Adidas Ag · XETR:ADS
Adidas — Q2 2017 Earnings Presentation
46 slides from Adidas's earnings presentation, 2017
Slide 1: Q2 2017 Roadshow Presentation
Q2 2017 ROADSHOW PRESENTATION
Slide 2: Business Highlights
BUSINESS HIGHLIGHTS 2
Slide 3: Executing 'Creating the New'
EXECUTING ‘CREATING THE NEW’ ORGANISATIONAL CHANGES TO DRIVE OPERATIONAL IMPROVEMENTS TAYLORMADE AND CCM HOCKEY BUSINESSES SOLD DIVESTITURES EXPECTED TO CLOSE IN THE COURSE OF H2/17 ‘ONE ADIDAS’ INITIATIVES KICKED OFF TO INCREASE OPERATIONAL EFFICIENCY CHANGES TO THE EXECUTIVE BOARD KAREN PARKIN AND
Slide 4: Strengths and Weaknesses in Q2 2017
STRENGTHS AND WEAKNESSES IN Q2 2017 ONGOING BRAND MOMENTUM SALES DECLINE IN RUSSIA/CIS DOUBLE-DIGIT GROWTH IN ALL KEY REGIONS REFLECTING MACROECONOMIC CHALLENGES EXCEPTIONAL GROWTH IN ECOM CHALLENGES IN LATIN AMERICA PERSIST WITH ACCELERATING MOMENTUM DESPITE STRONG TOP-LINE GROWTH HEALTHY INVENTORY
Slide 5: Major P&L Developments in Q2 2017
MAJOR P&L DEVELOPMENTS IN Q2 2017 REVENUES INCREASE 19% CURRENCY-NEUTRAL AND 20% IN EURO TERMS TO € 5.0 BILLION GROSS MARGIN UP 0.7PP TO 50.1% DUE TO A MORE FAVOURABLE PRICING, CHANNEL AND PRODUCT MIX UNDERLYING OPERATING MARGIN UP 1.4PP TO 10.0% SUPPORTED BY DIFFERENT TIMING OF MARKETING SPEND IN 2
Slide 6: Excellent Growth at adidas Brand
EXCELLENT GROWTH AT ADIDAS BRAND UNPARALLELED BRAND HEAT CONTINUES DOUBLE-DIGIT SALES GROWTH ON TOP OF A 25% INCREASE IN THE PRIOR YEAR PERIOD +21% EXCELLENT GROWTH IN NORTH AMERICA AND GREATER CHINA WOMEN’S BUSINESS OUTPERFORMING WITH GROWTH OF MORE THAN 30% 6
Slide 7: Women's Business Outperforms
WOMEN’S BUSINESS OUTPERFORMS FOCUS ON THE FEMALE CONSUMER PAYING OFF QUARTERLY REVENUE GROWTH 35% 25% WOMEN’S 30% 24% WOMEN’S SHARE in % of total adidas, 12-month rolling 25% 23% ADIDAS BRAND 20% 22% 15% 21% 10% 20% Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 7
Slide 8: Sport Performance Increases 7%
SPORT PERFORMANCE INCREASES 7% DESPITE DIFFICULT PRIOR YEAR COMPARISONS RELATED TO MAJOR SPORTS EVENTS QUARTERLY REVENUE GROWTH (2-YEAR STACKS) 4% 2017 RUNNING REVENUES UP 27%, DRIVEN BY 7% SUCCESS AROUND BOOST FRANCHISES 2017 13% 22% 2016 3% 2016 16% TRAINING SALES GROW 9%, REFLECTING 2016 EXCEPTIO
Slide 9: Originals & NEO Enjoy Brand Heat
ORIGINALS & NEO ENJOY BRAND HEAT EXCEPTIONAL GROWTH AT ADIDAS ORIGINALS AND NEO QUARTERLY REVENUE GROWTH (2-YEAR STACKS) ORIGINALS UP 36%, DRIVEN BY STRONG 30% 39% DOUBLE-DIGIT GROWTH IN ALL KEY REGIONS 44% 2017 2017 2016 42% 2016 MODERN FRANCHISES INCREASE MORE THAN 48% 45% 60%, REPRESENTING AROUND
Slide 10: Growth at Reebok Continues
GROWTH AT REEBOK CONTINUES ROBUST TOP- AND BOTTOM-LINE IMPROVEMENTS SALES INCREASE DRIVEN BY STRONG DOUBLE-DIGIT GROWTH IN CLASSICS +5% SIGNIFICANT REVENUE DECLINE IN NORTH AMERICA REFLECTING CLEAN-UP OF LOW- MARGIN BUSINESS MUSCLE-UP PROGRESS DELIVERS FIRST OPERATIONAL AND FINANCIAL IMPROVEMENTS 10
Slide 11: Growth in Ecom Accelerates
GROWTH IN ECOM ACCELERATES DIRECT CONSUMER ENGAGEMENT PROPELS BRAND MOMENTUM +66% 11
Slide 12: Financial Highlights
FINANCIAL HIGHLIGHTS 12
Slide 13: Broad-Based Top-Line Momentum
BROAD-BASED TOP-LINE MOMENTUM DOUBLE-DIGIT SALES GROWTH IN ALL REGIONS EXCEPT RUSSIA/CIS RUSSIA/CIS (11%) NORTH AMERICA WESTERN EUROPE +26% +19% JAPAN GREATER CHINA +11% +28% MEAA +13% LATIN AMERICA +14% Currency-neutral. 13
