ANNUAL REPORT 2013
ANNUAL REPORT 2013
II | 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 | III
Wholesale Net Sales by Quarter (€ in Millions)
NET SALES
€11,013
MILLION
IV | Adidas Annual Report
Q1 2013
2,481
Q2 2013
2,014
Q3 2013
2,553
Q4 2013
2,063 Net Income Attributable to Shareholders (€ in Millions)
2013
796
2012
798
NUMBER OF EMPLOYEES
48,842
AVERAGE NUMBER
OF SHARES
209,216,186
Financial Highlights | 1
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. • Gross margin increased 2.1% percentage points to a record nine It has been a busy, exciting and challenging third quarter and first nine months
months level of 49.8%.
for the adidas Group. Despite the mounting headwinds from negative currency
• Operating margin increased 40 basis points to 10.5%.
movements as well as a softer than originally expected performance in some of
• Net income attributable to shareholders was virtually unchanged at
our key 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 important Route 2015 strategic initiatives.
$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%.
Letter from the CEO | 5
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.
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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.
6 | Adidas Annual Report
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, Thirdly, due to the continued softness in the global golf market, where TaylorMade-
where running revenues in particular were up a healthy 14%
adidas Golf is the dominant leader, we took the decision in the third quarter to
currency-neutral due to groundbreaking product innovations
be more consequent and accelerate the rebalancing of inventories to healthier levels in the marketplace. As a result, sales declined 16% currency-neutral in the
such as Boost and Springblade. • Continued success in sports lifestyle with Originals & Sport Style
segment in the third quarter and gross margins decreased over 10 percentage
sales up 4% currency-neutral, driven by strong market share gains
points due to additional markdowns and incentives. Again here, our actions have
in the action sports category, where sales jumped over 60%, and
delivered the desired result, and I am confident we will see a solid fourth quarter
the further roll-out of our highly successful teenage sub-brand, the
driven by highly innovative recent product launches such as the SLDR driver and
adidas NEO label, where sales expanded 12%.
fairway woods, as well as our new Speedblade family of irons.
• And finally, further strong improvements in the quality of the Reebok business. Sales grew 5% in the third quarter and gross
Quick and focused actions like these show our Group’s determination to always
margin expanded 6.4 percentage points to 40.4%, the highest
be at the forefront of creating consumer excitement in our industry. And while we
level we have achieved with the brand. Excluding the NFL
had our challenges in the period under review, these were definitely outnumbered
license impact, Reebok revenues are up 3% year-to-date, and I
by considerable and broad-based successes in many categories and regions.
can confirm that Reebok will grow for the year as a whole.
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
.
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8 | Adidas Annual Report
These positive developments clearly highlight the effective execution of our
To maximise the potential of both adidas and Reebok in North America, we
strategy to fundamentally improve the long-term sustainable profitability of
are uniting both organisations under one management team. Our goal is to
our brands and our Group. And to ensure we continue to drive these kinds of
strengthen both brands, to invest in both brands and to enable faster growth
results, we also have been working diligently during the year on the further
for both brands by winning with our key consumers – the High School Kid for
implementation of organisational measures to support our goals to drive faster
adidas, the Fit Generation for Reebok and avid sports fans through our Sports
and more efficient decision-making processes for the adidas and Reebok
Licensed Division. To ensure our brands remain focused on their respective
brands as well as ensuring we more fully leverage the power of our Group.
objectives, Portland will 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 to
Here, I would like to inform you about two key strategic initiatives that will
foster the positive effects of this energy and, at the same time, harness the
help us get closer to our consumers and customers than ever before in our
collective power of both brands. The dual location approach will also enable us
two largest regions, Western Europe and North America. To continue to lead
to have a strong East and West Coast presence for our customers.
the game on our home turf, we have decided to go forward with one aligned strategy across Western Europe. Europe is changing: country borders are
I am convinced that both of these initiatives will drive our competitive position to
becoming less relevant for both our consumers and customers. They want
new heights over the coming years and give us a significant platform to improve
the best product and want it fast. This strategy combines the potential of
and extend our market shares. Staying on the future, with strong demand for our
our innovative brands and cutting-edge products with excellence in routes-to-
highlight concepts and innovations, momentum is clearly returning to our business.
markets and back-office functions.
