Adidas Ag · XETR:ADS
Adidas — Q1 2017 Earnings Presentation
42 slides from Adidas's earnings presentation, 2017
Slide 1: Q1 2017 Roadshow Presentation
Q1 2017 ROADSHOW PRESENTATION
Slide 2: Operational Highlights
OPERATIONAL HIGHLIGHTS 2
Slide 3: Strengths and Weaknesses in Q1 2017
STRENGTHS AND WEAKNESSES IN Q1 2017 ACCELERATING MOMENTUM PERFORMANCE IN RUSSIA/CIS IN GREATER CHINA AND NORTH AMERICA BELOW INITIAL EXPECTATIONS EXCELLENT TOP-LINE GROWTH SLOWER COMP STORE SALES GROWTH IN RUNNING AND ORIGINALS DUE TO WESTERN EUROPE AND RUSSIA/CIS EXCEPTIONAL ECOM GROWTH SALES DECLI
Slide 4: Major P&L Developments in Q1 2017
MAJOR P&L DEVELOPMENTS IN Q1 2017 REVENUES INCREASE 16% CURRENCY-NEUTRAL AND 19% IN EURO TERMS TO € 5.7 BILLION GROSS MARGIN DOWN 0.2PP TO 49.2% DUE TO NEGATIVE FX EFFECTS OPERATING MARGIN IMPROVES 0.9PP TO 11.1% DUE TO DIFFERENT PHASING OF MARKETING INVESTMENTS NET INCOME FROM CONTINUING OPERATIONS
Slide 5: adidas Brand with Strong Growth
ADIDAS BRAND WITH STRONG GROWTH ONGOING BRAND HEAT AROUND THE GLOBE DOUBLE-DIGIT SALES IMPROVEMENT DESPITE HIGH COMPARISON EXCEPTIONAL GROWTH IN NORTH AMERICA +18% AND GREATER CHINA WOMEN’S BUSINESS PERFORMING PARTICULARLY WELL 5
Slide 6: Sport Performance Accelerates
SPORT PERFORMANCE ACCELERATES ROBUST GROWTH DESPITE 22% SALES INCREASE IN THE PRIOR YEAR QUARTERLY REVENUE GROWTH (2-YEAR STACKS) 4% 2017 SUCCESS ACROSS SEVERAL FRANCHISES DRIVES RUNNING REVENUES UP ALMOST 30% 13% 2016 22% 16% 3% 2016 2016 TRAINING UP HIGH-SINGLE DIGITS REFLECTING 2016 DOUBLE-DIGIT
Slide 7: Excitement in Originals and NEO
EXCITEMENT IN ORIGINALS AND NEO EXCELLENT GROWTH AT ADIDAS ORIGINALS AND NEO QUARTERLY REVENUE GROWTH (2-YEAR STACKS) GROWTH IN ORIGINALS DRIVEN BY ALMOST 50% 30% INCREASE IN MODERN FOOTWEAR FRANCHISES 45% 44% (E.G. NMD, TUBULAR SHADOW, EQT) 2016 42% 2017 2016 2016 MODERN FRANCHISES REPRESENTING 48%
Slide 8: Accelerating Momentum at Reebok
ACCELERATING MOMENTUM AT REEBOK DOUBLE-DIGIT REVENUE GROWTH IN MOST MARKET SEGMENTS SALES INCREASE DRIVEN BY STRONG DOUBLE- DIGIT GROWTH IN CLASSICS AND TRAINING RETAIL EXPANSION IN CHINA AND DIFFERENT +13% LAUNCH SCHEDULE SUPPORT SALES GROWTH REVENUE DECLINE IN NORTH AMERICA REFLECTING ONGOING RETA
Slide 9: Focus Areas to Drive Profitability
FOCUS AREAS TO DRIVE PROFITABILITY REEBOK MUSCLE-UP STILL IN EARLY STAGES NEW BUSINESS MODEL DESIGN TO VALUE MWB US/GLOBAL INTEGRATION IMPLEMENT CREATION FOCUS PARTNERSHIPS GUIDELINES RELOCATION TO BOSTON PRIORITISE POS (EXIT CANTON) NEW CONSUMER TOUCHPOINTS IN GLOBAL CONCEPTS NEW GOVERNANCE CREATIO
Slide 10: Exceptional Growth in Ecom
EXCEPTIONAL GROWTH IN ECOM STRONG CONSUMER ENGAGEMENT PROPELS TOP-LINE IMPROVEMENTS +53% 10