Slide 14: Western Europe
STRONG PERFORMANCE DESPITE TOUGH PRIOR YEAR COMPARISON WESTERN CURRENCY-NEUTRAL SALES INCREASE 19% IN Q2 DOUBLE-DIGIT GROWTH IN MOST COUNTRIES EUROPE ADIDAS BRAND REVENUES UP 18% ON TOP OF A 30% INCREASE IN Q2/16 REEBOK BRAND SALES INCREASE 33% DOUBLE-DIGIT GROWTH IN ALL KEY CATEGORIES GROSS MARGIN
Slide 15: North America
BRAND HEAT FOR ADIDAS BRAND CONTINUES NORTH CURRENCY-NEUTRAL SALES INCREASE 26% IN Q2 ONGOING MOMENTUM AT ADIDAS BRAND (+33%) AMERICA ON TOP OF A 32% INCREASE IN Q2/16 REEBOK BRAND SALES DOWN 16% REFLECTING CLEAN-UP OF LOW-MARGIN BUSINESS GROSS MARGIN EXPANDS FURTHER (+2.6PP) REFLECTING IMPROVEMENTS
Slide 16: Greater China
EXCELLENT MOMENTUM FOR BOTH ADIDAS AND REEBOK BRANDS GREATER CURRENCY-NEUTRAL SALES INCREASE 28% IN Q2 SALES AT ADIDAS BRAND UP 28% CHINA DOUBLE-DIGIT GROWTH IN KEY CATEGORIES REEBOK BRAND REVENUES UP 20% GROWTH IN THE RUNNING AND TRAINING CATEGORIES GROSS MARGIN DOWN (-0.7PP) REFLECTING A LESS FAVO
Slide 17: Latin America
STRONG GROWTH DESPITE MACROECONOMIC CHALLENGES LATIN CURRENCY-NEUTRAL SALES GROW 14% IN Q2 DESPITE DIFFICULT ENVIRONMENT IN ARGENTINA AND BRAZIL AMERICA REVENUES AT ADIDAS BRAND UP 14% DOUBLE-DIGIT GROWTH IN RUNNING, ORIGINALS AND NEO REEBOK BRAND REVENUES UP 10% DOUBLE-DIGIT GROWTH IN CLASSICS AND
Slide 18: Gross Margin Increases to 50.1%
GROSS MARGIN INCREASES TO 50.1% DUE TO STRONG IMPROVEMENTS IN PRICING, PRODUCT AND CHANNEL MIX EFFECTS INCREASE OF 70 BPS +240 BPS -170 BPS GROSS FX UNDERLYING GROSS MARGIN HEADWINDS IMPROVEMENT MARGIN Q2/16 Q2/17 18
Slide 19: Financial Results Overview
FINANCIAL RESULTS OVERVIEW PRIOR YEAR FIGURES ADJUSTED TO REFLECT DIVESTITURE OF TM/CCM AS REPORTED IN 2016 CONTINUING OPERATIONS * INCLUDING TM/CCM REFLECTING DIVESTITURE OF TM/CCM Q2/16 Q2/16 Q2/17 Y-O-Y CHANGE SALES (€ IN MILLIONS) 4,422 4,199 5,038 +20% GROSS MARGIN 48.8% 49.4% 50.1% +0.7PP OTHE
Slide 20: Operating Profit Grows Strongly
OPERATING PROFIT GROWS STRONGLY DESPITE DIFFICULT PRIOR YEAR COMPARISONS 505 429 +40% underlying operating profit ~(70) growth OM OM 10.2% ~360 10.0% ~(40) ~40 +1.4pp underlying operating margin improvement OM 8.6% Q2/16 CHELSEA M&N REINVESTMENT Q2/16 Q2/17 CONTINUING PROCEEDS OF M&N UNDERLYING CONT
Slide 21: Discontinued Operations
DISCONTINUED OPERATIONS REFLECTING P&L IMPACT OF DIVESTED NON-CORE BUSINESSES Q2/16 Q2/17 (10) (99) TAYLORMADE, ADAMS GOLF AND ASHWORTH (86) CCM HOCKEY (4) ROCKPORT (189) € in millions. 21
Slide 22: Financial Results Overview
FINANCIAL RESULTS OVERVIEW REFLECTING DIVESTITURES AS REPORTED IN 2016 CONTINUING OPERATIONS * INCLUDING TM/CCM REFLECTING DIVESTITURE OF TM/CCM Q2/16 Q2/16 Q2/17 Y-O-Y CHANGE SALES (€ IN MILLIONS) 4,422 4,199 5,038 +20% GROSS MARGIN 48.8% 49.4% 50.1% +0.7PP OTHER OPERATING INCOME (€ IN MILLIONS) 15
Slide 23: Inventory Growth Slows Down
INVENTORY GROWTH SLOWS DOWN REFLECTING STRONG SELL-THROUGH AT THE POINT OF SALE 24% 18% 19% 18% 11% Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 * Currency-neutral inventories at quarter-end. * Figure reflects continuing operations as a result of the divestiture of the Rockport business 23 and the planned divestit