We already see some 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 beginning in the fourth quarter and every month thereafter up to and including the 2014
• Leveraging the return of Derrick Rose as the centrepiece of our basketball offensive, as well as broadening our activities with our portfolio of next-
FIFA World Cup in Brazil. This will consist of our most comprehensive
generation NBA stars to cultivate growth in both footwear and apparel.
footwear offensive ever, including all four of our football boot silos in a
• Continuing to amplify Reebok’s holistic fitness positioning with the further
creative World Cup themed pack called the Samba pack, the launch of the
global roll-out of our FitHub concept through own retail and shop-in-shops.
federation jerseys, and the always highly anticipated official match ball.
Designed to inspire the fit generation and to showcase the brand’s pinnacle
• Smart Run is the most advanced, intuitive wrist-based running device on the market today, eliminating the need for cables, straps and sensors.
footwear and apparel offering, Reebok FitHubs are changing consumers’ perception of the brand by solidifying Reebok’s image as the fitness brand.
In summary, we have dealt swiftly and decisively with our challenges in 2013.
Great success is achieved by those with the ambition, desire and persistency to
There is no doubt that our industry-leading innovations, strong partnership
constantly improve, accept challenges and embrace change. This mentality is at
activations and keen understanding of the global consumer are clearly
the core of the adidas Group’s philosophy and why we are fully committed to the
enhancing our position as the premium multi-sports company in the industry.
course we set out on with our Route 2015 strategic plan. I am confident in the
I am sure you agree, from the initiatives I have shared, we have great potential
plan. I look forward to sharing more details on that front with you at our Investor
to continue on our journey towards long-term sustainable value creation.
Field Trip which will take place here in Herzogenaurach on December 2–3, 2013.
Herbert Hainer adidas Group CEO Letter from the CEO | 11
12 | Adidas Annual Report
OUR STORY
Financials | 13
14 | 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 | 15
Employing more than 50,700 people in over 160 countries, we produce more than
Changing the game… What sounds easy, can be tricky. Because the challenge with
650 million product units every year and generate sales of € 14.5 billion (all figures
innovation is that it does not happen on schedule. It takes expertise, patience,
relate to 2013). These numbers alone can easily suggest that our Group is quite a
dedication and, passion. Sometimes, it is just learning by doing because there are
complex organisation. True. But we keep things simple, lean and fast. And we will
no blueprints for innovation. Sometimes it takes trial and error. More often than
use this approach now to tell you what our company is all about. Ready ... set, go.
not, we miss the mark (there are examples, trust us). But, just like in sports, we do not give up. We create the unexpected and come up with the biggest running
WE EMBRACE A MULTI-BRAND STRATEGY
innovation in history. Being able to push the envelope is a beautiful thing, isn’t it?
We think you deserve choice. We believe no one should be reduced to just one of many facets and talents. No matter whether you are an athlete looking for
IN THE NAME OF RESEARCH
the best equipment, or a fashionista searching for the next trend, or both – we
We define innovation as changing the game. Be it in marketing, product
want to engage with you in a long-lasting relationship. Our multi-brand strategy
development or any other field of our game. There are countless facets to
enables us to do just that because it allows us to tackle opportunities from
innovation. However, there is one team at adidas that is especially dedicated to
several perspectives, as both a mass and a niche player, always providing distinct
making innovation happen. Our adidas innovation team’s relentless pursuit is to
and relevant products. In this way, our brands and their sub-brands all keep their
give athletes around the world what they deserve: state-of-the-art technologies
unique identity. Let’s get started with our two main brands: adidas and Reebok.
assembled into world-class products. The 80-strong team, located equally at the global headquarters in Herzogenaurach, Germany, and the US headquarters in
CHANGING THE GAME. ONE INNOVATION AT A TIME.
Portland, Oregon, consists of mechanical engineers, industrial designers, product
Innovation has always been the centrepiece, the engine if you will, that has kept
developers, sports researchers and creative minds from nations such as South
adidas going through the decades.
