Adidas Ag · XETR:ADS
Adidas — H1 2006 Earnings Presentation
53 slides from Adidas's earnings presentation, Aug 9, 2006
Slide 1: Half Year 2006 Financial Results Presentation
Half Year 2006 Financial Results Presentation August 9, 2006 15:00 CET
Slide 2: Operational Highlights
Operational Highlights Herbert Hainer, CEO
Slide 3: Strong First Half 2006 Operational Performance
Strong First Half 2006 Operational Performance • 2006 FIFA World Cup™ strengthens adidas position as the world’s leading football brand • Strong financial results at adidas and TaylorMade-adidas Golf • Important steps taken in Reebok integration 3
Slide 4: Reaching New Levels of Performance
Reaching New Levels of Performance 4
Slide 5: World Cup Sales Exceed All Expectations
World Cup Sales Exceed All Expectations • Football category generates sales of more than € 1.2 billion in 2006 • On track to exceed all sales targets: • 15 million +Teamgeist™ balls • 3 million team jerseys • 1 million +Predator® boots 5
Slide 6: Unprecedented Event Exposure
Unprecedented Event Exposure 6
Slide 7: The Most Recognized Brand of the World Cup
The Most Recognized Brand of the World Cup 7
Slide 8: +F50 TUNIT: The World's First Modular Football Boot
+F50 TUNIT™: The World’s First Modular Football Boot 8
Slide 9: +F50 TUNIT: The World's First Modular Football Boot
+F50 TUNIT™: The World’s First Modular Football Boot Germany Costa Rica Poland Ecuador Trinidad & England Paraguay Sweden Tobago Ivory Serbia & Nether- Argentina Coast lands Montenegro Iran Angola Portugal Mexico Czech Italy Ghana USA Republic Japan Brazil Croatia Australia Rep. of France Switzerlan
Slide 10: +10 Advertising Campaign Wins Critical and Public Acclaim
+10 Advertising Campaign Wins Critical and Public Acclaim 10
Slide 11: World of Football Redefines the Fan Experience
World of Football Redefines the Fan Experience 11
Slide 12: Groundbreaking Brand Communication in Germany's Most Important Locations
Groundbreaking Brand Communication in Germany’s Most Important Locations 12
Slide 13: Chelsea FC and Liverpool FC Join the adidas Family
Chelsea FC and Liverpool FC Join the adidas Family 13
Slide 14: UEFA and adidas Sign Long-Term Partnership
UEFA and adidas Sign Long-Term Partnership 14
Slide 15: First Preparations for Beijing Olympics in 2008 and 2010 World Cup Underway
First Preparations for Beijing Olympics in 2008 and 2010 World Cup Underway 15
Slide 16: Outstanding adidas Financial Performance
Outstanding adidas Financial Performance • Q2 currency-neutral sales up 18% (17% in euros) • Double-digit growth in all divisions • Double-digit growth in all regions • Football sales grow nearly 50% • Own-retail sales increase 39%, on track to surpass € 1 billion in 2006 16
Slide 17: adidas Backlog Strength Continues
adidas Backlog Strength Continues Change Currency- • Asia delivers neutral highest change growth rates Footwear 0% +3% • NBA and Liverpool Apparel +10% +13% transfer support Total +6% +9% apparel growth 17
Slide 18: Reebok Strengthens Partnership Portfolio
Reebok Strengthens Partnership Portfolio 18
Slide 19: Reebok First Half Performance in Line with Expectations
Reebok First Half Performance in Line with Expectations • No surprises in Reebok’s performance • Revenues decrease -12% on a currency-neutral basis • Sequential improvement in sales and backlogs 19
Slide 20: Reebok Backlogs Better Than in the First Quarter
Reebok Backlogs Better Than in the First Quarter Change Currency- • Sequential neutral currency- change neutral Footwear -15% -12% improvement versus Q1 Apparel -19% -16% • First positive backlogs in Total -16% -13% Asia 20
