OUR CORE BELIEF
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3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
TARGETS – RESULTS – OUTLOOK
TARGETS 2017 1, 2
RESULTS 2017 2
OUTLOOK 2018
Currency-neutral sales
INCREASE AT A RATE BETWEEN 12% AND 14%
Gross margin
INCREASE UP TO 0.3PP
Other operating expenses (in % of net sales)
BELOW PRIOR YEAR LEVEL
Operating margin
INCREASE BETWEEN 0.2PP AND 0.4PP
Currency-neutral sales
INCREASE OF 16%
Sales of
€ 21.218 BILLION
Gross margin
increase of 1.2pp to 50.4%
Other operating expenses (in % of net sales)
decrease of 0.8pp to 41.9%
Operating margin
increase of 1.2pp to 9.8%
Net income from continuing operations
INCREASE AT A RATE BETWEEN 13% AND 15%
Net income from continuing operations 3
increase of 32% to € 1.430 BILLION
Currency-neutral sales
INCREASE AT A RATE AROUND 10%
Gross margin
INCREASE TO A LEVEL OF UP TO 50.7%
Other operating expenses (in % of net sales)
BELOW PRIOR YEAR LEVEL
Operating margin
INCREASE TO A LEVEL BETWEEN 10.3% AND 10.5%
Net income from continuing operations 3
INCREASE AT A RATE BETWEEN 13% AND 17%
to a level between € 1.615 billion and € 1.675 billion
Basic earnings per share from continuing operations
INCREASE AT A RATE BETWEEN 13% AND 15%
Basic earnings per share from continuing operations 3
increase of 31% to € 7.05
Basic earnings per share from continuing operations 3
INCREASE AT A RATE BETWEEN 12% AND 16%
Average operating working capital (in % of net sales)
MODEST INCREASE
Average operating working capital (in % of net sales)
decrease of 0.7pp to 20.4%
Average operating working capital (in % of net sales)
AROUND PRIOR YEAR LEVEL
Capital expenditure 4
AROUND € 1.1 BILLION
Shareholder value
FURTHER INCREASE
Capital expenditure 4
€ 752 MILLION
Capital expenditure 4
AROUND € 900 MILLION
adidas AG share price INCREASE OF 11%
Dividend per share INCREASE OF 30% TO € 2.60 5
Shareholder value
FURTHER INCREASE
1 As published on March 8, 2017; the outlook was updated over the course of the year.
2 Figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
3 2017 excluding negative one-time tax impact of € 76 million.
4 Excluding acquisitions and finance leases.
5 Subject to Annual General Meeting approval.
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2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
Financial Highlights 2017 (IFRS)
FINANCIAL HIGHLIGHTS 2017 (IFRS)
2017
2016
Change
Operating Highlights (€ in millions)
Net sales 1
Gross profit 1
Other operating expenses 1
EBITDA 1
Operating profit 1
Net income from continuing operations 1, 3
Net income attributable to shareholders 2, 3
Key Ratios
Gross margin 1
Other operating expenses in % of net sales 1
Operating margin 1
Effective tax rate 1, 3
Net income attributable to shareholders in % of net sales 2, 3
Average operating working capital in % of net sales 1
Equity ratio
Net borrowings/EBITDA 1
Financial leverage
Return on equity 2
Balance Sheet and Cash Flow Data (€ in millions)
Total assets
Inventories
Receivables and other current assets
Operating working capital
Net cash/(net borrowings)
Shareholders’ equity
Capital expenditure 1
Net cash generated from operating activities 2
Per Share of Common Stock (€)
Basic earnings 1, 3
Diluted earnings 1, 3
Net cash generated from operating activities 2
Dividend
Share price at year-end
Other (at year-end)
Number of employees 1
Number of shares outstanding
Average number of shares
1 Figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
2 Includes continuing and discontinued operations.
3 2017 excluding negative one-time tax impact of € 76 million.
