Adidas Ag · XETR:ADS
Adidas — FY2005 Earnings Presentation
58 slides from Adidas's earnings presentation, Mar 2, 2006
Slide 1: Financial Results 2005 Presentation Analyst Conference
Financial Results 2005 Presentation Analyst Conference March 2, 2006 1
Slide 2: 2005 Operational Highlights
2005 Operational Highlights Herbert Hainer, CEO and Chairman 2
Slide 3: Scoring on All Fields
Scoring on All Fields • Clear focus on our core strengths in footwear, apparel and golf • Strengthening global position • Delivering top financial performance 3
Slide 4: All 2005 Financial Targets Achieved
All 2005 Financial Targets Achieved • Deliver mid- to high-single- 9 Currency-neutral sales grow digit currency-neutral sales 12% growth • Exceed medium-term gross 9 Gross margin +0.2pp to margin range of 45 to 46% 48.2% • Achieve highest operating 9 Operating margin +0.7pp to margin ever 10.7% • Dr
Slide 5: Strong Fourth Quarter Drives 2005 European Performance
Strong Fourth Quarter Drives 2005 European Performance • adidas currency-neutral sales grow 15% in Q4 • World Cup product launches begin • Strong growth in Sport Heritage, training apparel and tennis categories 2005 Operating Profit Up 25% 5
Slide 6: Ongoing Success in North America
Ongoing Success in North America • Full year currency-neutral sales grow 17% • Double-digit sales growth every quarter • New President to ensure sustained momentum 2005 Profitability Grows Over 600% 6
Slide 7: Asian Momentum Verified in 2005
Asian Momentum Verified in 2005 • Full year currency-neutral sales grow 27% • Market leadership in Japan • adidas revenues in Asia surpass North America for the first time 2005 Operating Profit Increases 25% 7
Slide 8: Highest Growth Again in Latin America
Highest Growth Again in Latin America • Full year currency-neutral sales grow 32% • Strongest growth in Brazil, Mexico, Argentina • Improvement of all major profitability metrics 2005 Operating Profit Up 54% 8
Slide 9: Design and Innovation Leadership Strengthened in 2005
Design and Innovation Leadership Strengthened in 2005 • Successful adidas_1 launch • Red Dot’s “Design Team of the Year” 9
Slide 10: Events and Teams Secured for 2006 and Beyond
Events and Teams Secured for 2006 and Beyond 10
Slide 11: Partnership Strategy Paying Off
Partnership Strategy Paying Off 11
Slide 12: Highly Successful adidas by Stella McCartney Launch
Highly Successful adidas by Stella McCartney Launch 12
Slide 13: Own-Retail Success Continues
Own-Retail Success Continues • Sales grow 36% to € 757 million • Comp sales increase at double-digit rates • Future openings concentrate on high-growth markets 13
Slide 14: TaylorMade-adidas Golf Position Strengthened
TaylorMade-adidas Golf Position Strengthened • TMaG currency- neutral sales grow 11% • US sales increase 21%, highest growth rate in 3 years • New cost leadership- oriented golf ball production strategy 14
Slide 15: Salomon Divestiture Completed
Salomon Divestiture Completed • Transaction closed in October 2005 • Divestiture proceeds amount to € 497 million (debt-free) • Focus on our core strengths in the footwear and apparel market and the growing golf category 15
Slide 16: Reebok Acquisition Closed
Reebok Acquisition Closed • Transaction closed January 31, 2006 • Strengthened Group’s global position • Focus on integration and revitalization of Reebok brand 16
Slide 17: Stable Dividend Payment Proposed
Stable Dividend Payment Proposed • Proposing stable 1.40 1.30 1.30 dividend at € 1.30 1.20 per share 1.00 0.92 1.00 1.00 • Payout ratio of 17% 0.80 of net income 0.60 0.40 0.20 0.00 2001 2002 2003 2004 2005 Dividend Payment Increases 10% to € 66 million due to Capital Increase 17
Slide 18: 2006 to Build on Strong Foundations Laid in 2005
2006 to Build on Strong Foundations Laid in 2005 • 2005 an important step forward in focus • Exciting initiatives in the pipeline • FIFA World Cup 2006TM • Reebok integration adidas Taking Performance to the Next Level 18
Slide 19: 2005 Financial Highlights
2005 Financial Highlights Robin J. Stalker, CFO 19
Slide 20: Q4 Sales Grow at Highest Rate in Years
Q4 Sales Grow at Highest Rate in 5 Years 2,000 +8% (+9%) 1,800 +13% (+11%) +10% +21% € in millions 1,600 (+8%) (+27%) 1,400 1,200 1,000 2004 2005 2004 2005 2004 2005 2004 2005 Q1 Q2 Q3 Q4 (Figures in euro terms) 20
Slide 21: Currency-Neutral Sales Increase in All Regions in 2005
Currency-Neutral Sales Increase in All Regions in 2005 +3% Europe (+3%) North +17% America (+17%) +27% Asia (+28%) Latin +32% America (+43%) 0% 10% 20% 30% 40% (Figures in euro terms) 21