Slide 21: TaylorMade-adidas Golf Growth Exceeds Expectations
TaylorMade-adidas Golf Growth Exceeds Expectations • Currency-neutral sales up 28% • Strategic rationale for metalwoods promotion initiative: • Protecting market share • Maintaining premium price points 21
Slide 22: Metalwood Initiative Delivered Positive Results
Metalwood Initiative Delivered Positive Results • Initiative led to market share increases • Short-term impact on gross margin accepted • Strong prospects for remainder of year Guidance increased: Double-digit growth expected in 2006 22
Slide 23: adidas Group Performance Above Expectations
adidas Group Performance Above Expectations • Strong top-line development at adidas and TaylorMade • Visible Reebok progress • Solid backlogs • Major operating initiatives across all brands 23
Slide 24: Financial Highlights
Financial Highlights Robin J. Stalker, CFO
Slide 25: Regional Sales Growth of Combined Group
Regional Sales Growth of Combined Group Currency-neutral adidas Group YTD Net Sales Growth in % of total Group sales +27% Europe 42 (+28%) North 33 America +99% +34% (+110%) Asia 20 (+36%) Latin +62% 5 America (+78%) Total +49% 100 Group (+53%) 0% 50% 100% (Growth rates in euros in brackets) 25
Slide 26: Regional Sales Growth of adidas Group Excluding Reebok
Regional Sales Growth of adidas Group Excluding Reebok Currency-neutral adidas Group excl. Reebok YTD Net Sales Growth in % of total Group sales +8% Europe 46 (+8%) North +18% (+24%) 25 America +21% Asia 23 (+22%) Latin +41% 6 America (+55%) Total +16% 100 Group (+19%) 0% 25% 50% (Growth rates in eu
Slide 27: Numerous Factors Impact First Half Gross Margin
Numerous Factors Impact First Half Gross Margin adidas Group gross margin 44.8% 46.5% (+0.9pp) Reebok TMaG HQ • Product mix • Own retail • Clearance sales at better margins 27
Slide 28: Numerous Factors Impact First Half Gross Margin
Numerous Factors Impact First Half Gross Margin adidas Group gross margin 44.8% 33.6% adidas TMaG HQ • US exposure • PPA impact • Markdown/product mix 28
Slide 29: Numerous Factors Impact First Half Gross Margin
Numerous Factors Impact First Half Gross Margin adidas Group gross margin 44.8% 44.1% (-2.5pp) adidas Reebok HQ • Metalwood promotion impact • Greg Norman 29
Slide 30: Numerous Factors Impact First Half Gross Margin
Numerous Factors Impact First Half Gross Margin adidas Group gross margin 44.8% (-3.7pp) adidas Reebok TMaG • Amer Sports cooperation agreement 30
Slide 31: Positive Operating Expense Development
Positive Operating Expense Development Opex as % of sales YTD 2006 35.1% Ï +0.9pp 33.4% - - 34.7% Ð (1.2pp) 37.0% Ð (1.0pp) Operating profit +18% to € 420 million Operating margin 8.6% (-2.6pp) 31
Slide 32: Strong IBT and Earnings Performance
Strong IBT and Earnings Performance • Net financial expenses increase to € 72 million • Income before taxes grows 4% to € 348 million • Group tax rate decreases to 32.9% • Net income from continuing operations increases to € 234 million (+4%) Net income attributable to shareholders reaches € 226 mil
Slide 33: Operating Working Capital a Key Priority
Operating Working Capital a Key Priority Currency- adidas Group adidas Group neutral excl. Reebok Inventories +58% +20% Receivables +66% +15% 9 Inventory increase reflects growth expectations and delays in store openings in emerging markets 9 Receivables grow slower than Q2 sales 9 Medium-term finan
Slide 34: Strategic Outlook
Strategic Outlook Herbert Hainer, CEO
Slide 35: Second Half Year Operational Initiatives
Second Half Year Operational Initiatives • New product initiatives • UK distribution policy • Reebok integration 35