Africa or the Dominican Republic. All united in the name of research.
16 | Adidas Annual Report
ADI DASSLER’S VISION MEETS 21ST CENTURY TECHNOLOGY It has been said many times that Adi Dassler’s vision is the heart of adidas. His desire for innovation was remarkable. Oh, how he would have loved to see this: spread out over 1,300m², the adidas innovation research lab at the adidas global headquarters in Herzogenaurach is one of the biggest in the sporting goods industry. Our vision is a research and development team rooted in collaboration, openness and respect—where everyone works together at every stage from concept to delivery. To create game changing innovations which create new experiences and measurable benefits for you and your needs. STEVE VINCENT, GLOBAL HEAD OF INNOVATION An Olympic 100m sprint track with force measurement fields, a motion analysis station for recording in 3-D entire motion sequences for scientific evaluation and the climate simulation chamber, in which performance diagnostics and product testing are conducted together with athletes at temperatures ranging from -35°C to +50°C, are all completely integrated in the Innovation Research Lab. With all that machinery going on, no one would be surprised to see our lab in the next Hollywood blockbuster ... with some secret agent picking his special equipment. And yet, machines do not make innovations and innovations for innovation’s sake do not necessarily lift the benchmark. We want our innovations to be relevant for you. And when our developers, engineers and other brilliant minds come together, they create innovations with one goal in mind: to make athletes better. To make you better. Only then do you get the lightest sprint spike, the smartest football and, just this year, the running shoe with the highest energy return in the running industry. And, 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
,
.
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Our Story | 19
THE SPIRIT OF LEADERSHIP IN SUSTAINABILITY
The 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
nurture 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
one 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
actually 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
the race 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
just to be seen in the front row. They trust their game plan because they have
corporate sustainability assessment in existence.
thought it through carefully. Unpretentious leadership pays off. This is the spirit the 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
Today, 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.
eighth among the 2014 Global 100 Most Sustainable Corporations in the World. Over 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
this ranking 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
field. 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
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.
22 | Adidas Annual Report
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 many
driving change within the company’s global supply chain. To achieve this,
industry associations, all looking at embedding new thinking and ways of
the company’s Sustainability team has worked closely with its manufacturing
working within the industry. The FFC database is the most prominent tool in the
partners to safeguard workers’ rights and reduce environmental impacts. New
industry for the sharing of audit results, which is key to more transparency and
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 adidas The management of issues such as working conditions in global supply chains or
Group, and significant efforts have been made to integrate sustainability
the environmental performance of companies themselves is a complex challenge,
measures in the company’s core operations. It is testimony that not only is the
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 this
sustainable solutions. There is no competition when it comes to sustainability.
journey to becoming a truly sustainable company. It is a marathon, not a sprint. Our Story | 23
24 | Adidas Annual Report
FINANCIALS
Financials | 25
The continued recovery of the US market and a stabilisation of inflation helped drive consumer spending which, in turn, benefited retailers and the industry. Sporting goods sales continued to see positive trends in basketball, training and sporting lifestyle. However, outdoor footwear and the golfing market were both weak spots for the industry during the quarter. Many sporting goods retailers remained focused on high-performance and technically innovative products to help support higher prices and to drive sales. In Asia, wage increases and rising consumer spending supported expansion of the sporting goods industry.
26 | Adidas Annual Report
Net Sales by Region 11% Latin America
28% Western Europe
11% Greater China
13% European Emerging Markets 14% Other Asia Markets
23% North America Financials | 27
Cash and Cash Equivalents 9.8% 8.5% Accounts recievable
Inventories Forced Assets
18.9% 19.2%
22.1% 20.2%
36.3% 37.1% Other Assets
Assets: 11,389
September 30, 2013
28 | 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%
6.0% 3.9% Short-term Borrowings
Liabilities and Equity: 11,389
September 30, 2013 11,742
September 30, 2012
Financials | 29
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)
30 | 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 | 31
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)
32 | Adidas Annual Report
2013
796
2012
798
11% Hardware
27% Footwear 42% Apparel
NET SALES BY
PRODUCT CATEGORY
GROUP SALES:
€14.833 BILLION
Financials | 33
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 AUGUST
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.
