Adidas Ag · XETR:ADS
Adidas — FY2018 Earnings Presentation
46 slides from Adidas's earnings presentation, 2019
Slide 1: Roadshow Presentation
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Slide 2: Strategic Update
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Slide 3: Creating the New: Focus on Driving Brand Desirability
‘CREATING THE NEW’ FOCUS ON DRIVING BRAND DESIRABILITY OPEN SOURCE TOP LINE & MARKET SHARE GROWTH CULTURE BRAND GROSS MARGIN DESIRE EXPANSION OPERATING LEVERAGE 3
Slide 4: Culture: Our Foundation to Drive Value Creation
CULTURE OUR FOUNDATION TO DRIVE VALUE CREATION LIVING A PERFORMANCE CULTURE New company-wide performance management system completes first annual cycle ACTIVATING LEADERSHIP GROUPS Strong leadership to improve cross-functional collaboration and decision making ALIGNING WITH SHAREHOLDER INTERESTS Thr
Slide 5: Martin Shankland Succeeds Gil Steyaert as Board Member
MARTIN SHANKLAND SUCCEEDS GIL STEYAERT AS BOARD MEMBER RESPONSIBLE FOR GLOBAL OPERATIONS 5
Slide 6: Strategic Choices: Major Wins Across Three Dimensions
STRATEGIC CHOICES MAJOR WINS ACROSS ALL THREE STRATEGIC DIMENSIONS Capitalizing on cultural and sporting City-led activations including Republic of More than five million pairs of shoes made moments to drive brand desirability Sport in Shanghai and 747 in Los Angeles containing Parley Ocean Plastic
Slide 7: Acceleration Plan: Execution Drives Operational Progress
‘ACCELERATION PLAN’ EXECUTION DRIVES OPERATIONAL PROGRESS Optimized performance across Strong top-line growth with Global non-trade procurement App live in 25 countries and Creators countries, categories and brands more diversified channel mix organization delivering results Club launched in the US
Slide 8: Business Update
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Slide 9: 2018 Financial Highlights
DRIVING LONG-TERM SHAREHOLDER VALUE 2018 FINANCIAL HIGHLIGHTS SIGNIFICANT NET SALES GROWTH Currency-neutral increase of 8% Absolute net sales reach € 21.915 billion EXCELLENT PROFITABILITY IMPROVEMENTS Operating margin up 1.1pp to 10.8% Net income from continuing operations increases 20% to € 1.709
Slide 10: Strengths & Weaknesses in 2018
STRENGTHS & WEAKNESSES IN 2018 PROGRESS ACROSS ALL STRATEGIC GROWTH AREAS NO GROWTH IN EUROPE + North America, Greater China and e-com up double-digits − Weighing on company’s top-line growth SIGNIFICANT GROWTH IN SPORT PERFORMANCE CHALLENGES IN LIFESTYLE KEY ACCOUNTS + Double-digit increases in Tra
Slide 11: P&L Highlights in 2018
P&L HIGHLIGHTS IN 2018 REVENUES INCREASE 8% CURRENCY-NEUTRAL and 3% in euro terms to € 21.915 billion GROSS MARGIN UP 1.4PP TO 51.8% despite severe FX headwinds OPERATING MARGIN UP 1.1PP TO 10.8% while strongly increasing marketing investment NET INCOME FROM CONTINUING OPERATIONS INCREASES 20% to €
Slide 12: Double-Digit Increases in Strategic Growth Areas in 2018
