Adidas Ag · XETR:ADS
Adidas — Q3 2017 Earnings Presentation
40 slides from Adidas's earnings presentation, 2017
Slide 1: Q3 2017 Roadshow Presentation
Q3 2017 ROADSHOW PRESENTATION
Slide 2: Business Highlights
BUSINESS HIGHLIGHTS 2
Slide 3: Executing 'Creating the New'
EXECUTING ‘CREATING THE NEW’ ORGANISATIONAL PROGRESS COMPLEMENTS OPERATIONAL IMPROVEMENTS TAYLORMADE AND CCM HOCKEY BUSINESSES DIVESTITURES COMPLETED LEADERSHIP GROUPS ESTABLISHED AND ACTIVATED LEADERSHIP FRAMEWORK DEFINED AND INTRODUCED ORGANISATION IN ‘EXECUTION MODE’ DRIVING PROGRESS AGAINST SHOR
Slide 4: Strengths and Weaknesses in Q3 2017
STRENGTHS AND WEAKNESSES IN Q3 2017 EXCELLENT GROWTH SLOWER GROWTH IN WESTERN EUROPE IN NORTH AMERICA AND GREATER CHINA DUE TO MARKET AND RETAIL SLOWDOWN ECOM CONTINUES TO OUTPERFORM US COLLEGE BASKETBALL ALLEGATION FASTEST-GROWING CHANNEL IN ALL REGIONS THOROUGH INTERNAL INVESTIGATION WITH OUTSIDE
Slide 5: Major P&L Developments in Q3 2017
MAJOR P&L DEVELOPMENTS IN Q3 2017 REVENUES INCREASE 12% CURRENCY-NEUTRAL AND 9% IN EURO TERMS TO € 5.7 BILLION GROSS MARGIN UP 2.4PP TO 50.4% DUE TO A MORE FAVOURABLE PRICING AND PRODUCT MIX OPERATING MARGIN UP 2.7PP TO 14.0% SUPPORTED BY AN INCREASE IN GROSS MARGIN AND OPEX LEVERAGE NET INCOME FROM
Slide 6: Key Growth Areas
KEY GROWTH AREAS DRIVE STRONG TOP-LINE PERFORMANCE DURING THE THIRD QUARTER ADIDAS GREATER ECOM NORTH AMERICA CHINA +31% +28% +39% Currency-neutral. 6
Slide 7: Strong Growth at adidas Brand
STRONG GROWTH AT ADIDAS BRAND GROWTH IN ALL REGIONS EXCEPT RUSSIA/CIS DOUBLE-DIGIT SALES GROWTH ON TOP OF A 20% INCREASE IN THE PRIOR YEAR PERIOD +13% STRONG DOUBLE-DIGIT ECOM GROWTH IN EVERY MARKET WOMEN’S BUSINESS CONTINUES TO OUTPERFORM WITH STRONG DOUBLE-DIGIT SALES GROWTH Currency-neutral. 7
Slide 8: Sport Performance Increases 3%
SPORT PERFORMANCE INCREASES 3% REFLECTING OVERALL WEAKNESS IN THE LICENSED APPAREL BUSINESS QUARTERLY REVENUE GROWTH (2-YEAR STACKS) 4% 2017 RUNNING REVENUES UP 16%, DRIVEN BY 7% 20% GROWTH IN FOOTWEAR 2017 3% 22% 2017 3% 2016 16% TRAINING SALES GROW 6%, REFLECTING 2016 2016 13% DOUBLE-DIGIT GROWTH
Slide 9: Originals & NEO Enjoy Brand Heat
ORIGINALS & NEO ENJOY BRAND HEAT DOUBLE-DIGIT GROWTH IN FOOTWEAR AND APPAREL QUARTERLY REVENUE GROWTH (2-YEAR STACKS) ORIGINALS UP 22%, DRIVEN BY STRONG 30% 39% DOUBLE-DIGIT GROWTH IN ALL KEY REGIONS 44% 2017 2017 25% 2016 2017 MODERN FRANCHISES GROW MORE THAN 40%, 48% 45% NOW REPRESENTING MORE THAN
Slide 10: Moderate Growth at Reebok