34 | 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 signature collection: the latest in a line of premium and personal signature products, featuring an exclusive, tailored design inspired by Derrick’s distinct personalities.
22
Roland Auschel is appointed to the Executive Board of adidas AG, assuming responsibility for Global Sales on a Board level effective October 1, 2013. Financials | 35
36 | Adidas Annual Report
OUR SHARE
Financials | 37
In the third quarter of 2013, international stock markets maintained the positive
Global stock markets gain momentum in the third quarter
momentum from the previous two quarters and increased considerably. The
In the third quarter of 2013, international stock markets improved significantly,
DAX-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.
by the worldwide recovery of leading economic indicators as well as ongoing
The key catalyst of the uptrend was the recovery in leading economic indicators
accommodative monetary policies of the ECB and the Fed. A lacklustre Q2
in the euro area, driven by momentum in Germany and France. The stabilisation
earnings season, currency headwinds in many emerging economies as well as
of economic data in China as well as the announcement of small measures to
geopolitical risk factors only temporarily weighed on equity markets during the
stimulate the Chinese economy were tailwinds for international stock markets.
quarter. 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
Goods 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
comparison underperformed these indices and decreased 3.6%.
bonds per month again strongly supported equity markets during the quarter.
38 | 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 | 39
40 | Adidas Annual Report
adidas AG share decreases in the third quarter
Nevertheless, setbacks from various geopolitical risk factors such as
At the beginning of the third quarter, the adidas AG share suffered losses,
Syria, the looming US government shutdown towards the end of the
reflecting the overall challenging market environment. However, from
quarter as well as currency headwinds in many emerging markets,
mid-July onwards, the share price reversed its previous weakness and
such as Turkey, India and Brazil, weighed on equity markets during the
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, Apparel
share gained momentum, driven by positive analyst commentary prior
& Luxury Goods Index increased strongly, gaining 8.0% and 11.4%,
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) decreased
last year, analysts positively commented on the strong product innovation
during the three-month period compared to the end of the second
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$54.20,
a result, several brokers increased their target prices, reflecting growing
reflecting a slight increase compared to the end of June 2013. The better
confidence in the targeted margin delivery for the remainder of Route
performance of the Level 1 ADR price compared to the ordinary share
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 euro at
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 2013.
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 “Pushing
as a result of intensified currency headwinds, distribution constraints
Boundaries” ranked second among the German DAX-30 companies for
and a softer consumer environment in Russia/CIS as well as the overall
the prestigious “Best Annual Report 2012” award granted by the German
weakness in the golf market, resulting in a 3.0% share price decline on
business magazine “manager magazin”. The prize is awarded by a jury
the day following the ad-hoc press release. As a consequence, the adidas
which reviews 160 annual reports from across Germany’s most important
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 title
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 fourth
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 | 41
42 | Adidas Annual Report
GROUP STRATEGY
Our Share | 43
The 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.
GROUP STRATEGY
CREATING LONG-TERM SHAREHOLDER VALUE
Inspired by our heritage, we know that a profound understanding of the consumer
Creating long-term value for our shareholders through significant operating cash
and customer is essential to achieving this goal. To anticipate and respond to
flow generation drives our overall decision-making process. Making strategic
their needs, we continuously strive to create a culture of innovation, challenging
choices that will drive sustainable revenue and earnings growth, and ultimately
ourselves to break with convention and embrace change. By harnessing this
operating cash flow. Across our operations, we pursue in particular the avenues for
culture, we push the boundaries of products, services and processes to
growth which we expect to be most value-enhancing, with particular emphasis on
strengthen our competitiveness and maximise the Group’s operational and
improving brand strength and Group profitability. In addition, rigorously managing
financial performance. This, in turn, will drive long-term value creation for our
working capital and optimising our capital structure remain key priorities for us.
company and our shareholders. To achieve this goal, we have made strategic
Furthermore, we are committed to increasing returns to shareholders with above-
choices and will prioritise our investments under six key strategic pillars.
industry-average share price performance and dividends.