Slide 36: New Running Initiatives
adidas GROUP New Running Initiatives PORSCHE DESIGN
Slide 37: Award-winning Premier Running Series
Award-winning Premier Running Series 37
Slide 38: First Integrated Training System Introduced
First Integrated Training System Introduced 38
Slide 39: Supernova ForMotion Launch in November
Supernova ForMotion™ Launch in November 39
Slide 40: Collaboration with Porsche Design Begins
Collaboration with Porsche Design Begins 40
Slide 41: UK: Europe's Toughest Market – The Challenge
UK: Europe’s Toughest Market – The Challenge • The UK is the toughest sporting goods market in Europe: • Consolidating retail landscape • Highly promotional environment • Commoditized market • Market lacks aspiration 41
Slide 42: UK: Europe's Toughest Market – The Solution
UK: Europe’s Toughest Market – The Solution • New go-to-market strategy: • Creation of a new “Concept” range available to retailers who meet trade policy requirements • Segmentation supports long-term health of our brands • Positive initial responses from many retailers • Beneficial medium- and long
Slide 43: Strong Pipeline of Reebok Integration Initiatives
Strong Pipeline of Reebok Integration Initiatives Branded apparel Annual revenue Licensed product synergies: € 500 million Regional initiatives Distributor buyouts Sourcing Annual cost synergies: Marketing & Sales € 175 million Distribution & Warehousing Administration & IT 43
Slide 44: Numerous Initiatives at Reebok
Numerous Initiatives at Reebok • Distributor buy-outs announced • Cost savings in sourcing confirmed • Back-office functions combined • Go-to-market strategy redesigned • Co-locations underway 44
Slide 45: Numerous Initiatives at Reebok (cont.)
Numerous Initiatives at Reebok (cont.) • Media buying activities combined • New COO for North America named, responsible for all three brands • New head for branded apparel activities named • NBA business transferred to adidas 45
Slide 46: Full Year Targets Reconfirmed
Full Year Targets Reconfirmed adidas Group 2006 Target Sales growth double-digit Gross margin 44 - 46% Operating margin ca. 9% Net income growth double-digit 46
Slide 47: Setting an Even Stronger Pace
Setting an Even Stronger Pace • Strong first half • Ambitious targets • Exciting operational initiatives adidas Group Well on Track to Reach 2006 Targets 47
Slide 48: Questions & Answers
GROUP QUESTIONS & ANSWERS
Slide 49: Next Reporting Date
Next Reporting Date • November 9, 2006 Nine Months 2006 Results Conference Call at 15:00 CET 49
Slide 50: Appendix
Appendix
Slide 51: adidas Backlogs by Product Category and Region
adidas Backlogs by Product Category and Region • Development of adidas order backlogs (in %) North Europe Asia Total America Footwear (3) (3) 11 0 Apparel 5 8 20 10 Total 2 3 18 6 • Currency-neutral development of adidas order backlogs (in %) North Europe Asia Total America Footwear (1) 1 17 3 Appar
Slide 52: Reebok Backlogs by Product Category and Region
Reebok Backlogs by Product Category and Region • Development of Reebok order backlogs (in %) North Europe Total America Footwear 2 (29) (15) Apparel (33) (10) (19) Total (14) (22) (16) • Currency-neutral development of Reebok order backlogs (in %) North Europe Total America Footwear 4 (26) (12) Appa
Slide 53: Reebok Sales by Region Highlight Turnaround Opportunity
Reebok Sales by Region Highlight Turnaround Opportunity YTD 2006 Net Sales of Brand Reebok (€ in millions) in % of total brand sales Europe 305 29 North 616 58 America Asia 100 10 Latin 30 3 America Total 1050 100 Reebok 53