DOUBLE-DIGIT INCREASES IN STRATEGIC GROWTH AREAS IN 2018 ADIDAS NORTH AMERICA On top of a 35% increase in 2017 Doubled the business within three years GREATER CHINA On top of a 29% increase in 2017 Doubled the business within four years E-COMMERCE On top of a 57% increase in 2017 Doubled the busines
Slide 13: adidas Brand Grows 9% in 2018
ADIDAS BRAND GROWS 9% IN 2018 DOUBLE-DIGIT INCREASE IN NORTH AMERICA AND ASIA-PACIFIC % SPORT PERFORMANCE GROWS 9% Driven by double-digit growth in Training and Running SPORT INSPIRED GROWS 11% Reflecting exceptional Yeezy growth BROAD-BASED GROWTH Low-double-digit increase in apparel and high-singl
Slide 14: Reebok Returns to Profitability
REEBOK RETURNS TO PROFITABILITY FURTHER PROGRESS ON EXECUTING ‘MUSCLE-UP’ INITIATIVES REEBOK REVENUES DECREASE 3% Double-digit growth in Classics offset by decline in Sport GROSS MARGIN UP 3.0PP TO 43.7% Driven by further implementation of design-to-value approach BACK TO PROFITABILITY More than € 1
Slide 15: Exceptional Growth in E-Com
EXCEPTIONAL GROWTH IN E-COM LEVERAGING OUR BIGGEST STORE % E-COMMERCE REVENUES GROW 36% Driven by double-digit growth across all regions LAUNCH OF CREATORS CLUB IN THE US AND JAPAN Driving traffic and engagement rates ADIDAS APP NOW LIVE IN 25 COUNTRIES More than 7 million downloads by the end of 20
Slide 16: 2018 in Review: Resilience in Times of Headwinds
2018 IN REVIEW RESILIENCE IN TIMES OF HEADWINDS Grew currency-neutral sales at a high-single-digit rate Despite challenges in Europe and managed decline of Stan Smith and Superstar Increased gross margin by 1.4pp to new record level of 51.8% Despite more than 1pp of transactional FX headwind Expande
Slide 17: Financial Update
FINANCIAL UPDATE
Slide 18: Growth by Market Segment
GROWTH BY MARKET SEGMENT NORTH AMERICA AND ASIA-PACIFIC WITH DOUBLE-DIGIT SALES INCREASES +1% RUSSIA/CIS EUROPE 0% NORTH AMERICA +15% +15% ASIA-PACIFIC LATIN AMERICA +6% -3% EMERGING MARKETS 18 Currency-neutral.
Slide 19: North America
NORTH AMERICA STRONG TOP- AND BOTTOM-LINE IMPROVEMENTS % Currency-neutral sales increase 15% adidas brand revenues up 17% Driven by double-digit growth in both Sport Performance and Sport Inspired Reebok brand revenues flat Growth in US offset by decline in Canada Gross margin increases 1.7pp to 41.
Slide 20: Asia-Pacific
ASIA-PACIFIC STRONG DOUBLE-DIGIT GROWTH DRIVEN BY GREATER CHINA % Currency-neutral sales increase 15% adidas brand sales increase 16% Driven by double-digit growth in both Sport Performance and Sport Inspired Reebok brand revenues up 3% Decline in Sport compensated by high-single-digit growth in Cla
Slide 21: Europe
EUROPE TOP-LINE DEVELOPMENT IN LINE WITH EXPECTATIONS % Currency-neutral sales remain stable adidas brand revenues remain stable Growth in Sport Inspired offset by low-single-digit declines in Sport Performance Reebok brand sales decrease 3% Mid-single-digit sales growth in Classics offset by a decl
Slide 22: New P&L Structure
NEW P&L STRUCTURE MORE GRANULAR VIEW OF OPERATING EXPENSES IN CONTEXT OF IFRS 9 ADOPTION ‘OLD’ FULL-YEAR P&L ‘NEW’ FULL-YEAR P&L ‘NEW’ QUARTERLY P&L NET SALES NET SALES NET SALES GROSS PROFIT GROSS PROFIT GROSS PROFIT OTHER OPERATING INCOME cc OTHER OPERATING INCOME c OTHER OPERATING INCOME OTHER OP