Slide 11: Financial Highlights
FINANCIAL HIGHLIGHTS 11
Slide 12: Top-Line Momentum Continues
TOP-LINE MOMENTUM CONTINUES DOUBLE-DIGIT SALES GROWTH IN KEY REGIONS RUSSIA/CIS (10%) NORTH AMERICA WESTERN EUROPE +31% +10% JAPAN GREATER CHINA +21% +30% MEAA +15% LATIN AMERICA +9% Currency-neutral. 12
Slide 13: Western Europe
CONTINUED STRONG PERFORMANCE WESTERN CURRENCY-NEUTRAL SALES INCREASE 10% IN Q1 GROWTH ACROSS ALL KEY MARKETS EUROPE ADIDAS BRAND REVENUES UP 8% ON TOP OF A 26% INCREASE IN Q1 2016 REEBOK BRAND SALES INCREASE 25% DOUBLE-DIGIT GROWTH IN TRAINING AND CLASSICS GROSS MARGIN DECLINES (-1.6PP) DUE TO SEVER
Slide 14: North America
BRAND HEAT FOR ADIDAS BRAND CONTINUES NORTH CURRENCY-NEUTRAL SALES INCREASE 31% IN Q1 AMERICA ACCELERATING MOMENTUM AT ADIDAS BRAND (+36%) ON TOP OF A 31% INCREASE IN Q1 2016 REEBOK BRAND SALES DOWN 2% MAINLY DUE TO FACTORY OUTLET CLOSURES GROSS MARGIN EXPANDS FURTHER (+0.4PP) REFLECTING IMPROVEMENT
Slide 15: Greater China
EXCELLENT MOMENTUM FOR BOTH ADIDAS AND REEBOK BRANDS GREATER CURRENCY-NEUTRAL SALES INCREASE 30% IN Q1 CHINA SALES AT ADIDAS BRAND UP 31% DOUBLE-DIGIT GROWTH IN KEY PERFORMANCE AND LIFESTYLE CATEGORIES REEBOK BRAND REVENUES UP 19% DOUBLE-DIGIT GROWTH IN ALL KEY CATEGORIES GROSS MARGIN GROWS STRONGLY
Slide 16: Latin America
SIGNIFICANT GROWTH DESPITE MACROECONOMIC CHALLENGES LATIN CURRENCY-NEUTRAL SALES GROW 9% IN Q1 DESPITE DIFFICULT ENVIRONMENT IN ARGENTINA AMERICA AND BRAZIL REVENUES AT ADIDAS BRAND UP 7% DOUBLE-DIGIT GROWTH AT ADIDAS ORIGINALS AND ADIDAS NEO REEBOK BRAND REVENUES UP 25% DOUBLE-DIGIT GROWTH IN TRAIN
Slide 17: Other Businesses
STRONG PROFITABILITY IMPROVEMENTS IN Q1 OTHER CURRENCY-NEUTRAL SALES INCREASE 4% IN Q1 SALES AT TMAG UP 4% BUSINESSES DRIVEN BY DOUBLE-DIGIT GROWTH AT TAYLORMADE CCM HOCKEY SALES DOWN 11% DUE TO THE TRANSITION OF THE NHL LICENCE AGREEMENT TO THE ADIDAS BRAND AS WELL AS LOWER REVENUES IN EQUIPMENT BU
Slide 18: Retail Sales Improve Strongly
RETAIL SALES IMPROVE STRONGLY COMP STORE SALES NEGATIVELY IMPACTED BY RUSSIA/CIS Q1 2017 2,811 NET SALES € 1,290 MILLION +18% -185 ADIDAS COMP STORE SALES 2,686 +5% +60 (1%) REEBOK COMP STORE SALES TOTAL COMP STORE SALES +5% STORES CLOSED OPENED STORES AS OF AS OF DEC. 2016 MAR. 2017 18
Slide 19: Gross Margin Declines
GROSS MARGIN DECLINES REFLECTING SEVERE FX HEADWINDS DUE TO LESS FAVOURABLE HEDGING RATES DECREASE OF 20 BPS -180 BPS +160 BPS GROSS FX UNDERLYING GROSS MARGIN HEADWINDS IMPROVEMENT MARGIN Q12016 Q12017 19
Slide 20: Operating Margin Grows
