Adidas Annual Report

Page 1

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.

Adidas Annual Report


-

“

Creating long term value for our shareholders through significant operating cash flow generation drives our overall decision making process

-

.

�


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.

Adidas Annual Report


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


52 | Adidas Annual Report


Group Strategy |


IMPOSSIBLE IS NOTHING



adidas.com


Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.