4 Subject to Annual General Meeting approval.
21,218
10,703
8,882
2,511
2,070
1,430
1,173
50.4%
41.9%
9.8%
29.3%
5.5%
20.4%
44.4%
(0.2)
(7.5%)
17.0%
14,522
3,692
3,277
4,033
484
6,450
752
1,648
7.05
7.00
8.14
2.60 4
167.15
18,483
9,100
7,885
1,953
1,582
1,082
1,017
49.2%
42.7%
8.6%
29.6%
5.5%
21.1%
42.6%
0.1
1.6%
15.7%
15,176
3,763
3,607
3,468
(103)
6,472
642
1,348
5.39
5.29
6.73
2.00
150.15
56,888
203,861,234
202,391,673
58,902
201,489,310
200,188,276
15%
18%
13%
29%
31%
32%
15%
1.2pp
(0.8pp)
1.2pp
(0.3pp)
0.0pp
(0.7pp)
1.8pp
n.a.
(9.1pp)
1.3pp
(4%)
(2%)
(9%)
16%
n.a.
(0%)
17%
22%
31%
32%
21%
30%
11%
(3%)
1%
1%
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3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
ABOUT THIS REPORT
With the Annual Report 2017, adidas communicates financial
and non-financial information in a combined publication. The
report provides a comprehensive overview of the financial,
environmental and social performance of adidas in the 2017
financial year.
For the first time, we publish our Annual Report exclusively in
a digital format. It is available as a full-content PDF and as a
condensed Online Summary.
ADIDAS ANNUAL REPORT 2017
PDF
ADIDAS ANNUAL REPORT 2017,
ONLINE SUMMARY
↗ REPORT.ADIDAS-GROUP.COM
To enhance readability, registered trademarks as well as
references to rounding differences are omitted in this
publication. The adidas Annual Report 2017 is available in
English and German.
THE FOLLOWING SYMBOLS INDICATE
IMPORTANT INFORMATION:
↗ There is more information online.
There is more information in a related table or diagram.
There is more information within the report.
These are parts of the non-financial statement that are
covered by a separate limited assurance engagement.
SEE NON-FINANCIAL STATEMENT, P. 100
DATA AND FINANCIAL REPORTING STANDARDS
The reporting period is the financial year from January 1 to
December 31, 2017. To ensure this report is as current as
possible, it includes all relevant information available up to
the Responsibility Statement dated February 23, 2018.
The consolidated financial statements and the Group
Manage ment Report are prepared in accordance with the
principles of the International Financial Reporting Standards
(IFRS), as adopted by the European Union (EU), and additional
requirements pursuant to the German Commercial Code
(Handelsgesetzbuch – HGB).
Internal Control over Financial Reporting (ICoFR) provides
reasonable assurance regarding the reliability of financial
reporting and compliance with applicable laws and regu-
lations. To monitor the effectiveness of ICoFR, accounting-
related processes are regularly reviewed.
INDEPENDENT ASSURANCE
The consolidated financial statements prepared by adidas AG,
including the statement of financial position, income statement,
statement of comprehensive income, statement of changes in
equity, statement of cash flows, and the notes as well as the
Group Management Report have been audited by KPMG AG
Wirtschaftsprüfungsgesellschaft.
SEE INDEPENDENT AUDITOR’S
REPORT, P. 221
In addition, this report contains a combined non-financial
statement for adidas AG and the Group. The content of the
non-financial statement is covered by a separate limited
assurance engagement of KPMG AG Wirtschaftsprüfungs-
gesellschaft.
SEE NON-FINANCIAL STATEMENT, P. 100 The assurance
was conducted using the International Standard on Assurance
Engagements ISAE 3000 (Revised).
ASSURANCE REPORT, P. 226 The content of the non-financial statement
combined with further information in this report and on our
corporate website fulfills the Global Reporting Initiative’s
(GRI) G4 ‘Core’ option. The GRI content index can be found
online. ↗ ADIDAS-GROUP.COM/SUSTAINABILITY
SEE INDEPENDENT AUDITOR’S
It was not part of KPMG’s engagement to review the condensed
online version of this report or references to external sources
such as our corporate website.
FORWARD-LOOKING STATEMENTS
Our Group Management Report contains forward-looking
statements that reflect Management’s current view with
respect to the future development of our company. The outlook
is based on estimates that we have made on the basis of all the
information available to us at the time of completion of this
Annual Report. In addition, such forward-looking statements
are subject to uncertainties which are beyond the control of the
company.