Slide 23: P&L Overview
P&L OVERVIEW 2018 RESULTS IN NEW P&L STRUCTURE (€ in millions) FY 2018 FY 2017 Y-O-Y NET SALES 21,915 21,218 +3% GROSS MARGIN 51.8% 50.4% +1.4pp OTHER OPERATING INCOME 48 17 +188% OTHER OPERATING EXPENSES 9,172 8,766 +5% (in % of sales) 41.9% 41.3% +0.5pp MARKETING AND POINT-OF-SALE EXPENSES 3,001 2
Slide 24: Strong Profitability Increase
STRONG PROFITABILITY INCREASE OPERATING MARGIN UP 1.1PP TO 10.8% +1.1PP +0.1PP -0.9PP -0.5PP +1.4PP +0.3PP 10.8% 9.8% 9.8% MARKETING OPERATING GROSS OTHER AND OPERATING OTHER OPERATING MARGIN MARGIN OPERATING POINT-OF-SALE OVERHEAD OPERATING MARGIN INCOME EXPENSES EXPENSES EXPENSES FY 2017 FY 2018 F
Slide 25: Average Operating Working Capital in % of Sales
AVERAGE OPERATING WORKING CAPITAL IN % OF SALES DOWN 1.4PP TO 19.0% 22.4% -1.4PP 21.1% 20.5% 20.4% Inventories down 5% c.n. As a result of tight inventory management 19.0% Receivables up 5% c.n. Reflecting top-line development Payables up 17% c.n. Due to improved terms with vendors 2014 2015 2016 20
Slide 26: Net Cash and Equity Position
NET CASH AND EQUITY POSITION EQUITY RATIO AT 40.8% +475 959 484 Net cash position At € 959 million -103 Equity position -185 Increases € 344 million year-on-year Equity ratio -460 Decreases 2.2pp year-on-year to 40.8% 2014 2015 2016 2017 2018 Net cash/(net borrowings) at year-end, € in millions. 26
Slide 27: Capital Expenditure
CAPITAL EXPENDITURE ALMOST € 800 MILLION INVESTED TO DRIVE PROFITABLE GROWTH Investments in new or remodeled own- Digitalizing the end-to-end creation-to- Major development of our global retail and franchise stores shelf value chain headquarters in Herzogenaurach, Germany Leveraging shop-in-shop pre
Slide 28: Cash Return to Shareholders
CASH RETURN TO SHAREHOLDERS DIVIDEND MORE THAN DOUBLED SINCE 2015 PROPOSED DIVIDEND Dividend of € 3.35 per share proposed for 2018, up 29% versus prior year Payout ratio of 39.0% (2017: 37.0%) within our 30%-50% target corridor € 1.5 BILLION CASH RETURNED IN 2018 First tranche of current buyback wit
Slide 29: IFRS 16 Applied as of January 1, 2019
IFRS 16 APPLIED AS OF JANUARY 1, 2019 ESTIMATED 2019 P&L IMPACT FY 2019 ESTIMATED (€ in millions) EFFECT RENT EXPENSE Decrease as lease expense to be recognized as depreciation and amortization DEPRECIATION & AMORTIZATION Increase due to depreciation of capitalized operating lease assets OPERATING P
Slide 30: Outlook
OUTLOOK
Slide 31: Supply Chain Shortages to Impact Top-Line in 2019
SUPPLY CHAIN SHORTAGES TO IMPACT TOP-LINE TRAJECTORY IN 2019 CHALLENGE Excess demand for mid-priced apparel leading to substantial increase in volume Unable to immediately cover demand in full due to supply chain shortages MITIGATION Reallocating capacity short-term and acquiring capacity mid-term C
Slide 32: 2019 Focus Areas
