goods industry.
Adidas Annual Report
Net Sales by Region 11% Latin America
28% Western Europ
11% Greater China
13% European Emerging Markets 14% Other Asia Markets
23% North Ame
Financials |
Cash and Cash Equivalents 9.8% 8.5% Accounts recievable
Inventories
18.9% 19.2%
22.1% 20.2%
36.3% 37.1% Other Assets
Assets: 11,389
September 30, 2013
| Adidas Annual Report
12.9% 15.0%
11,742
September 30, 2012
Structure Statement Financial Position of
of
49.3% 48.5% Total Equity
26.7% 26.3% Other Liabilities
5.7% 10.3% Long-term Borrowings
Accounts Payable
11.0%
12.3%
3.9% Short-term Borrowings
6.0%
Liabilities and Equity: 11,389
September 30, 2013 11,742
September 30, 2012
Financials |
Annual Income Statement Data Actuals in M € Fiscal Period December
Estimates in M €
2010
2011
2012
2013
2014
2015
2016
11,990
13,344
14,883
14,462
15,293
16,355
17 283
1,159
1,257
1,445
1,533
1,783
2,090
2 234
Operating profit (EBIT)
894
1,011
1,185
1,232
1,462
1,753
1,873
Pre-Tax Profit (EBT)
806
927
851
1,197
1,448
1,740
1,885
Net income
806
671
526
841
1,019
1,238
1,341
EPS ( €)
2.71
3.20
2.52
4.00
4.84
5.89
6.40
Dividend per Share ( €)
0.80
1.00
1.35
1.51
1.88
2.34
2.45
Yield (%)
0.95
1.18
1.60
1.78
2.23
2.78
3.05
3/2/11
3/7/12
3/7/13
-
-
-
-
Sales Operating income (EBITDA)
Announcement Date
Finances - Leverage Actuals in M € Fiscal Period December
Estimates in M €
2011
2012
2013
2014
2015
2016
-
-
-
-
-
-
900
448
295
257
435
398
-
-
-
-
-
-
376
434
479
497
511
524
25.50 €
25.40 €
26.20 €
29.90 €
33.70 €
37.40 €
Cash Flow per Share
3.79 €
4.50 €
3.03 €
5.74 €
6.61 €
7.25 €
Announcement Date
3/7/12
3/7/13
3/5/14
-
-
-
Debt Finance Leverage (Debt/EBITDA) Capital Expenditure Book Value Per Share (BVPS)
| Adidas Annual Report
NET INCOME UP 13% Other Businesses
IN 2013
23% Retail
64% Wholesale
Wholesale Net Sales by Quarter (â‚Ź in Millions) Q1 2013
2,481
Q2 2013
2,014
Q3 2013
2,553
Q4 2013
2,063
Financials |
| Adidas Annual Report
Balance Sheet in Accordance with HGB (Condensed) Dec. 31, 2012 Dec. 31, 2011 Assets Intangible Assets
152
154
Property, Plant, and Equipment
265
255
Financial Assets
3,480
3,429
Fixed Assets
3,897
3,838
Inventories Receivable and Other Assets
33
30
1,976
1,767
3,057
2,189
Cash and Cash Equivalents, Securities Current Assets Prepaid Expenses
76
28
7,030
6,046
2,672
2,322
361
339
Liabilities and Other Items
3,997
3,385
Total Equity and Liabilities
7,030
6,046
Total Assets Equity and Liabilities Shareholders’ Equity Provisions
Net Income Attributable to Shareholders (â‚Ź in Millions) 2013
796
2012
798
11% Hardware
27% Footwear 42% Apparel
NET SALES BY
PRODUCT CATEGORY
GROUP SALES:
€14.833 BILLION
Financials |
and
JULY
7
Andy Murray becomes the first British man to be crowned Wimbledon champion in 77 years, after beating the world number one at the time, Novac
28
Djokovic, in three straight sets.