SEE RISK AND OPPORTUNITY REPORT, P. 131 In case the
underlying assumptions turn out to be incorrect or described
risks or opportunities materialize, actual results and
developments may materially deviate (negatively or positively)
from those expressed by such statements. adidas does not
assume any obligation to update any forward-looking
statements made in the Group Management Report beyond
statutory disclosure obligations.
SEE SUBSEQUENT EVENTS AND
OUTLOOK, P. 128
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ADIDAS ANNUAL REPORT 2017
ADIDAS ANNUAL REPORT 2017
TO OUR
SHAREHOLDERS
GROUP MANAGEMENT REPORT
FINANCIAL REVIEW
CONSOLIDATED FINANCIAL
STATEMENTS
Operational and Sporting Highlights
008
Internal Management System
102
Consolidated Statement of Financial Position
Letter from the CEO
Executive Board
Supervisory Board
Supervisory Board Report
Corporate Governance Report
including the Declaration on
Corporate Governance
Compensation Report
Our Share
GROUP MANAGEMENT REPORT
OUR COMPANY
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Corporate Strategy
adidas Brand Strategy
Reebok Brand Strategy
Sales and Distribution Strategy
Global Operations
Innovation
People and Culture
Sustainability
Non-Financial Statement
Business Performance
Economic and Sector Development
Income Statement
Statement of Financial Position and
Statement of Cash Flows
Treasury
Financial Statements and Management Report
of adidas AG
Disclosures pursuant to § 315a Section 1 and
§ 289a Section 1 of the German Commercial Code
Business Performance by Segment
Western Europe
North America
Greater China
Russia/CIS
Latin America
Japan
MEAA
Subsequent Events and Outlook
Subsequent Events
Outlook
Risk and Opportunity Report
Illustration of Material Risks
Illustration of Opportunities
Management Assessment of Performance,
Risks and Opportunities, and Outlook
016
020
024
027
033
039
057
062
067
070
072
074
078
081
088
100
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes
Notes to the Consolidated Statement of Financial Position
Notes to the Consolidated Income Statement
Additional Information
Statement of Movements of Intangible
and Tangible Assets
Shareholdings
Responsibility Statement
Independent Auditor’s Report
Independent Auditor’s Assurance Report
ADDITIONAL
INFORMATION
105
105
107
111
115
118
120
124
124
124
125
125
126
126
126
128
128
128
131
136
144
Ten-Year Overview
146
Glossary
Declaration of Support
Financial Calendar
Group Management Report: This report contains the Group Management Report of the adidas Group,
comprising adidas AG and its consolidated subsidiaries, and the Management Report of adidas AG.
150
152
153
154
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157
169
201
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213
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Operational and Sporting Highlights
Letter from the CEO
Executive Board
Supervisory Board
Supervisory Board Report
Corporate Governance Report
including the Declaration on
Corporate Governance
Compensation Report
Our Share
008
016
020
024
027
033
039
057
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ADIDAS ANNUAL REPORT 2017
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
OPERATIONAL AND SPORTING
HIGHLIGHTS
OPERATIONAL AND
SPORTING HIGHLIGHTS
Q1 2017
‘ORIGINAL IS NEVER FINISHED’
The new campaign and film launched by adidas Originals
showcase visionaries from the worlds of music, skate, sport,
style and art. Reaffirming the notion ‘Original is never
finished’, the film features a remix of Frank Sinatra’s ‘My Way’
with a provocative, reimagined approach to today’s streetwear
culture. With a multi-generational cast including Snoop Dogg
and Dev Hynes, among others, adidas Originals re-interprets
its own classics and turns to a new generation of creators to
inspire them to redefine the meaning of originality.
↗ ADIDAS ORIGINALS ON YOUTUBE
REEBOK PRESENTS NEXT PHASE OF
‘BE MORE HUMAN’ CAMPAIGN
A new rousing suite of films champions the hard work and
physicality that lead people to more enriched lives, and cele-
brates the value of human connection. The series examines
the physical blemishes upon which life’s stories are written –
from calloused, scarred hands to a worn-out pair of running
shoes. It is the latest evolution of Reebok’s ‘Be More Human’
rally cry, which encourages people to be the best possible
version of themselves physically, mentally and socially.
