Adidas Ag · XETR:ADS
Adidas — adidas-Salomon — FY2004 Earnings Presentation
40 slides from Adidas's earnings presentation, Mar 9, 2005
Slide 1: Full Year 2004 Financial Results Presentation
adidas-Salomon AG FULL YEAR 2004 FINANCIAL RESULTS PRESENTATION ANALYST CONFERENCE March 9, 2005
Slide 2: 2004 Operational Highlights
adidas-Salomon AG 2004 Financial Results Presentation 2004 OPERATIONAL HIGHLIGHTS HERBERT HAINER, CEO 2
Slide 3: Major Operational Achievements: Impossible Is Nothing Campaign
adidas-Salomon AG 2004 Financial Results Presentation Major Operational Achievements in 2004: “Impossible Is Nothing” Global Brand Campaign 3
Slide 4: Major Operational Achievements: Revolutionary New Products
adidas-Salomon AG 2004 Financial Results Presentation Major Operational Achievements in 2004: Revolutionary New Products 4
Slide 5: Major Operational Achievements: Major Partnerships Initiated
adidas-Salomon AG 2004 Financial Results Presentation Major Operational Achievements in 2004: Major Partnerships Initiated 5
Slide 6: Major Operational Achievements: Continued Own-Retail Expansion
adidas-Salomon AG 2004 Financial Results Presentation Major Operational Achievements in 2004: Continued Own-Retail Expansion 6
Slide 7: Major Operational Achievements: Big Sporting Events
adidas-Salomon AG 2004 Financial Results Presentation Major Operational Achievements in 2004: Big Sporting Events 7
Slide 8: Excellent Regional Performance
adidas-Salomon AG 2004 Financial Results Presentation Excellent Regional Performance • Major profitability advances in Europe • Sequential sales improvement in North America • Exciting momentum in Asian sales and backlogs • Fifth consecutive year of double-digit underlying growth in Latin America 8
Slide 9: Financial Performance Beats Expectations
adidas-Salomon AG 2004 Financial Results Presentation Financial Performance Beats Expectations Targets Achievements Grow currency-neutral sales 3 to ✓ Currency-neutral sales 5% grow 7% Expand gross margin ✓ Gross margin reaches record level of 47.2% Visibly increase operating margin ✓ Operatin
Slide 10: Significant Dividend Increase Proposed
adidas-Salomon AG 2004 Financial Results Presentation Significant Dividend Increase Proposed • Proposing 30% dividend increase to € 1.30 per share • Payout ratio of 19% of net income Expansion of payout range to between 15 and 25% proposed for 2005 10
Slide 11: Share Buyback Program to be Initiated
adidas-Salomon AG 2004 Financial Results Presentation Share Buyback Program to be Initiated • Possible due to high free cash flow generation • Potential to offset dilution effect relating to our convertible bond • Most flexible way of returning capital to shareholders • Improves our EPS and Return o
Slide 12: 2004 Full Year Results Financial Highlights
adidas-Salomon AG 2004 Financial Results Presentation 2004 FULL YEAR RESULTS FINANCIAL HIGHLIGHTS ROBIN STALKER, CFO 12
Slide 13: Currency-Neutral Sales Increase at All Brands in 2004
adidas-Salomon AG 2004 Financial Results Presentation Currency-Neutral Sales Increase at All Brands in 2004 % of Total 8% (+5%) 80 2% (-1%) 10 5% (-1%) 10 7% Total: Group (+3%) € 6.478bn 100 0% 2% 4% 6% 8% 10% (Figures in euro terms) 13
Slide 14: All Three Divisions Support adidas Sales Increase
adidas-Salomon AG 2004 Financial Results Presentation All Three Divisions Support adidas Sales Increase in 2004 • Currency-neutral Sport Performance sales increase 6%, driven by football and apparel • Double-digit increase in currency- neutral Sport Heritage sales • Sport Style currency-neutral sale
Slide 15: Salomon Delivers Currency-Neutral Growth in 2004
adidas-Salomon AG 2004 Financial Results Presentation Salomon Delivers Currency-Neutral Growth in 2004 • Currency-neutral sales increase 2% • Improvements in winter and summer sports categories • Major drivers: nordic, apparel and cycling categories 15
Slide 16: Further Growth at TaylorMade-adidas Golf
