Adidas Ag · XETR:ADS
Adidas — adidas-Salomon — FY2003 Earnings Presentation
63 slides from Adidas's earnings presentation, Mar 10, 2004
Slide 1: Full Year 2003 Financial Results Presentation
adidas-Salomon AG FULL YEAR 2003 FINANCIAL RESULTS PRESENTATION ANALYST CONFERENCE March 10, 2004
Slide 2: 2003 Operational Highlights
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION 2003 OPERATIONAL HIGHLIGHTS HERBERT HAINER, CEO 2
Slide 3: Impossible is Nothing
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Impossible is Nothing 3
Slide 4: Impossible is Nothing
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Impossible is Nothing 4
Slide 5: Impossible is Nothing
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Impossible is Nothing 5
Slide 6: Impossible is Nothing
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Impossible is Nothing 6
Slide 7: 2003: A Challenging Environment
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION 2003: A Challenging Environment EXTERNAL INTERNAL • War in Iraq • Lower sales for adidas in North America • SARS • Tough retail markets • Slowdown of Sport Heritage US: 1st half business Europe: all year 7
Slide 8: Technology Evolutions: ClimaCool
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Technology Evolutions: ClimaCool® • Over 3 million pairs of footwear sold • Over 3 million pieces of apparel sold 8
Slide 9: Technology Evolutions: a3
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Technology Evolutions: ® a3 • Move to more specialized distribution during 2003 • More than 1 million pairs sold 9
Slide 10: Revolutionary New Football Technology
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Revolutionary New Football Technology • Innovative thermal-bonding production technique • Consistent ball quality and performance • Official matchball for the EURO 2004™ 10
Slide 11: Exciting New Products at Salomon and TaylorMade-adidas Golf
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Exciting New Products at Salomon and TaylorMade-adidas Golf 11
Slide 12: Successful Marketing Initiatives
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Successful Marketing Initiatives • Epica d’Or Awards • Eurobest 2003 TV/Cinema Awards 12
Slide 13: Germany Wins the Women's World Cup
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Germany Wins the Women’s World Cup • Several billion cumulative viewers • adidas sponsors seven teams, including World Champion Germany, China, Argentina and Japan • adidas is Official Supplier to the Women’s World Cup since its inception in 1991
Slide 14: Kim Collins Runs for Gold at Track & Field Championships
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Kim Collins Runs for Gold at Track & Field Championships • adidas sponsors this event for the fifth time • adidas athletes, including Kim Collins, win 10 gold medals 14
Slide 15: Ian Thorpe Wins Three Gold Medals at the World Swimming Championships
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Ian Thorpe Wins Three Gold Medals at the World Swimming Championships • Current holder of three world records • First athlete to win same event in three consecutive championships • Competes in adidas’ JetConcept full-body suit 15
Slide 16: World Skiing Championships: Ivica & Janica Kostelic
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION World Skiing Championships: Ivica & Janica Kostelic 16
Slide 17: Mike Weir Wins the Masters
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Mike Weir Wins the Masters 17
Slide 18: Justine Henin-Hardenne Wins Three Grand Slams
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Justine Henin-Hardenne Wins Three Grand Slams 18
Slide 19: NBA Stars Score Big Time
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION NBA Stars Score Big Time • Kevin Garnett: First NBA player to receive three consecutive ‘Player of the Month’ awards • Tracy McGrady: Ranks #1 in NBA’s ‘Points per Game’ statistic • Tim Duncan: NBA MVP 2003 19
Slide 20: Winning in Europe
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Winning in Europe • Sales increase 8% currency-neutral (+5% in euros) • Gross margin up 130 basis points to 40.8% of sales • Operating profit up 13% to € 534 million 20
Slide 21: Mavic-adidas Cycling
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Mavic-adidas Cycling • Supplier of bike rims, wheels, footwear and apparel • Key industry player • Global cycling market: ca. € 5 billion • Expected market growth: ca. 5% 21
Slide 22: Successful Sport Style Launch
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Successful Sport Style Launch • € 15 million in revenue in 2003 • Limited distribution: available in ca. 200 boutiques globally 22
Slide 23: Major Improvements to Group's Financing Structure
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Major Improvements to Group’s Financing Structure • € 400 million convertible bond issue • $ 175 million private placement • Nearly 40% reduction in net borrowings 23
Slide 24: adidas Business in North America Under Pressure in 2003
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION adidas Business in North America Under Pressure in 2003 • Tough market conditions • Oversupply of product • Resignation of CEO due to health problems 2004 Target: Stabilization of business 24
Slide 25: adidas Sport Heritage Sales Slow in 2003
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION adidas Sport Heritage Sales Slow in 2003 • Sales decline 4% currency-neutral (-11% in euros) • Overheating in some markets and channels • Lack of exposure in North America 2004 Target: Return to growth 25