↗ REEBOK ON YOUTUBE
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OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
OPERATIONAL AND SPORTING
HIGHLIGHTS
ADIDAS INCREASES SALES AND
EARNINGS GUIDANCE UNTIL 2020
Following an exceptionally successful 2016 financial year,
adidas increases its long-term guidance. The company
intends to strongly accelerate sales and earnings growth until
2020 as part of its long-term strategic business plan, ‘Creating
the New’. adidas expects currency-neutral sales to increase
at a rate between 10% and 12% on average per year between
2015 and 2020 (previously: to increase at a high-single-digit
rate). At this point in time, net income from continuing
operations is projected to grow between 20% and 22% on
average per year in the five-year period (previously: to increase
by around 15% on average).
↗ READ PRESS RELEASE
ADIDAS SWIM PRESENTS PARLEY
FOR THE OCEANS COLLECTION
The swim range is made from Parley Ocean Plastic and
features upcycled waste made from used fishing nets and
debris intercepted in coastal areas and converted into
technical yarn fibers such as Econyl, a recycled polyamide
yarn. Econyl regenerated materials offer the same high
quality and performance as the material (nylon 6) usually
found in wider swim apparel.
↗ ADIDAS SWIM ON YOUTUBE
‘UNLEASH YOUR CREATIVITY’ CAMPAIGN
Continuing the ‘Here to Create’ conversation that began in
2016, the campaign reinforces the adidas brand΄s point of
view that engaging an athlete΄s imagination will take them
further than their mind or body ever could. The campaign is
told through a female athlete΄s lens and stars supermodel
Karlie Kloss, fitness influencer Hannah Bronfman, and WNBA
All-Star Candace Parker, among others.
↗ ADIDAS ON YOUTUBE
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FINANCIAL REVIEW
STATEMENTS
OPERATIONAL AND SPORTING
HIGHLIGHTS
Q2 2017
PARLEY EDITIONS OF GAME-CHANGING
RUNNING FOOTWEAR
adidas reveals the UltraBOOST, UltraBOOST X and Ultra-
BOOST Uncaged Parley editions. The footwear features a blue
colorway inspired by the shades of the ocean. Reusing an
average of eleven plastic bottles per pair, the shoes’ laces,
heel webbing, heel lining and sock liner covers are made from
recycled PET material.
↗ ADIDAS RUNNING ON YOUTUBE
#PARLEY, #ULTRABOOST
ADIDAS AND SIEMENS SET TO COLLABORATE IN
THE DIGITAL PRODUCTION OF SPORTING GOODS
adidas and Siemens announce their intention to collaborate in
the digital production of sporting goods. As part of a joint
research and development program, the partners will be
working to drive forward the digitalization of the adidas
Speedfactory to ultimately develop capabilities for fast,
transparent and individualized production. As a leader in
digital
factory automation and simulation solutions,
Siemens brings invaluable expertise to the table. A digital
Speedfactory ‘twin’ will allow the entire production process
to be simulated, tested and optimized up-front. Merging the
virtual and real worlds will help shorten the time to market,
bring greater flexibility and provide improved manufacturing
quality and efficiency.
FUTURECRAFT 4D — INDUSTRY’S FIRST
APPLICATION OF DIGITAL LIGHT SYNTHESIS
Futurecraft 4D is the world’s first high-performance footwear
featuring midsoles crafted with light and oxygen using Digital
Light Synthesis, a technology led by Silicon Valley-based tech
company Carbon. The midsole pioneers a digital footwear
component creation process that eliminates the necessity
of traditional prototyping or molding. With Digital Light
Synthesis, adidas operates on a completely different manu-
facturing scale and sport performance quality, departing from
3D printing and bringing additive manufacturing in the sports
industry into a new dimension. Ultimately, adidas aims to
create more than 100,000 pairs of this high-performance
footwear by the end of 2018.
↗ ADIDAS.COM/FUTURECRAFT
↗ ADIDAS ON YOUTUBE
#FUTURECRAFT
REEBOK ANNOUNCES ‘COTTON + CORN’
SUSTAINABLE PRODUCTS INITIATIVE
The initiative is intended to bring plant-based footwear to the
market in 2018. The first shoe ‘made from things that grow’
will have an upper comprised of organic cotton and a base
originating from industrial grown corn, which is a non-food
source. For the Cotton + Corn initiative, Reebok partnered with
DuPont Tate & Lyle Bio Products, a leading manufacturer of
high-performance bio-based solutions.