11 12
GUST
1 5
German international football player Mesut Özil joins the adidas family, enhancing the brand’s portfolio of great players worldwide. During the OutDoor fair in Friedrichshafen, adidas Outdoor is awarded the OutDoor Industry Award in Gold for the Terrex Scope GTX with Stealth rubber. adidas launches Springblade, the first running shoe with individually tuned blades engineered to help
Sweden, Germany wins its sixth consecutive European title, beating Norway. With this victory, Germany has won every European tournament since 1993.
29 31 10
TaylorMade introduces SLDR, the revolutionary new club features a sliding weight system, engineered to launch the golf ball higher, faster and longer. adidas launches the new Fall/Winter 2013 Unite All Originals campaign:“the ultimate culture clash”. Hip-hop legends Run DMC collide with superstar DJ A-Trak. Reebok Hockey launches the revolutionary Reebok RibCor, the first ribbed stick with a loaded shaft The
propel runners forward. The highly elastic blades
RibCor’s unique ribbed shaft technology features carbon
react to any environment, compressing and releasing
fibres that are permanently in tension to help increase
energy to create an efficient push-off.
power transfer from the hands directly to the puck.
Rockport introduces “Total Motion”, its latest footwear collection for both men and women. The professional collection, providing the ultimate in comfort.
Adidas Annual Report
At the UEFA Women’s EURO 2013 in Stockholm,
16
adidas sponsored Wilson Kipsang sets a new world record at the 40th anniversary of the Berlin Marathon. Wearing the adizero adios 2 running shoe.
SEPTEMBER
12
For the 14th consecutive time, adidas AG is selected to join the Dow Jones Sustainability Indices and is rated as industry leader in sustainability issues and
22
corporate responsibility for the tenth time.
16
The adidas Group opens the “World of Kids”. Located at its headquarters in Germany, this company-owned day-care centre offers care for up to 110 children.
Adidas and Derrick Rose unveil the DRose 4 signat
collection: the latest in a line of premium and perso
signature products, featuring an exclusive, tailored design inspired by Derrick’s distinct personalities.
22
Roland Auschel is appointed to the Executive Board
adidas AG, assuming responsibility for Global Sales a Board level effective October 1, 2013. Financials
36 | Adidas Annual Report
OUR SHARE
Financials | 37
e third quarter of 2013, international stock markets maintained the positive
Global stock markets gain momentum in the third quarter
mentum from the previous two quarters and increased considerably. The
In the third quarter of 2013, international stock markets improved significantly,
30 and US equity markets rose to new all-time highs in September, driven
thereby accelerating the positive momentum from the first two quarters of 2013.
he worldwide recovery of leading economic indicators as well as ongoing
The key catalyst of the uptrend was the recovery in leading economic indicators
ommodative monetary policies of the ECB and the Fed. A lacklustre Q2
in the euro area, driven by momentum in Germany and France. The stabilisation
ings season, currency headwinds in many emerging economies as well as
of economic data in China as well as the announcement of small measures to
political risk factors only temporarily weighed on equity markets during the
stimulate the Chinese economy were tailwinds for international stock markets.
ter. Accordingly, the DAX-30 and the MSCI World Textiles, Apparel & Luxury
The ECB’s forward guidance in July that rates would remain low for an extended
ds Index increased 8.0% and 11.4%, respectively. The adidas AG share in
period and the Fed’s decision in September to keep buying US $85 billion in
parison underperformed these indices and decreased 3.6%.
bonds per month again strongly supported equity markets during the quarter.
Adidas Annual Report
“
,
In the third quarter of 2013 international stock markets improved significantly thereby accelerating the positive momentum from the first two quarters of 2013
,
.