Slide 24: Operating Working Capital
OPERATING WORKING CAPITAL CONTINUED FOCUS ON TIGHT WORKING CAPITAL MANAGEMENT 21.4% 21.3% RECEIVABLES FROM CONTINUING OPERATIONS UP 22% (CURRENCY-NEUTRAL), AS A RESULT OF 21.1% 21.0% THE STRONG TOP-LINE DEVELOPMENT PAYABLES FROM CONTINUING OPERATIONS GROW 6% (CURRENCY-NEUTRAL), 20.4% REFLECTING HIGH
Slide 25: Outlook
OUTLOOK 25
Slide 26: Strong Growth to Continue in H2
STRONG GROWTH TO CONTINUE IN H2 ELEVATED MARKETING SPEND TO SUPPORT MOMENTUM SUSTAIN BRAND HEAT THROUGH ACCELERATED BRAND ACTIVATION SUPPORT SELL-THROUGH OF NEW PRODUCT LAUNCHES THROUGH HIGHER INVESTMENTS IN POINT-OF-SALE INITIATIVES CAPITALISE ON WORLD CUP 2018 PLATFORM THROUGH EVENT-RELATED PRODUC
Slide 27: Outlook Increased for Full Year 2017
OUTLOOK INCREASED FOR THE FULL YEAR 2017 SALES INCREASE OF 17% – 19% CURRENCY-NEUTRAL NET INCOME INCREASE OF 26% – 28% TO € 1.360 – € 1.390 BILLION FROM CONTINUING OPERATIONS 27
Slide 28: Outlook Increased
OUTLOOK INCREASED FOR THE FULL YEAR 2017 AS REPORTED IN 2016 CONTINUING OPERATIONS INCLUDING TM/CCM REFLECTING DIVESTITURE OF TM/CCM 2016 2017 2016 2017 2017 RESULTS OUTLOOK RESULTS OUTLOOK OUTLOOK REPORTED MARCH 2017 ADJUSTED MARCH 2017 AUGUST 2017 SALES (€ in millions) 19,291 increase of 11% – 13%
Slide 29: Q2 2017 Key Takeaways
Q2 2017 KEY TAKEAWAYS ONGOING MOMENTUM IN KEY GROWTH AREAS PROFITABILITY GAINS DESPITE FX HEADWINDS AND DIFFICULT COMPS FULL YEAR OUTLOOK INCREASED FURTHER PROGRESS ON PORTFOLIO INITIATIVES RELENTLESS FOCUS ON SHORT- AND LONG-TERM GOALS 29
Slide 30: Strategy Acceleration
STRATEGY ACCELERATION 30
Slide 31: Creating the New: Open Source Culture
CREATING THE NEW FOCUS ON DRIVING BRAND DESIRABILITY OPEN SOURCE CULTURE BRAND DESIRE 31
Slide 32: 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 32
Slide 33: 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 33
Slide 34: Streamline the Portfolio
STREAMLINE THE PORTFOLIO GOLF EXIT EXIT INTEGRATION REINTEGRATION TURNAROUND 34
Slide 35: 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 36: 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 36
Slide 37: 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 37
Slide 38: 2020 Ambition for adidas Brand in North America
2020 AMBITION FOR THE ADIDAS BRAND IN NORTH AMERICA >5 BN 38
Slide 39: 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 39
Slide 40: Our Focus
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 41: Updated Ecommerce Ambition
UPDATED ECOMMERCE AMBITION 4.0 2.0 0.6 INITIAL UPDATED 0 2020 2020 2010 2015 AMBITION AMBITION € in billions. 41
Slide 42: 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 43: 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 44: 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 45: '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 2015 2016 2020 2017-2020 NET SALES 16.9 18.5 25.0-27.0 6.5-8.5 EUR BN OPERATING MARGIN 6.5 8.6 11.0 2.4PP % OF NET SALES ECOMMERCE 0.6 1.0 4.0 3.0 EUR BN 45
Slide 46: Summary
SUMMARY WE ARE IN A HIGHLY ATTRACTIVE GROWTH INDUSTRY ‘CREATING THE NEW’ IS THE RIGHT STRATEGY EXCEPTIONAL RESULTS ACHIEVED IN 2016 STRONG TOP- AND BOTTOM-LINE GROWTH EXPECTED IN 2017 ACCELERATION PLAN TO GROW REVENUES AND PROFITS EVEN FASTER THAN INITIALLY PROJECTED BY 2020 46