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FINANCIAL REVIEW
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OPERATIONAL AND SPORTING
HIGHLIGHTS
PERSONNEL CHANGES ON THE EXECUTIVE
BOARD OF ADIDAS AG
Effective May 11, Harm Ohlmeyer is appointed to succeed
Robin J. Stalker as CFO and Labor Director of adidas AG.
Karen Parkin is elevated to the Executive Board, responsible
for Global Human Resources, effective May 12. Additionally,
Gil Steyaert is appointed to the Executive Board as ordinary
member effective May 12, and succeeds Glenn Bennett as Board
Member responsible for Global Operations on August 5, 2017.
↗ READ PRESS RELEASES
↗ ADIDAS-GROUP.COM/EXECUTIVE-BOARD
ADIDAS FOOTBALL LAUNCHES NEMEZIZ
Nemeziz is the latest cleat designed to provide unprecedented
agility for the game’s most fluid players. For the development
of this shoe, adidas tapped into a common ritual in ancient
battle, in dance and in sport: the use of taping for increased
physical and mental strength. Nemeziz provides security,
support and adaptability to suit players whose agility helps
them dominate.
↗ ADIDAS FOOTBALL ON YOUTUBE
ADIDAS AND JAMES HARDEN UNVEIL
HARDEN LS
Harden LS is a lifestyle evolution of the Harden Vol. 1 and
continuation of the Harden signature line. The model utilizes
multi-color Primeknit uppers, full-length BOOST, refreshed
signature detailing and an uncaged toe box. It is available in
four distinct colorways with the timing of each colorway
release date being shared by James Harden exclusively on his
social media channels.
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OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
OPERATIONAL AND SPORTING
HIGHLIGHTS
Q3 2017
ADIDAS AND MAJOR LEAGUE SOCCER
EXTEND PARTNERSHIP TO 2024
The extension of the existing apparel partnership represents
the largest investment in American soccer to drive adidas’
North American business. The deal makes adidas the official
supplier partner for the League. Earlier in 2017, adidas and
Major League Soccer had already launched the newly designed
Nativo, the Official Match Ball for the 2017 MLS season.
↗ READ PRESS RELEASE
Z.N.E. PULSE COLLECTION
adidas Athletics unveils its latest Z.N.E. collection, the first
apparel range of its kind to be inspired by the rising heartbeat
of athletes before a game. adidas worked closely with athletes
during the development process, including collecting and
analyzing data to help shape the Athletics Pulse range. This
focused on the ‘pulse moment’ when athletes leave the locker
room and head towards the field of play, a moment when the
athletes’ heart rate peaks in anticipation. At the heart of the
collection is the adidas Z.N.E. Pulse Knit Hoodie, crafted in
breathable merino wool.
FIRST-EVER ULTRABOOST LACELESS
With innovation and creativity at the heart of adidas’ DNA,
the launch of its first-ever laceless performance running
silhouette marks a landmark occasion for the adidas brand.
The shoe continues to challenge convention and once again
sets new boundaries.
↗ ADIDAS RUNNING ON YOUTUBE
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OPERATIONAL AND SPORTING
HIGHLIGHTS
ADIDAS COMPLETES DIVESTITURE
OF CCM HOCKEY
adidas announces that as of September 1 it has formally
completed the previously announced divestiture of its CCM
hockey business to a newly formed affiliate of Birch Hill
Equity Partners.
↗ READ PRESS RELEASE
ADIDAS LISTED IN DOW JONES
SUSTAINABILITY INDICES
For the 18th year in a row, adidas is included in the Dow Jones
Sustainability Indices (DJSI), which evaluate the sustainability
performance of the largest 2,500 companies listed in the
Dow Jones Global Total Stock Market Index. In the ‘Textiles,
Apparel & Luxury Goods Industry’, adidas is rated industry
best in nine criteria: Brand Management, Customer Relation-
ship Manage ment, Impact Measurement and Valuation,
Materiality, Risk and Crisis Management, Supply Chain
Management, Environ mental Policy and Management Systems,
Corporate Citizenship and Philanthropy, and Human Rights.