44 | Adidas Annual Report
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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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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. 46 | Adidas Annual Report
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 present
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 founder,
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 as a
technological evolution and cutting-edge design in our products are essential
team through open communication, collaboration and our shared values found in
to achieving sustainable leadership in our industry. Enhancing services for our
sport. Therefore, we foster a corporate culture of performance, passion, integrity
customers and implementing more efficient and effective internal processes are
and diversity by creating a work environment that stimulates innovation, team
other areas where our organisation strives to innovate.
spirit and achievement based on strong leadership and employee engagement. Group Strategy | 47
BECOMING A SUSTAINABLE COMPANY
ADIDAS GROUP ROUTE 2015 STRATEGIC GOALS
Like any global business, the adidas Group must manage wideranging
In November 2010, the Group unveiled its 2015 strategic business plan
commercial and competitive pressure to deliver increased financial returns
named “Route 2015”, which defines strategies and objectives for the period
and 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
a high degree of responsibility towards the workers in our suppliers’ factories
developed, incorporating all brands, sales channels and Group functions
and also for the environment. We are committed to striking the balance
globally. Based on our strong brands, premium products, extensive global
between shareholder interests and the needs and concerns of employees and
presence and commitment to innovation and the consumer, we aspire to grow
workers to becoming a sustainable company.
our business significantly until 2015.
48 | Adidas Annual Report
According to our plan, total Group sales are targeted to grow 45% to 50% on a currency-neutral basis over the five-year period, thereby outperforming total market growth (both GDP and sporting goods industry). In addition, we aim to grow our bottom line faster than the top line. It is targeted to grow annual earnings at a compound annual growth rate of 15% and to reach an operating margin of 11%. In December 2013, although acknowledging that the achievement of our goals will be more challenging than originally anticipated, Management confirmed its Route 2015 aspirations for the Group. However, given further headwinds from the weakening of several currencies versus the euro since the beginning of 2014, we believe there is now an even higher risk to the achievement of our 2015 aspirations. In order to reach our Route 2015 strategic goals, we have defined clear strategic priorities. These include: Clear brand positioning and prioritisation: We believe that we have significant growth potential to exploit from our portfolio of brands. The majority of our targeted growth will come from Global Brands, which we anticipate will contribute over 80% of the Group’s expected revenue increase over the period.
Areas within the adidas and Reebok brands that have been identified as key 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 | 49
Expand presence in key growth markets: We have identified North
Leverage growth and operational scale through to bottom line: A higher
America, Greater China, Russia/CIS, Latin America, Japan and the UK as key
exposure to emerging markets as well as expanding controlled space activities
growth markets. Of those markets, the three ”attack markets” North America,
are important levers to improving brand presence, increasing sell-through and
Greater China and Russia/CIS are expected to contribute around 50% of the
driving higher Group profitability. We continuously work on streamlining internal
total Group growth under the Route 2015 plan, with each market targeting a
processes to accelerate decision-making, reduce complexity and make our
double-digit compound annual growth rate. In the USA, the Group’s brands have
organisation leaner and more efficient. Already, we’ve launched Driving Route
enormous potential to gain market share by focusing on improved distribution
2015 to act as a key enabler to achieve these aspirations.
and allowing a higher share of products to be specifically designed for that market. In emerging markets such as China and Russia/CIS, rising standards of living, increasing disposable income, positive demographic trends and growing sports participation should support demand for sporting goods.
The objectives of Driving Route 2015 are very clear: • Speed, consistency and consumer focus.
Intensify controlled space focus: We plan to increase the portion of sales that comes from space initiatives to over 50% of Group sales in the coming years. This includes new openings of adidas retail stores, the further extension of our mono-branded franchise store base in markets such as China, as well as new shop initiatives with retail partners around the world. We intend to also open at least 750 adidas and Reebok stores between 2010 and 2015, as well as grow significantly our 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 | 51
52 | Adidas Annual Report
Group Strategy | 53
IMPOSSIBLE IS NOTHING
adidas.com Š2013
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