Slide 22: 2005 Brand Sales Grow at Double-Digit Rates
2005 Brand Sales Grow at Double-Digit Rates % of Total +12% 89 (+13%) +11% 11 (+12%) Total: € 6.636bn +12% 100 (+13%) 0% 5% 10% 15% (Figures in euro terms) 22
Slide 23: 2005 adidas Currency-Neutral Sales Grow 12%
2005 adidas Currency-Neutral Sales Grow 12% • Growth in all major Sport Performance categories • Double-digit growth in all regions for Sport Heritage • Sport Style grows 2% due to strong second half 23
Slide 24: Highest Gross Margin Ever Despite TMaG Decline
Highest Gross Margin Ever Despite TMaG Decline Q4/2005 Full Year 2005 43.6% Ï 0.9pp 45.3% Ï 1.1pp 39.0% Ð (6.2pp) 44.0% Ð (3.0pp) *) 47.1% Ð (0.6pp) 48.2% Ï 0.2pp *Includes HQ/consolidation 24
Slide 25: Excellent Q4 and Full Year Operating Results
Excellent Q4 and Full Year Operating Results Q4 Full Year 2005 2005 Royalty and commission income +20% +11% Operating expenses as a (0.4pp) +0.1pp percentage of net sales Operating margin +0.6pp +0.7pp Operating profit +74% +21% 25
Slide 26: Higher Financial Expenses Hide Operational Performance Improvement
Higher Financial Expenses Hide Operational Performance Improvement • New reporting requirements for financial income and financial expenses • Financial income improves significantly • Financial expenses increase strongly in Q4 due to one-time effects • Net financial expenses decrease 11% to € 52 mil
Slide 27: Full-Year Group Net Income Increases 22%
Full-Year Group Net Income Increases 22% Q4 2005 Full Year 2005 • Net income attributable to • Net income attributable to shareholders from continuing shareholders from continuing and discontinued operations and discontinued operations at negative € 4 million at € 383 million (+22%) • Negatively imp
Slide 28: Net Cash Position at Year-End
Net Cash Position at Year-End • Inventories from continuing operations increase 13% on a currency-neutral basis (+22% in euros) • Receivables from continuing operations increase 14% currency- neutral (+24% in euros) • Net borrowings reduced by € 1.216 billion Net Cash Position of € 551 for First Tim
Slide 29: adidas Currency-Neutral Backlog Grows 8% (YOY)
adidas Currency-Neutral Backlog Grows 8% (YOY) euros currency- • Hardware and neutral apparel deliver Footwear + 11% + 4% highest growth rates Apparel + 16% + 9% • North America Total + 15% + 8% major regional growth driver 29
Slide 30: At-Once Component of World Cup Sales Not Reflected in Backlogs
At-Once Component of World Cup Sales Not Reflected in adidas European Backlogs (YOY) euros currency- • Double-digit neutral hardware order increase helps Footwear + 2% +/- 0% backlog development Apparel + 4% + 2% • Excludes at- Total + 4% + 3% once and own- retail sales 30
Slide 31: Double-Digit adidas Backlog Growth Continues in North America
Double-Digit adidas Backlog Growth Continues in North America (YOY) euros currency- • 9th consecutive neutral quarter of sequential Footwear + 33% + 15% improvement Apparel + 37% + 19% • Across-the-board increases in Total + 35% + 17% footwear and apparel 31
Slide 32: adidas Asian Backlog Growth Continues
adidas Asian Backlog Growth Continues (YOY) • 18th consecutive euros currency- quarter of double- neutral digit currency- neutral growth Footwear + 12% + 2% • Footwear and Apparel + 28% + 18% apparel sales expected to grow Total + 22% + 13% at double-digit rates 32
Slide 33: Q4 2005 Reebok Results
Q4 2005 Reebok Results • Currency-neutral sales decrease 3% (-5% in US dollars) to $930 million • Gross margin increases 100 basis points to 39.5% • SG&A expenses reduced by $10 million • Net income virtually stable at $47.4 million • EPS excl. integration costs and tax effects: $0.60 33
Slide 34: Reebok Backlogs Indicate Challenges Ahead
Reebok Backlogs Indicate Challenges Ahead (YOY) • Currency-neutral dollars currency- neutral international backlogs down Footwear - 25% - 22% 12% Apparel - 21% - 20% • US backlogs -28% Total - 24% - 22% 34
Slide 35: Difficult Comparability of Financials
Difficult Comparability of Financials • Ca. € 80 million impact from purchase price accounting • Numerous accounting changes required in the shift between US GAAP and IFRS • Integration costs to impact multiple segments Outlook Provided for Combined Group and adidas Group Excluding Reebok 35
Slide 36: 2006 Outlook
2006 Outlook Herbert Hainer, CEO and Chairman 36
Slide 37: The World Cup is Just Around The Corner
The World Cup is Just Around The Corner • 99 days to the World Cup • Official Sponsor, Supplier and Licensee • Largest advertising campaign ever • Global football revenues targeted to increase at least 20% • Sales to exceed 1 billion Euro 37