↗ READ PRESS RELEASE
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‘DON'T BE QUIET PLEASE’ CAMPAIGN
adidas, Pharrell Williams, Stan Smith and adidas sponsored
tennis athletes Garbiñe Muguruza, Angelique Kerber, Sascha
Zverev, Dominic Thiem and Jo-Wilfried Tsonga gather at
Frederick Johnson Community Court in Harlem, New York,
to host a tennis clinic with local youth organizations to kick
off the launch of ‘Don’t Be Quiet Please’, a New York City-wide
campaign inspiring individuals to make game-changing pledges.
↗ ADIDAS ORIGINALS ON YOUTUBE
#ADIDASPHARRELLWILLIAMS
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STATEMENTS
OPERATIONAL AND SPORTING
HIGHLIGHTS
Q4 2017
REEBOK OPENS GLOBAL FLAGSHIP STORE
AT NEW BOSTON HEADQUARTERS
Located at 25 Drydock Avenue within the Innovation and Design
Building in Boston, the store is a truly unique retail experience.
A key feature is the ‘YourReebok’ customization shop, allowing
consumers to create custom and personalized products on
site. The new location is the only Reebok store in the world
where customers can have a customized version of the
brand’s Classic Leather shoe, made by hand, on site. In
addition, consumers can design personalized graphic apparel
and accessories, produced on site in just minutes, and are
able to test footwear prior to purchase in the store, in the
surrounding neighborhood or at Reebok’s fitness facility.
ADIDAS COMPLETES DIVESTITURE OF
TAYLORMADE, ADAMS GOLF AND ASHWORTH
adidas announces that effective October 2 it has formally
completed the previously announced divestiture of its
TaylorMade, Adams Golf and Ashworth golf brands to a newly
formed affiliate of KPS Capital Partners, LP.
↗ READ PRESS RELEASE
LAUNCH OF AM4 PROJECT
adidas announces the first major project to be created at its
Speedfactory facility in Ansbach, Germany. The launch of the
AM4 series heralds a significant moment for the brand in
terms of the future of manufacturing, with Speedfactory being
a facility that will allow adidas to explore, test and co-create
with consumers, as well as constantly invent and reinvent
design and define the future of how the brand creates. The
launch also marks the start of a key city journey for adidas
Speedfactory, with the adidas Made For London (AM4LDN)
and the adidas Made for Paris (AM4PAR) being the first in a
series of individually designed and manufactured running
shoes that adidas will release in the six key cities.
↗ ADIDAS ON YOUTUBE
↗ READ PRESS RELEASE
↗ ADIDAS.COM/SPEEDFACTORY
#SPEEDFACTORY, #HERETOCREATE
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OPERATIONAL AND SPORTING
HIGHLIGHTS
REEBOK AND VICTORIA BECKHAM UNITE
FOR INNOVATIVE NEW PARTNERSHIP
Reebok announces a pivotal partnership with fashion power-
house Victoria Beckham. The British designer will join Reebok’s
growing community of accomplished and inspiring women –
including Ariana Grande, Gigi Hadid, Aly Raisman and Teyana
Taylor, among others. The long-term partnership will be
highlighted by the introduction of a bold new Reebok x Victoria
Beckham collection which will be introduced in late 2018.
↗ READ PRESS RELEASE
ADIDAS EXPANDS DIGITAL PRESENCE AND
LAUNCHES NEW APP
The adidas app offers consumers a seamless shopping
experience, personalized services and inspiration on sport
and style. ‘To you, for you, with you’ is the motto for the app,
which adidas revealed in November at Dreamforce, the
world’s largest software conference, in San Francisco, USA.
The new app uses Salesforce technology including Commerce
Cloud, Marketing Cloud and Service Cloud, and is available for
download through the Apple App Store and the Google Play
Store in the US and UK.
↗ ADIDAS ON YOUTUBE
↗ READ PRESS RELEASE
ADIDAS PREPARES FOR
THE 2018 FIFA WORLD CUP
adidas introduces ‘Telstar 18’, the Official Match Ball, as well
as the new jerseys for the German national team and other
adidas federations such as Spain, Russia, Japan, Colombia,
Argentina, Mexico, Belgium, Egypt and Morocco. Both the
match ball and the jerseys take inspiration from past designs
but are brought into the 21st century with innovative elements.