OPERATING MARGIN GROWS AS A RESULT OF LOWER OPEX IN % OF SALES Q1 2017 GROSS (0.2PP) MARGIN 49.2% OTHER OPERATING EXPENSES +15% € 2,215 MILLION OTHER OPERATING EXPENSES (1.3PP) AS A PERCENTAGE OF SALES 39.1% OPERATING PROFIT +29% € 632 MILLION OPERATING MARGIN +0.9PP 11.1% 20
Slide 21: Underlying Net Income Up 30%
UNDERLYING NET INCOME UP 30% TO € 455 MILLION Q1 2017 FINANCIAL INCOME +44% € 28 MILLION FINANCIAL EXPENSES +49% € 20 MILLION INCOME BEFORE TAXES +29% € 640 MILLION NET INCOME FROM CONTINUING OPERATIONS +30% € 455 MILLION DILUTED EPS FROM CONTINUING OPERATIONS +31% € 2.23 21
Slide 22: Inventories Grow 18%
INVENTORIES GROW 18% TO SUPPORT TOP-LINE MOMENTUM 25% 24% RECEIVABLES UP 11% (CURRENCY-NEUTRAL) 18% 19% 18% PAYABLES GROW 21% (CURRENCY-NEUTRAL), REFLECTING THE INCREASE IN INVENTORIES AVERAGE OWC IN % OF SALES DOWN 0.1PP TO 20.1% Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Currency-neutral. 22
Slide 23: Net Debt Position
NET DEBT POSITION INCREASES TO € 859 MILLION -51 -103 YEAR-OVER-YEAR INCREASE MAINLY DUE TO UTILISATION OF CASH FOR THE PURCHASE OF FIXED ASSETS AS WELL AS THE CONTINUED REPURCHASE OF ADIDAS AG SHARES RATIO OF NET DEBT/EBITDA AMOUNTS TO 0.4 (2016: 0.5) -769 -809 -859 EQUITY RATIO REMAINS AT A STRONG
Slide 24: Outlook
OUTLOOK 24
Slide 25: Momentum to Continue in 2017
MOMENTUM TO CONTINUE IN 2017 STRATEGIC GROWTH AREAS TO ENSURE ONGOING STRONG TOP- AND BOTTOM-LINE IMPROVEMENTS SUSTAIN BRAND HEAT THROUGH BRAND ACTIVATION AND MAJOR PRODUCT LAUNCHES LEVERAGE TOP-LINE GROWTH THROUGH ACCELERATED OPERATING OVERHEAD EFFICIENCY DRIVE PORTFOLIO INITIATIVES BY ACTIVELY MAN
Slide 26: Confirmed Outlook for the Full Year 2017
CONFIRMED OUTLOOK FOR THE FULL YEAR 2017 NET INCOME* 1,200 – 1,225 € IN MILLIONS *From continuing operations. 26
Slide 27: Strategy Acceleration
STRATEGY ACCELERATION 27
Slide 28: Open Source Culture
CREATING THE NEW IS OUR STRATEGY OPEN SOURCE CULTURE BRAND DESIRE 28
Slide 29: Culture
CULTURE BUILDING ON OUR PEOPLE’S UNIQUE PASSION FOR SPORTS AND FOR OUR BRANDS DRIVE DIVERSITY WITHIN THE COMPANY IMPROVE TALENT MANAGEMENT FOSTER PERFORMANCE CULTURE IMPLEMENT EQUITY-BASED COMPENSATION REFINE LEADERSHIP STRUCTURE 29
Slide 30: Acceleration Plan
ACCELERATION PLAN 4 TOPICS TO DRIVE FASTER GROWTH OF TOP AND BOTTOM LINE 1 2 3 4 NORTH PORTFOLIO ONE ADIDAS DIGITAL AMERICA 30
Slide 31: Streamline the Portfolio
STREAMLINE THE PORTFOLIO GOLF EXIT EXIT INTEGRATION REINTEGRATION TURNAROUND 31
Slide 32: Actively Manage Brands, Channels and Markets
ACTIVELY MANAGE BRANDS, CHANNELS AND MARKETS A BRANDS EVERY ENTITY HAS TO CONTRIBUTE B CHANNELS TO THE SUCCESS OF THE COMPANY C MARKETS 32
Slide 33: Focus on North America Is Paying Off