Slide 26: Excellent 2003 Financial Results
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Excellent 2003 Financial Results • Group sales increase 5% currency-neutral (-4% in euros) • Record gross margin at 44.9% • Operating margin increases 0.5 percentage points to 7.8% • Net income up 14% to € 260 million • Debt reduced by € 552 mill
Slide 27: Operational Focus in 2004
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Operational Focus in 2004 • Turn around adidas business in North America • Enhance Sport Heritage distribution to spur growth • Maximize top- and bottom-line opportunities of “Apparel Breakthrough” initiative • Continue to deliver solid top-line
Slide 28: 2003 Financial Highlights
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION 2003 FINANCIAL HIGHLIGHTS ROBIN STALKER, CFO 28
Slide 29: All Segments Contribute to Underlying Sales Increase in 2003
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION All Segments Contribute to Underlying Sales Increase in 2003 % of Total 5% (-3%) 79 2% (-4%) 11 4% (-10%) 10 5% Group (-4%) Total: € 6.267b 100 0% 2% 4% 6% 8% (Figures in euro terms) 29
Slide 30: Sport Performance Drives adidas Sales Increase in 2003
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Sport Performance Drives adidas Sales Increase in 2003 Sport • Currency-neutral Sport Heritage Performance sales increase 17% 7%, driven by running and training categories • Strong increase in currency- neutral Sport Heritage apparel sales Sport
Slide 31: Salomon Delivers Currency-Neutral Growth in 2003
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Salomon Delivers Currency-Neutral Growth in 2003 • Currency-neutral sales increase 2% in 2003, 8% in Q4 • Major drivers: Mavic cycling components, outdoor footwear and Salomon apparel • Portion of summer sports products increased 31
Slide 32: Further Growth at TaylorMade-adidas Golf
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Further Growth at TaylorMade-adidas Golf • Sales at TaylorMade-adidas Golf grow 4% currency-neutral, driven by iron category • Difficult comparison due to non- recurrence of Slazenger Golf sales • Further expansion of market-leading position in m
Slide 33: Gross Margin at Record 44.9% Level
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Gross Margin at Record 44.9% Level FACTOR EFFECT • Increased adidas own-retail activities • adidas Europe & Asia – improving product mix • adidas America – clearance effect • Salomon and TaylorMade-adidas Golf – margin pressure (e.g. curre
Slide 34: Operating Margin Improves 50 Basis Points
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Operating Margin Improves 50 Basis Points • Operating expenses reduced by 1% • Operating expenses as a percentage of net sales increase 1.2 percentage points to 37.1% due to - Own-retail expansion - Promotion contract prolongations Operating prof
Slide 35: Strong IBT and Earnings Performance
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Strong IBT and Earnings Performance • Royalty and commission income nearly offsets goodwill amortization • Financial expenses reduced by 44% to € 49 million due to - Significantly lower average debt levels - Lower interest rates - Non-recurrence
Slide 36: Group Debt Reduced Nearly 40%
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Group Debt Reduced Nearly 40% € 1,498 million • Group debt reduced by € 552 million to € 946 million € 946 • Main drivers of debt reduction: million - Tight working capital management - Convertible bond issue - Currency effects (ca. 15%) 2002 200
Slide 37: Financing Structure Strongly Improves
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Financing Structure Strongly Improves Bank borrowings Commercial 10% 2% 40% paper 9% 15% 56% 9% ABS Private 36% placements Convertible 23% bond December 2002 December 2003 37
Slide 38: adidas Order Backlog Reflects Sequential Improvement in all Regions
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION adidas Order Backlog Reflects Sequential Improvement in all Regions (YOY) euros currency neutral • Strongest apparel backlogs in five years Footwear - 14% - 7% Apparel + 6% + 13% • Footwear backlogs negatively impacted Total - 5% + 2% by North Am
Slide 39: Backlog Under Pressure in North America
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Backlog Under Pressure in North America (YOY) euros currency • Development in line neutral with prior announcements Footwear - 38% - 26% Apparel - 17% - 2% • Apparel backlogs show sequential Total - 31% - 18% improvement 39
Slide 40: Backlog Growth in Asia Accelerates
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Backlog Growth in Asia Accelerates (YOY) euros currency • 15th consecutive neutral quarter of positive currency-neutral Footwear - 8% + 1% backlog development Apparel + 28% + 40% • Major drivers: China Total + 8% + 18% and Japan 40
Slide 41: Momentum in European Backlog Continues
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Momentum in European Backlog Continues (YOY) euros currency • Major drivers for neutral improvement: France, Spain and emerging Footwear + 1% + 4% markets Apparel + 11% + 13% • Highest apparel backlog growth in five Total + 6% + 9% years 41
Slide 42: Strategic Outlook
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION STRATEGIC OUTLOOK HERBERT HAINER, CEO 42