‘Telstar 18’, for example, is a reimagining of the first adidas
FIFA World Cup match ball, also called Telstar, which was
used at the 1970 tournament in Mexico.
↗ ADIDAS FOOTBALL ON YOUTUBE
ADIDAS INVITES THE WORLD TO
CREATE IN NEW GLOBAL CAMPAIGN
adidas launches the latest chapter in its ‘Here to Create’
campaign – ‘Calling all Creators’. The multi-dimensional story
features 25 of the world’s most influential athletes, designers
and musicians in sports culture seated at one table. United by
their passion to create, they call on athletes everywhere to
defy conventions and join the adidas movement by using their
imagination to make something new and shape sports culture.
Some of the brand’s recent innovations are featured at this
table, including BOOST, footwear created using Parley Ocean
Plastic, and Futurecraft 4D footwear.
↗ ADIDAS ON YOUTUBE
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ADIDAS ANNUAL REPORT 2017 LETTER FROM THE CEO
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
LETTER FROM THE CEO
L E T T E R
F R O M T H E
C E O
K A S P E R R O R S T E D
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D O W E . «
SEE VIDEO MESSAGE FROM OUR CEO
↗ REPORT.ADIDAS-GROUP.COM/#SHAREHOLDERS
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1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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OUR COMPANY
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LETTER FROM THE CEO
DEAR SHAREHOLDERS,
functions. Their job is to make sure we implement our strategy with excellence in every category
and market, and to promote the development of future leaders, with a focus on female talent.
At adidas, we believe that, through sport, we have the power to change lives. This core belief
guides the way we run our company, how we work with our partners, how we create our
products, and how we engage with our consumers.
To align the interests of our senior leaders with those of the adidas AG shareholders, we also
linked long-term remuneration of senior executives to the development of our share price.
Athletes will not settle for average. And neither do we. Every day, we come to work to create
and sell the best sports and fitness products in the world, and to offer the best service and
consumer experience – and to do it all in a sustainable way.
WHAT MAKES A WINNING TEAM
Physical power is not enough – athletes need mental strength in their game. We foster an
athlete’s mindset through three people behaviors that are at the core of our culture: Confidence,
Collaboration, and Creativity.
Confidence allows athletes to make quick decisions on the field, to reach higher. Confidence
enables us to be an industry leader and to redefine what today’s sports company looks like.
Every elite athlete relies on partners: coaches, team mates, and nutritionists. We, too, get
stronger together through industry-leading collaborations. Internally, we are a team that plays
to win and trusts in each other’s abilities and talents.
PROGRESS ON OUR GAME PLAN: ‘CREATING THE NEW’
An athlete’s mindset drives us to raise the standards for the entire industry. We have until 2020
to implement Creating the New, which is the right strategy to succeed in the highly attractive
industry we are in. We are making great strides and clearly delivering against our financial
ambition. But we are far from the finish line.
Speed, Cities, and Open Source
In 2017, we picked up the pace in becoming the first true fast sports company in the world,
based on our strategic choice Speed. The net sales share of speed-enabled products increased
to 28% in 2017. We also made further progress to achieve a 20% higher share of full-price sales
with this part of our business. In addition to embedding Speed in our existing supply chain and
production processes, we explore new, disruptive business models and technologies. In our
Speedfactories in Ansbach, Germany, and Atlanta, USA, smart manufacturing brings production
closer to our consumer. Last year saw the first major product created at the Speedfactory:
the AM4 series, an individually crafted shoe made exclusively for our global key cities.
No great athlete succeeds by copying their predecessors’ training plans and strategies. It takes
creativity to gain an edge and stand out. Our mission is to be the best sports company in
the world by staying authentic to all athletes, tailoring to their unique needs, tastes, and
experiences.
LEADERSHIP IN ACTION
Confidence, Collaboration, and Creativity are the foundations of the leadership framework we
launched globally last year – it defines what great leadership at adidas looks like. In 2017, we
saw three new leaders joining the Executive Board: Harm Ohlmeyer taking over as Chief
Financial Officer, Karen Parkin being elevated to Board Member responsible for Human
Resources, and Gil Steyaert becoming Board Member responsible for Global Operations. All
three were internal promotions, a nod to our people potential.