�
Our Share
Adidas Annual Report
adidas AG share decreases in the third quarter
Nevertheless, setbacks from various geopolitical risk factors such
At the beginning of the third quarter, the adidas AG share suffered losses,
Syria, the looming US government shutdown towards the end of
reflecting the overall challenging market environment. However, from
quarter as well as currency headwinds in many emerging mark
mid-July onwards, the share price reversed its previous weakness and
such as Turkey, India and Brazil, weighed on equity markets during
traded sideways in line with the market direction. In August, the adidas,AG
third quarter. As a result, the DAX-30 and MSCI World Textiles, App
share gained momentum, driven by positive analyst commentary prior
& Luxury Goods Index increased strongly, gaining 8.0% and 11
to the adidas Group first half results release. Following the publication
respectively, compared to the end of June 2013.
of the results on August 8, the share price decreased 2.1%, as Q2 results came in slightly below top- and bottom-line consensus. Despite a
Number of ADRs decreases
challenging macro backdrop and tough event-driven comparatives from
The number of Level 1 ADRs (American Depository Receipts) decrea
last year, analysts positively commented on the strong product innovation
during the three-month period compared to the end of the sec
pipeline as well as the strong gross margin development year to date. As
quarter of 2013. The Level 1 ADR closed the quarter at US$54
a result, several brokers increased their target prices, reflecting growing
reflecting a slight increase compared to the end of June 2013. The be
confidence in the targeted margin delivery for the remainder of Route
performance of the Level 1 ADR price compared to the ordinary sh
2015. Towards the end of August, the adidas AG share was again under
price was due to the depreciation of the US dollar versus the eur
pressure, as disappointing reports by major US retailers weighed on the
the end of the third quarter of 2013 compared to the end of June 20
overall market sentiment. During the first half of September, the share price partially offset previous losses due to improving market trends. On
Successful Investor Relations activities
September 19, the adidas Group amended its full year 2013 guidance,
In August 2013, the adidas Group 2012 Annual Report “Pus
as a result of intensified currency headwinds, distribution constraints
Boundaries” ranked second among the German DAX-30 companies
and a softer consumer environment in Russia/CIS as well as the overall
the prestigious “Best Annual Report 2012” award granted by the Ger
weakness in the golf market, resulting in a 3.0% share price decline on
business magazine “manager magazin”. The prize is awarded by a
the day following the ad-hoc press release. As a consequence, the adidas
which reviews 160 annual reports from across Germany’s most impor
AG share finished the quarter at € 80.18, representing a decrease of 3.6%
stock indices, the DAX-30, MDAX, SDAX and TecDAX. After winning this
compared to the end of June 2013. Since the end of 2012, the adidas AG
in 2007 and 2012, and coming narrowly second in 2011, this is the fo
share is still among the top performers of the DAX-30, gaining 19.1%.
time the adidas Group has ranked among the top two.
Our Share
42 | Adidas Annual Report
GROUP STRATEGY
Our Share
e adidas Group strives to be the global leader in the sporting goods industry with brands built upon a passion for sports and a sporting lifestyle.
OUP STRATEGY
CREATING LONG-TERM SHAREHOLDER VALUE
red by our heritage, we know that a profound understanding of the consumer
Creating long-term value for our shareholders through significant operating cash
customer is essential to achieving this goal. To anticipate and respond to
flow generation drives our overall decision-making process. Making strategic
needs, we continuously strive to create a culture of innovation, challenging
choices that will drive sustainable revenue and earnings growth, and ultimately
elves to break with convention and embrace change. By harnessing this
operating cash flow. Across our operations, we pursue in particular the avenues for
ure, we push the boundaries of products, services and processes to
growth which we expect to be most value-enhancing, with particular emphasis on
ngthen our competitiveness and maximise the Group’s operational and
improving brand strength and Group profitability. In addition, rigorously managing
ncial performance. This, in turn, will drive long-term value creation for our
working capital and optimising our capital structure remain key priorities for us.
pany and our shareholders. To achieve this goal, we have made strategic
Furthermore, we are committed to increasing returns to shareholders with above-
ces and will prioritise our investments under six key strategic pillars.
industry-average share price performance and dividends.