MODERATE GROWTH AT REEBOK DOUBLE-DIGIT INCREASE IN CLASSICS REEBOK RECORDS HIGH-SINGLE-DIGIT GROWTH OUTSIDE OF THE U.S. MUSCLE-UP INITIATIVES DELIVER +1% OPERATIONAL AND FINANCIAL PROGRESS REEBOK AND VICTORIA BECKHAM UNITE TO DRIVE WOMEN’S BUSINESS Currency-neutral. 10
Slide 11: Financial Highlights
FINANCIAL HIGHLIGHTS 11
Slide 12: Ongoing Momentum in Key Regions
ONGOING MOMENTUM IN KEY REGIONS SALES GROWTH IN ALL REGIONS EXCEPT RUSSIA/CIS RUSSIA/CIS (17%) NORTH AMERICA WESTERN EUROPE +23% +7% JAPAN GREATER CHINA +3% +28% MEAA +6% LATIN AMERICA +8% Currency-neutral. 12
Slide 13: Western Europe
SIGNIFICANT GROWTH IN MATURE MARKET WESTERN CURRENCY-NEUTRAL SALES INCREASE 7% IN Q3 GROWTH IN MOST KEY COUNTRIES EUROPE ADIDAS BRAND REVENUES UP 6% DOUBLE-DIGIT GROWTH IN ORIGINALS AND NEO REEBOK BRAND SALES INCREASE 21% DRIVEN BY RUNNING AND CLASSICS GROSS MARGIN GROWS (+1.8PP) DUE TO A MORE FAVOU
Slide 14: North America
EXCEPTIONAL MOMENTUM AT ADIDAS BRAND ONGOING NORTH CURRENCY-NEUTRAL SALES INCREASE 23% IN Q3 ADIDAS BRAND MOMENTUM CONTINUES (+31%) AMERICA DRIVEN BY TRAINING, RUNNING, ORIGINALS AND NEO REEBOK BRAND SALES DOWN 22% ONGOING CLEAN-UP OF LOW-MARGIN BUSINESS GROSS MARGIN EXPANSION CONTINUES (+2.4PP) REF
Slide 15: Greater China
EXCELLENT GROWTH SUPPORTED BY ONGOING BRAND HEAT GREATER CURRENCY-NEUTRAL SALES INCREASE 28% IN Q3 ADIDAS BRAND SALES INCREASE 29% CHINA DOUBLE-DIGIT GROWTH IN TRAINING, RUNNING, ORIGINALS AND NEO REEBOK BRAND REVENUES UP 9% DOUBLE-DIGIT GROWTH IN TRAINING AND RUNNING GROSS MARGIN DOWN (-0.9PP) REFL
Slide 16: Latin America
SALES INCREASE DESPITE CONTINUED MACROECONOMIC CHALLENGES LATIN CURRENCY-NEUTRAL SALES GROW 8% IN Q3 DESPITE DIFFICULT ENVIRONMENT IN ARGENTINA AND BRAZIL AMERICA ADIDAS BRAND SALES INCREASE 9% GROWTH IN TRAINING, RUNNING, ORIGINALS AND NEO REEBOK BRAND REVENUES UP 2% DOUBLE-DIGIT GROWTH IN TRAINING
Slide 17: Gross Margin Increases to 50.4%
GROSS MARGIN INCREASES TO 50.4% DUE TO STRONG IMPROVEMENTS IN PRICING AND PRODUCT MIX EFFECTS INCREASE OF 240 BPS +260 BPS -20 BPS GROSS FX UNDERLYING GROSS MARGIN HEADWINDS IMPROVEMENT MARGIN Q3/16 Q3/17 17
Slide 18: Financial Results Overview
FINANCIAL RESULTS OVERVIEW SIGNIFICANT TOP- AND BOTTOM-LINE IMPROVEMENTS Q3/17 Q3/16 Y-O-Y CHANGE SALES (€ IN MILLIONS) 5,677 5,222 +9% GROSS MARGIN 50.4% 48.1% +2.4PP OTHER OPERATING INCOME (€ IN MILLIONS) 33 16 +111% OTHER OPERATING EXPENSES (€ IN MILLIONS) 2,129 1,963 +8% OTHER OPERATING EXPENSES
Slide 19: Inventories Grow 16%