2019 FOCUS AREAS ANOTHER IMPORTANT MILESTONE TOWARD 2020 TARGETS Leveraging multiple dimensions of innovation To drive high-quality top- and bottom-line growth Continuing to invest with impact Into brand desire and scalable business model Tackling challenges decisively Return Europe to growth and mi
Slide 33: Innovation: Leveraging Multiple Dimensions of Innovation
LEVERAGING MULTIPLE DIMENSIONS OF INNOVATION TO DRIVE HIGH-QUALITY TOP- AND BOTTOM-LINE GROWTH EVOLVING ICONS FROM THE PAST AND BUILDING ICONS OF THE FUTURE INNOVATION SCALING GROUNDBREAKING TECHNOLOGY ENTERING UNCHARTED TERRITORY IN MATERIALS COLLABORATING AND BREAKING THE RULES OF THE GAME REDEFIN
Slide 34: Evolving Icons from the Past
EVOLVING ICONS FROM THE PAST MULTIPLE DIMENSIONS OF INNOVATION 34
Slide 35: Building Icons of the Future
BUILDING ICONS OF THE FUTURE MULTIPLE DIMENSIONS OF INNOVATION 35
Slide 36: Scaling Groundbreaking Technology
SCALING GROUNDBREAKING TECHNOLOGY MULTIPLE DIMENSIONS OF INNOVATION 36
Slide 37: Entering Uncharted Territory in Materials
ENTERING UNCHARTED TERRITORY IN MATERIALS MULTIPLE DIMENSIONS OF INNOVATION 37
Slide 38: Breaking the Rules of the Game
BREAKING THE RULES OF THE GAME MULTIPLE DIMENSIONS OF INNOVATION 38
Slide 39: Collaborating Like It's Never Been Done Before
COLLABORATING LIKE IT’S NEVER BEEN DONE BEFORE MULTIPLE DIMENSIONS OF INNOVATION 39
Slide 40: Winning with the Winners Globally and Locally
WINNING WITH THE WINNERS GLOBALLY AND LOCALLY MULTIPLE DIMENSIONS OF INNOVATION 40
Slide 41: Redefining Activation
REDEFINING ACTIVATION MULTIPLE DIMENSIONS OF INNOVATION 41
Slide 42: Continuing to Invest to Drive Brand Desirability
CONTINUING TO INVEST TO DRIVE BRAND DESIRABILITY 42
Slide 43: Outlook 2019: Driving Double-Digit Bottom-Line Growth
OUTLOOK 2019 DRIVING DOUBLE-DIGIT BOTTOM-LINE GROWTH GUIDANCE GUIDANCE EXCL. IFRS 16 INCL. IFRS 16** Net sales* Increase of 5% – 8% Gross margin Increase to around 52.0% Operating margin Increase of 0.5pp – 0.7pp to around 11.3% – 11.5% Net income from Increase of 10% – 14% to Increase of 8% – 12% t
Slide 44: Financial Ambition 2020 Confirmed
FINANCIAL AMBITION 2020 CONFIRMED Target KPIs 2020 March 2018 March 2017 March 2015 Net sales growth CAGR 2015-2020 c.n. 10% – 12% 10% – 12% high-single-digit Net income* CAGR 2015-2020 22% – 24% 20% – 22% ~15% Net sales (€ in billions) 25 - 27 25 - 27 ~22 E-commerce (€ in billions) 4 4 2 Operating
Slide 45: Three Years into 'Creating the New': Taking Stock
THREE YEARS INTO ‘CREATING THE NEW’ TAKING STOCK NET SALES BN € 21.9 billion in 2018 BN MARKETING INVESTMENT € 3 billion in 2018 PP OPERATING MARGIN 10.8% in 2018 BN NET INCOME € 1.7 billion in 2018 2018 compared to 2015; figures reflect continuing operations as a result of the divestiture of the Ro
Slide 46: Summary
SUMMARY 1 Successful 2018 another important milestone toward 2020 2 Further investing in people, infrastructure and our brands 3 Staying the course while actively addressing challenges 4 2019 another year of high-quality top- and bottom-line growth 5 Focus on relentless execution of ‘Creating the Ne