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Creating long term value for our shareholders through significant operating cash flow generation drives our overall decision making process
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Adidas Annual Report
DIVERSE BRAND PORTFOLIO Consumers want choice. Whether it is the athlete looking for the best possible equipment, or the lifestyle consumer searching for the next fashion trend, we are inspired to develop and create experiences that engage consumers in long-lasting relationships with our brands. To maximise our consumer reach, we have embraced a multi-brand strategy. This approach allows us to tackle opportunities from several perspectives, as both a mass and a niche player, providing distinct and relevant products to a wide spectrum of consumers. In this way, each brand is able to keep a unique identity and focus on its core competencies, while simultaneously providing our Group with a broad product offering, increasing our leverage in the marketplace. INVESTMENTS FOCUSED ON HIGHEST-POTENTIAL MARKETS AND CHANNELS As a Group, we target leading market positions in all markets in which we compete. However, we have prioritised our investments based on those markets which offer the best medium- to long-term growth and profitability opportunities. In this respect, we place considerable emphasis on expanding our activities in the emerging markets, particularly China and Russia/CIS, as well as building our market share in underpenetrated markets for the Group, such as the USA. No matter in which market we operate, we recognise that consumer buying behaviour and the retail landscape are unique. Therefore, we tailor our distribution strategy to present our brands to the consumer in the most impactful way. We strive to provide our customers, while continuing our commitment to building strategic competency in own retail and e-commerce. CREATING A FLEXIBLE SUPPLY CHAIN Speed and agility are key to outpacing the competition. We are committed to meeting the full range of consumer needs by ensuring constant product availability in the correct size and colour, providing game-changing technical innovations and also the latest high-end fashion products to the highest quality standards.
LEADING THROUGH INNOVATION
DEVELOP A TEAM GROUNDED IN OUR HERITAGE IN SPORT
Every adidas Group employee is responsible for driving innovation. We foster a
Our culture is continuously shaped by influences from the past and the pre
culture of challenging convention and require all areas of the Group to generate
as well as our future aspirations. We perpetuate the commitment of our foun
at least one new innovation or meaningful improvement per year. We believe that
Adi Dassler, to the athlete and consumer, and pride in what we do. We win
technological evolution and cutting-edge design in our products are essential
team through open communication, collaboration and our shared values fou
to achieving sustainable leadership in our industry. Enhancing services for our
sport. Therefore, we foster a corporate culture of performance, passion, inte
customers and implementing more efficient and effective internal processes are
and diversity by creating a work environment that stimulates innovation, t
other areas where our organisation strives to innovate.
spirit and achievement based on strong leadership and employee engageme
Group Strategy
OMING A SUSTAINABLE COMPANY
ADIDAS GROUP ROUTE 2015 STRATEGIC GOALS
any global business, the adidas Group must manage wideranging
In November 2010, the Group unveiled its 2015 strategic business plan
mercial and competitive pressure to deliver increased financial returns
named “Route 2015”, which defines strategies and objectives for the period
growth. At the same time, we are accountable for our employees and have
up to 2015. This plan is the most comprehensive the adidas Group has ever
gh degree of responsibility towards the workers in our suppliers’ factories
developed, incorporating all brands, sales channels and Group functions
also for the environment. We are committed to striking the balance
globally. Based on our strong brands, premium products, extensive global
een shareholder interests and the needs and concerns of employees and
presence and commitment to innovation and the consumer, we aspire to grow
ers to becoming a sustainable company.
our business significantly until 2015.
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According to our plan, total Group sales are targeted to grow 45% to 50% o
currency-neutral basis over the five-year period, thereby outperforming total ma
growth (both GDP and sporting goods industry). In addition, we aim to grow bottom line faster than the top line. It is targeted to grow annual earnings
compound annual growth rate of 15% and to reach an operating margin of 11
In December 2013, although acknowledging that the achievement of our g
will be more challenging than originally anticipated, Management confirme
Route 2015 aspirations for the Group. However, given further headwinds from
weakening of several currencies versus the euro since the beginning of 2014
believe there is now an even higher risk to the achievement of our 2015 aspirati
In order to reach our Route 2015 strategic goals, we have defined c strategic priorities. These include:
Clear brand positioning and prioritisation: We believe that we have signifi
growth potential to exploit from our portfolio of brands. The majority of our targ growth will come from Global Brands, which we anticipate will contribute over of the Group’s expected revenue increase over the period.