Slide 43: Operational Focus in 2004
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Operational Focus in 2004 • Turn around adidas business in North America • Enhance Sport Heritage distribution to spur growth • Maximize top- and bottom-line opportunities of “Apparel Breakthrough” initiative • Continue to deliver solid top-line
Slide 44: Erich Stamminger: President & CEO of adidas America
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Erich Stamminger: President & CEO of adidas America • Head of Global Marketing • Previous: Managing Director Europe & Asia, Managing Director Germany 44
Slide 45: Top Priority in North America: Improving Profitability
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Top Priority in North America: Improving Profitability 5.7%* 2003 2004e 2005e 2006e * Operating profit as a percentage of net sales 45
Slide 46: Joe Fields: adidas America, Commercial Director
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Joe Fields: adidas America, Commercial Director • West Point graduate • 16 years in retailing/brand businesses • Extensive industry experience, including President of Speedo, President of Pentland Group USA • Excellent standing with key account r
Slide 47: adidas America Action Plan
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION adidas America Action Plan ACTION RESULT Combine global and US Improve speed-to-market, marketing functions reduce hierarchy Improve in-store presence Increase shelf space, better product comparability with competitors 15 new concept stor
Slide 48: adidas Sport Heritage Strategy
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION adidas Sport Heritage Strategy • Improving distribution as top priority • Adjusting to changing market conditions as future growth driver - Basic products - Extended sports lifestyle market 48
Slide 49: adidas Sport Heritage Target Group
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION adidas Sport Heritage Target Group Metropolitan Urban Coastal 49
Slide 50: Expansion of Sport Heritage Own-Retail Efforts
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Expansion of Sport Heritage Own-Retail Efforts 50
Slide 51: Increased Focus on Key Accounts at Sport Heritage
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Increased Focus on Key Accounts at Sport Heritage • More SMUs • More customized packages • Faster response to consumer needs 51
Slide 52: Leveraging Global Expertise
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Leveraging Global Expertise • Sites for product development: Herzogenaurach and Portland • Benefits: Diversity of material, focus & options, new colorways, regional expertise 52
Slide 53: Accelerating the Apparel Breakthrough
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Accelerating the Apparel Breakthrough Background and Objectives • Apparel business was challenging into 2002 - Net sales stagnating - Article complexity increasing - Operations processes over-burdened • Apparel Breakthrough Program with two main
Slide 54: 2004 Actions & Results
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION 2004 Actions & Results Initiatives • Integrated initiatives Continued growth of Clima concepts • 4 quarter business Grow the Higher currency-neutral Sport model Performance apparel sales in 2003 Top Line • Number 1 at key Overproportionate growth
Slide 55: Positive Effect on Total Brand
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Positive Effect on Total Brand Example: Clima Integrated Initiative 55
Slide 56: 2004 Sales Outlook by Brand and Region
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION 2004 Sales Outlook by Brand and Region BRANDS & REGIONS 2004 SALES OUTLOOK* adidas mid-single-digit Salomon mid-single-digit TaylorMade-adidas Golf mid-single-digit Europe mid-single-digit North America positive Asia double-digit Latin America do
Slide 57: 2004 Operational Outlook
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION 2004 Operational Outlook ITEM OUTLOOK Currency-neutral sales growth 3 – 5% Gross margin ≥ 45.0% Operating margin > 7.8% Net income growth ≥ 10.0% 57
Slide 58: Question and Answer Session
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION QUESTION AND ANSWER SESSION 58
Slide 59: Next Reporting Date
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Next Reporting Date First Quarter 2004 Results May 5, 2004 • Press Release 7:30 CET 1:30 EST • Q1 Presentation available 12:00 CET 6:00 EST online • Conference Call 15:00 CET 9:00 EST 59
Slide 60: Appendix
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION APPENDIX 60
Slide 61: Sales by Brand and Region (1)
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Sales by Brand and Region (1) € in millions Change in % Change in % 2003 2002 (in euros) (currency-neutral) Europe adidas 2,851 2,694 6% 9% Salomon 418 395 6% 7% TaylorMade-adidas Golf 96 111 (14%) (5%) Total 3,365 3,200 5% 8% North America adida
Slide 62: Sales by Brand and Region (2)
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION Sales by Brand and Region (2) € in millions Change in % Change in % 2003 2002 (in euros) (currency-neutral) Asia adidas 839 867 (3%) 9% Salomon 69 84 (18%) (9%) TaylorMade-adidas Golf 207 214 (3%) 9% Total 1116 1166 (4%) 7% Latin America adidas 1
Slide 63: adidas Gross Margin by Region
adidas-Salomon AG 2003 FINANCIAL RESULTS PRESENTATION adidas Gross Margin by Region Europe: 41.9% 1.9pp North America: 32.9% 3.0pp Asia: 46.0% 0.5pp Latin America: 38.8% 0.9pp 63