adidas-Salomon AG 2004 Financial Results Presentation Further Growth at TaylorMade-adidas Golf • Currency-neutral sales at TaylorMade-adidas Golf grow 5% • Major drivers: metalwood and apparel categories • Number one position in metalwoods expanded 16
Slide 17: Gross Margin at Record 47.2% Level
adidas-Salomon AG 2004 Financial Results Presentation Gross Margin at Record 47.2% Level 44.1% 3.6pp 39.6% 0.4pp 47.0% 1.5pp Group* 47.2% 2.3pp *Includes HQ/consolidation 17
Slide 18: Operating Margin Improves 110 Basis Points Despite Higher Operating Expenses
adidas-Salomon AG 2004 Financial Results Presentation Operating Margin Improves 110 Basis Points Despite Higher Operating Expenses Operating expenses increase by 7% - Marketing expenditures for “Impossible Is Nothing” campaign, EURO 2004 and Olympic Games - Continued expansion of adidas own retail -
Slide 19: Own Retail Supports Sales and Profitability Improvements
adidas-Salomon AG 2004 Financial Results Presentation Own Retail Supports Sales and Profitability Improvements • Currency-neutral own-retail sales increase 30% Driven by new shop openings and comparable store sales growth 11% of brand adidas revenues • Significantly higher gross margin • Higher op
Slide 20: IFRS Changes Concerning Goodwill Amortization
adidas-Salomon AG 2004 Financial Results Presentation IFRS Changes Concerning Goodwill Amortization to Affect 2005 Reported Earnings Old IFRS Rules New IFRS Rules 2004 (reported) Net income € 314m € 314m Basic EPS € 6.88 € 6.88 2005 (expected) Net income € 346m - € 361m € 392m - € 408m Earnings grow
Slide 21: Strong IBT and Earnings Performance
adidas-Salomon AG 2004 Financial Results Presentation Strong IBT and Earnings Performance • Royalty and commission income virtually offsets goodwill amortization • Financial expenses increase by 16% to € 57 million • IBT grows 19% to € 520 million • Minority interests decline, tax rate reduced by 20
Slide 22: Strong Debt and Financial Leverage Improvements
adidas-Salomon AG 2004 Financial Results Presentation Strong Debt and Financial Leverage Improvements € 946 million • Group debt reduced by € 352 million to € 594 million -37% € 594 Main drivers: Strong million operating performance, tight working capital management • Equity base further strengthen
Slide 23: Financing Structure Continues to Improve
adidas-Salomon AG 2004 Financial Results Presentation Financing Structure Continues to Improve • Majority of borrowings covered by private placements and convertible bond • € 800 million revolving credit facility acts as replacement for medium-term lines terminated in 2004 Commitment fee of 5.5 bas
Slide 24: adidas Backlog Growth Driven by Apparel
adidas-Salomon AG 2004 Financial Results Presentation adidas Backlog Growth Driven by Apparel (YOY) euros currency • 10th consecutive neutral quarter of positive underlying apparel Footwear + 4% + 7% backlog growth Apparel + 12% + 14% • Highest currency- neutral footwear Total + 7% + 9% backlog grow
Slide 25: adidas Backlog Development in Europe Hides Underlying Improvement
adidas-Salomon AG 2004 Financial Results Presentation adidas Backlog Development in Europe Hides Underlying Improvement (YOY) euros currency • Reflects continued neutral tough Western European market Footwear + 2% + 2% conditions Apparel +/- 0% +/- 0% • Excludes own-retail and significant at- Total
Slide 26: adidas Backlogs in North America Reflect Continued Momentum
adidas-Salomon AG 2004 Financial Results Presentation adidas Backlogs in North America Reflect Continued Momentum (YOY) euros currency • Fifth consecutive neutral quarter of sequential Footwear - 1% + 6% backlog improvement • Currency-neutral Apparel + 1% + 8% footwear and overall Total +/- 0% + 7%
Slide 27: adidas Backlog Momentum in Asia Continues
adidas-Salomon AG 2004 Financial Results Presentation adidas Backlog Momentum in Asia Continues (YOY) euros currency • Record backlog neutral growth Footwear + 20% + 24% • Drivers: China and Apparel + 64% + 70% Japan Total + 39% + 44% 27