Areas within the adidas and Reebok brands that have been identified as ke contributors to sustainable growth for the adidas Group include: • adidas Sport Performance: gaining sales and market share in the running and basketball categories. • adidas Originals & Sport Style: expanding in the fast-fashion business with the adidas NEO label and maintaining the strong momentum of adidas Originals. • Reebok: establishing Reebok as the leading fitness brand.
Group Strategy
and presence in key growth markets: We have identified North
Leverage growth and operational scale through to bottom line: A higher
rica, Greater China, Russia/CIS, Latin America, Japan and the UK as key
exposure to emerging markets as well as expanding controlled space activities
wth markets. Of those markets, the three ”attack markets” North America,
are important levers to improving brand presence, increasing sell-through and
ater China and Russia/CIS are expected to contribute around 50% of the
driving higher Group profitability. We continuously work on streamlining internal
Group growth under the Route 2015 plan, with each market targeting a
processes to accelerate decision-making, reduce complexity and make our
ble-digit compound annual growth rate. In the USA, the Group’s brands have
organisation leaner and more efficient. Already, we’ve launched Driving Route
mous potential to gain market share by focusing on improved distribution
2015 to act as a key enabler to achieve these aspirations.
allowing a higher share of products to be specifically designed for that
ket. In emerging markets such as China and Russia/CIS, rising standards of
g, increasing disposable income, positive demographic trends and growing
ts participation should support demand for sporting goods.
The objectives of Driving Route 2015 are very clear: • Speed, consistency and consumer focus.
nsify controlled space focus: We plan to increase the portion of sales
comes from space initiatives to over 50% of Group sales in the coming years. includes new openings of adidas retail stores, the further extension of our
o-branded franchise store base in markets such as China, as well as new shop
atives with retail partners around the world. We intend to also open at least 750
as and Reebok stores between 2010 and 2015, as well as grow significantly
eCommerce business. We project to increase to € 500 million by 2015. 50 | Adidas Annual Report
• Speed by implementing an organisation that allows faster decision-making. • Consistency by establishing a more aligned and efficient organisation across functions and geographies. • Consumer focus by reducing internal complexity, enabling us to put more of our energy into what really matters – the consumer.
In addition, we have identified several profit levers across the Group to support improvements in profitability. For example, we are targeting improved product margins with initiatives such as range efficiency, where we have the goal to achieve a 25% range reduction by 2015. In wholesale, we are improving our business by sharpening our trade terms policies and reducing our exposure to lower-quality channels of distribution, focusing on higher-quality partners more aligned to where our target consumer is shopping. On our mission to become a best-in-class retailer, we continuously strive to improve the operating margin in our Retail segment. In manufacturing, we are combatting inflation in the supply chain by increasing our investments in automation and new production techniques. Also, our investments in infrastructure such as the new distribution centres near Osnabrueck/Germany and Chekhov/Russia will ensure we increase capacity in a cost-efficient way to service all of our channels, be it Wholesale, Retail or eCommerce. Finally, we continue to work on enhancing our planning processes, to further improve profitability and working capital efficiency. Therefore, we believe there is significant potential to increase the Group’s operating margin to 11% sustainable by 2015. Maintain financial flexibility: We strive over the long term to maintain a ratio of net borrowings over EBITDA of less than two times. A strong balance sheet increases our flexibility to realise value-generating medium- and long-term opportunities in the best interests of our shareholders as they arise. Group Strategy
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Group Strategy |
IMPOSSIBLE IS NOTHING
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