Slide 38: World Cup Product Launches
World Cup Product Launches 38
Slide 39: World Cup Product Launches
World Cup Product Launches 39
Slide 40: +F50 Tunit Launch
adidas GROUP +F50 Tunit Launch
Slide 41: Football Market Share Update
Football Market Share Update • 50% market share in Germany • Europe: adidas the only brand that grew market share and sales in a declining football market in Europe in 2005 • 48% market share in the USA • Market leader in Japan • adidas worldwide market share: ca. 35% 41
Slide 42: Revitalization of Reebok
Revitalization of Reebok • Need for stronger brand profile and marketing orientation • Reasons for backlog decline: • Product needs to be updated and upgraded • Market misperception • Increasingly selective distribution 42
Slide 43: Creating Product that Appeals to Consumers
Creating Product that Appeals to Consumers • Capitalize on adidas strength in design and technological innovation • Better product expected in second half of 2006 • Knowledge transfer in product development for 2007 and beyond 43
Slide 44: Eliminating Market Misperception to Empower Reebok with Customers
Eliminating Market Misperception to Empower Reebok with Customers • Open dialog with retailers • Reebok is a performance brand • Positive response following transaction close 44
Slide 45: More Selective Distribution Going Forward
More Selective Distribution Going Forward to Maximize Business Quality • Limited distribution of key products • Better utilize Group knowledge of what consumers want and need • Strategic pillar of sales strategy going forward 45
Slide 46: 2006 Financial Targets
2006 Financial Targets Group (excl. Group Reebok) Currency-neutral Double-digit High-single-digit revenue growth Gross margin 44-46% 47-48% Operating margin ca. 9% ca. 10-10.5% Net income growth Double-digit Double-digit 46
Slide 47: Medium-Term Financial Guidance
Medium-Term Financial Guidance Target Annual sales growth Mid- to high-single-digit Gross margin 46 - 48% Operating margin ca. 11% Annual growth of net income Double-digit 47
Slide 48: Questions & Answers
adidas adidas GROUP QUESTIONS & ANSWERS
Slide 49: Upcoming Events
Upcoming Events 49
Slide 50: Investor Day
Investor Day • April 11, 14.00/15.00 CET • London, Cumberland Hotel • Speakers: • Herbert Hainer, Group CEO • Glenn Bennett, Chief Operations Officer • Erich Stamminger, adidas Brand President • Paul Harrington, Reebok Brand President • Mark King, TaylorMade Brand President 50
Slide 51: 2006 Financial Calendar
2006 Financial Calendar • April 11: Investor Day – adidas Group Strategy and Brand Positioning • May 9: First Quarter 2006 Results • May 11: Annual General Meeting in Fürth, Bavaria • May 12: Dividend Paid • August 9: First Half 2006 Results • November 9: First Nine Months 2006 Results 51
Slide 52: Appendix
Appendix 52
Slide 53: Q4 2005 Reebok Results
Q4 2005 Reebok Results Consolidated Statement of Operation $ in millions 2005 2004 Net Sales 930.4 975.1 Gross Profit 367.1 375.5 in % of Net Sales 39.5% 38.5% Operating Expenses 310.3 320.3 in % of Net Sales 33.4% 32.8% Interest Expense, net 0.7 4.0 Other Expenses, net 4.8 0.7 Income before Taxes a
Slide 54: Full Year 2005 Reebok Results
Full Year 2005 Reebok Results Consolidated Statement of Operation $ in millions 2005 2004 Net Sales 3,772.9 3,785.3 Gross Profit 1,546.6 1,498.0 in % of Net Sales 41.0% 39.6% Operating Expenses 1,260.3 1,203.7 in % of Net Sales 33.4% 31.8% Interest Expense, net 7.3 13.4 Other Expenses, net (69.0) 4.
Slide 55: Q4 2005 Reebok Sales Analysis
Q4 2005 Reebok Sales Analysis Change Change in $ currency-neutral USA Apparel + 12% + 12% Footwear - 14% - 14% International Apparel +/- 0% + 4% Footwear + 3% + 8% Rockport - 2% +/- 0% Ralph Lauren Footwear - 88% - 88% Greg Norman Collection + 5% + 5% Total Company - 5% - 3% 55
Slide 56: Full Year 2005 Reebok Sales Analysis
Full Year 2005 Reebok Sales Analysis Change Change in $ currency-neutral USA Apparel + 9% + 9% Footwear - 7% - 7% International Apparel + 1% - 1% Footwear + 8% + 6% Rockport - 1% - 2% Ralph Lauren Footwear - 49% - 49% Greg Norman Collection + 14% + 14% Total Company +/- 0% - 1% 56
Slide 57: Reebok Backlogs – USA (YOY)
Reebok Backlogs – USA (YOY) dollars currency- neutral Footwear - 30% - 30% Apparel - 23% - 23% Total - 28% - 28% 57
Slide 58: Reebok Backlogs – International (YOY)
Reebok Backlogs – International (YOY) dollars currency- neutral Footwear - 16% - 7% Apparel - 20% - 18% Total - 18% - 12% 58