INVENTORIES GROW 16% TO SUPPORT TOP-LINE MOMENTUM 18% 19% 18% INVENTORIES FROM CONTINUING OPERATIONS UP 16% C.N. REFLECTING HIGHER STOCK LEVELS TO SUPPORT 16% THE TOP-LINE MOMENTUM RECEIVABLES FROM CONTINUING OPERATIONS UP 17% C.N. 11% AS A RESULT OF THE STRONG TOP-LINE DEVELOPMENT PAYABLES FROM CON
Slide 20: Outlook
OUTLOOK 20
Slide 21: Sales Growth to Accelerate in Q4
SALES GROWTH TO ACCELERATE IN Q4 BRAND ACTIVATION AND UPCOMING PRODUCT LAUNCHES TO SUPPORT MOMENTUM SUSTAIN BRAND HEAT THROUGH ACCELERATED BRAND ACTIVATION AND UPCOMING PRODUCT LAUNCHES SUPPORT SELL-THROUGH OF NEW PRODUCT LAUNCHES THROUGH ENGAGING POINT-OF-SALE INITIATIVES CAPITALISE ON WORLD CUP 20
Slide 22: Outlook Confirmed for Full Year 2017
OUTLOOK CONFIRMED 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 22
Slide 23: Q3 2017 Key Takeaways
Q3 2017 KEY TAKEAWAYS ONGOING MOMENTUM IN KEY GROWTH AREAS STRONG PROFITABILITY GAINS REFLECTING QUALITY OF GROWTH FULL YEAR OUTLOOK CONFIRMED PROGRESSING AGAINST OUR 2017 AND 2020 TARGETS RELENTLESS FOCUS ON EXECUTION OF ‘CREATING THE NEW’ 23
Slide 24: Strategy Acceleration
STRATEGY ACCELERATION 24
Slide 25: Creating the New: Open Source Culture and Brand Desire
CREATING THE NEW FOCUS ON DRIVING BRAND DESIRABILITY OPEN SOURCE CULTURE BRAND DESIRE 25
Slide 26: 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 26
Slide 27: 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 27
Slide 28: Streamline the Portfolio
STREAMLINE THE PORTFOLIO GOLF EXIT EXIT INTEGRATION REINTEGRATION TURNAROUND 28
Slide 29: 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 30: 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 30
Slide 31: Focus on North America Is Paying Off
FOCUS ON NORTH AMERICA IS PAYING OFF FASTEST-GROWING BRAND IN THE US $ OUTPACING 2017 (YTD SEP) STRONG DOUBLE-DIGIT US MARKET GROWTH REVENUE GROWTH GROWTH IN KEY FTW MARKET CATEGORIES SHARE DOUBLED ADIDAS BRAND RUNNING NPS STRONG +33% TRAINING ORIGINALS GROWTH NEO WE HAVE A LONG WAY TO GO 31
Slide 32: 2020 Ambition for the adidas Brand in North America
2020 AMBITION FOR THE ADIDAS BRAND IN NORTH AMERICA >5 BN 32
Slide 33: 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 33
Slide 34: 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 35: Updated Ecommerce Ambition
UPDATED ECOMMERCE AMBITION 4.0 2.0 0.6 INITIAL UPDATED 0 2020 2020 2010 2015 AMBITION AMBITION € in billions. 35
Slide 36: 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 37: 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 38: 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 39: '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 39
Slide 40: 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 40