FOCUS ON NORTH AMERICA IS PAYING OFF FASTEST-GROWING BRAND IN THE US $ OUTPACING 2016 CATEGORY GROWTH US MARKET GROWTH REVENUE GROWTH ORIGINALS FTW MARKET SHARE DOUBLED 24% >80% RUNNING FUELED NPS BY ADIDAS BRAND >40% STRONG 30% US SPORTS GROWTH >25% WE HAVE A LONG WAY TO GO 33
Slide 34: 2020 Ambition for the adidas Brand in North America
2020 AMBITION FOR THE ADIDAS BRAND IN NORTH AMERICA >5 BN 34
Slide 35: Role of Digital
ACCELERATE DIGITAL THROUGH SPORT, WE HAVE THE POWER TO CHANGE LIVES ROLE OF TO CHANGE LIVES WE HAVE TO CREATE DIRECT RELATIONSHIPS WITH DIGITAL CONSUMERS THE BEST WAY TO ACCELERATE BUILDING DIRECT RELATIONSHIPS IS THROUGH DIGITAL 35
Slide 36: Our Focus to Win the Consumer
OUR FOCUS TO WIN THE CONSUMER PREMIUM CONNECTED PERSONALIZED INSPIRING LOVE FOR OFFERING A SEAMLESS DELIVERING THE OUR BRAND AND DESIRE EXPERIENCE ACROSS ALL RIGHT MESSAGE TO FOR OUR PRODUCT CONSUMER TOUCHPOINTS THE RIGHT AUDIENCE
Slide 37: Updated Ecommerce Ambition
UPDATED ECOMMERCE AMBITION 4.0 2.0 0.6 INITIAL UPDATED 0 2020 2020 2010 2015 AMBITION AMBITION € in billions. 37
Slide 38: One adidas
ONE ADIDAS THREE PILLARS TO DRIVE REVENUES AND PROFITABILITY ONE ADIDAS BRAND MARKETING OPERATING LEADERSHIP EFFECTIVENESS EFFICIENCY GLOBAL / LOCAL RETURN ON MARKETING GLOBAL BUSINESS BRANDS INVESTMENTS (ROMI) SERVICES RANGE EFFICIENCY CONCEPT FOCUS NON-TRADE PROCUREMENT FOB MITIGATION MARKETING PR
Slide 39: Updated Financial Ambition 2020
UPDATED FINANCIAL AMBITION 2020 REFLECTING ACCELERATION PLAN 2020 AMBITION UPDATED (MARCH 2015) 2020 AMBITION SALES GROWTH CAGR 2015-2020; CURRENCY-NEUTRAL HIGH-SINGLE-DIGIT 10-12% NET INCOME GROWTH ~15% 20-22% CAGR 2015-2020 NET SALES EUR BN ~22 25-27 ECOMMERCE EUR BN 2 4 OPERATING MARGIN % OF NET
Slide 40: Range Efficiency: Multiple Levers Supporting CTN
MULTIPLE LEVERS SUPPORTING ‘CTN’ ALL P&L ITEMS TO CONTRIBUTE TO THE IMPROVEMENT IN PROFITABILITY ACTUAL 7.7% 2016 CREATING 0 THE NEW GROSS BRAND LEADERSHIP FOB MARGIN RANGE EFFICIENCY PRODUCT MARGIN PORTFOLIO 1 ROMI ADIDAS NAM 2 MWB CONCEPT FOCUS MARKETING PROCUREMENT ONE ADIDAS 3 GLOBAL BUSINESS SE
Slide 41: CTN Off to a Strong Start
‘CTN’ OFF TO A STRONG START AT THE SAME TIME THERE IS STILL A LONG WAY TO GO AMBITION REMAINING TARGET 2015 2016 2020 2017-2020 ACHIEVEMENT NET SALES 16.9 19.3 25.0-27.0 5.7-7.7 26% EUR BN OPERATING MARGIN 6.5 7.7 11.0 3.3PP 27% % OF NET SALES ECOMMERCE 0.6 1.0 4.0 3.0 12% EUR BN 41
Slide 42: Summary
SUMMARY WE ARE IN A HIGHLY ATTRACTIVE GROWTH INDUSTRY ‘CREATING THE NEW’ IS THE RIGHT STRATEGY EXCEPTIONAL RESULTS ACHIEVED IN 2016 STRONG START INTO 2017 STRONG TOP- AND BOTTOM-LINE GROWTH EXPECTED IN 2017 ACCELERATION PLAN TO GROW REVENUES AND PROFITS EVEN FASTER THAN INITIALLY PROJECTED BY 2020 4