Slide 28: 2005 Outlook
adidas-Salomon AG 2004 Financial Results Presentation 2005 OUTLOOK HERBERT HAINER, CEO 28
Slide 29: Europe to Continue on Growth Course
adidas-Salomon AG 2004 Financial Results Presentation Europe to Continue on Growth Course • Challenging macroeconomic conditions with - Flat GDP development in Western Europe - Overproportionate GDP growth in the emerging markets • Strong impact of own-retail and at-once business • Event-related mom
Slide 30: North American Turnaround to be Solidified
adidas-Salomon AG 2004 Financial Results Presentation North American Turnaround to be Solidified • Positive signals within sporting goods sector • Strong momentum in running and basketball categories • Heritage distribution showing strong improvements Mid- to high-single-digit sales growth expected
Slide 31: Asian Momentum Accelerates
adidas-Salomon AG 2004 Financial Results Presentation Asian Momentum Accelerates • Solid growth expected in all major markets • China and Japan as major growth drivers Double-digit sales growth expected in 2005 31
Slide 32: Strengthening Position in Major Latin American Markets
adidas-Salomon AG 2004 Financial Results Presentation Strengthening Position in Major Latin American Markets • Sustaining growth as priority • Strong growth in Brazil and Mexico on track to continue High-single-digit sales growth expected in 2005 32
Slide 33: adidas Performance to Drive Group Sales Growth
adidas-Salomon AG 2004 Financial Results Presentation adidas Performance to Drive Group Sales Growth • Major sponsorships recently announced • New initiatives coming to the market • Increasing momentum in North America and Asia Mid- to high-single-digit sales growth expected in 2005 33
Slide 34: Salomon Restructuring Continues
adidas-Salomon AG 2004 Financial Results Presentation Salomon Restructuring Continues • Production-related restructuring announced in December • “Women Will” initiative to dominate communication • Strong growth in softgoods expected Mid-single-digit sales growth expected in 2005 34
Slide 35: TaylorMade-adidas Golf Solidifies Leading Golf Position
adidas-Salomon AG 2004 Financial Results Presentation TaylorMade-adidas Golf Solidifies Leading Golf Position • New irons releases to underscore innovation leader status • Major innovation in premium golf ball segment • Clean inventories to drive margin improvements Mid-single-digit sales growth exp
Slide 36: Gross Margin Strength Continues
adidas-Salomon AG 2004 Financial Results Presentation Gross Margin Strength Continues Positives Challenges + Continued expansion of - Increasing proportion of lower- adidas own-retail activities margin North American sales + Cleaner inventory to support - Requirement to pass more FX margins at Taylo
Slide 37: Operating Expense Leverage
adidas-Salomon AG 2004 Financial Results Presentation Operating Expense Leverage Positives Challenges + Non-event year - Rapid growth of own retail + Major contracts signed - World Cup preparations + Continued cost savings - Marketing working budget Small but visible operating expense leverage 37
Slide 38: All Operational Levers Point towards Earnings Growth
adidas-Salomon AG 2004 Financial Results Presentation All Operational Levers Point towards Earnings Growth • Sales momentum increases • Continued gross margin strength expected • Further improvements in operating expenses as a percentage of sales Net earnings expected to grow by 10-15% 38
Slide 39: Question and Answer Session
adidas-Salomon AG 2004 Financial Results Presentation QUESTION AND ANSWER SESSION 39
Slide 40: Next Reporting Date
adidas-Salomon AG 2004 Financial Results Presentation Next Reporting Date First Quarter 2005 Results May 2, 2005 • Press Release 7:30 CET 1:30 EST • Quarterly Report & Presentation 12:00 CET 6:00 EST available online • Conference Call 15:00 CET 9:00 EST 40