To make our mark on a global scale, we need to win the consumer in major metropolitan
centers. We over-invest to grow share of mind, share of market, and share of trend in six global
mega Cities: London, Los Angeles, New York, Paris, Shanghai, and Tokyo. In 2017, we improved
brand desire in most of these cities by delivering extraordinary experiences to our consumers.
As a result, our key cities made an above-average contribution to the overall growth of our
company and helped us win market share.
The direction of sport – and our company – is set by all creators. As defined in our strategic
choice Open Source, we invite athletes, consumers, and partners to collaborate with our
brands. By inspiring innovation in the industry and beyond, creative partnerships help us shape
the future of sport – and the sports culture.
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To continue to excel in leadership development, we established a Core Leadership Group and
an Extended Leadership Group consisting of leaders from our most important markets and
Our creative collaborations with Alexander Wang, Kanye West, and Stella McCartney to name a
few, continued to drive brand desire and growth. By partnering up with the world’s best
athletes and teams, we build communities of advocates. This also takes place on a local level;
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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the ‘adidas Runners’ community, for instance, currently has over 50,000 active runners in
Western Europe alone.
Our appetite for collaboration allows us to share our sports knowledge by working with the
best in other fields. Our partnership with Parley for the Oceans is a prime example: In 2017, we
released multiple franchise silhouettes, such as the UltraBOOST, NMD and EQT, made of
Parley Ocean Plastic. We also joined forces with Carbon, a pioneer in 3D printing, to launch a
new product and platform: Futurecraft 4D. Driven by athlete data, a production process called
‘Digital Light Synthesis’ enables us to print previously impossible designs without labor-
intensive and complex assembly.
Portfolio, adidas North America, Digital, and ONE adidas
On top of focusing on Speed, Cities, and Open Source, along with our unique culture, we
accelerated Creating the New with four priorities: Portfolio, adidas North America, Digital, and
ONE adidas. We moved ahead with actively managing our brand portfolio and completed the
divestiture of the TaylorMade, Adams Golf and Ashworth golf brands, as well as the CCM hockey
business. In the meanwhile, the ‘Muscle-Up’ turnaround at Reebok is in full motion.
In North America, the largest sporting goods market in the world, we grew our adidas brand
business by over 30% and kept building capabilities and infrastructure. Our global e-commerce
business was up more than 50%. Digital, however, means much more to us; gearing up for the
future, we are driving digital transformation across the entire organization. Finally, we are
pulling levers to improve our operational efficiency and to become a more agile and truly global
company.
Sustainability
It is our obligation to operate responsibly. We have integrated sustainability in most aspects of
our business, from product creation and supplier management to store concept development
and facilities. Through our actions, we challenge and inspire everyone to contribute to a more
sustainable future.
In 2017, we created more than one million pairs of shoes made with Parley Ocean Plastic, while
93% of all cotton we sourced globally was Better Cotton. Following our decision to go plastic-
free at our offices, the changes we have implemented will avoid more than 40 tons of single-
use plastic items per year.
Externally, our efforts continue to receive recognition, with adidas being listed in the Dow Jones
Sustainability Indices for the 18th consecutive year, and being awarded the third re-accreditation
of our social supply chain program by the Fair Labor Association. What’s more, this Annual
Report marks the beginning of paper-free reporting – another testament to walking the talk
in our daily business.
AN ATHLETE’S MINDSET TURNS TO PERFORMANCE
Competition is in our DNA. We are constantly reassessing our processes, thinking of ways to
get faster, stronger, and more attractive for the consumer. In this spirit, we continued to break
records in the way we operate and the value we bring to our stakeholders.
2017 financial results
In 2017, we achieved record sales of € 21.2 billion, reflecting currency-neutral growth of 16%.
The adidas brand continued to grab share of mind and market around the globe, growing at
double-digit rates in all regions except Russia/CIS.
Despite currency headwinds, our gross margin climbed 120 basis points to 50.4%. We increased
our investments into our brands while strictly managing costs. As a result, we fed the gross
margin improvement through to the operating margin, which expanded to a level of 9.8%. Our
net income from continuing operations, excluding the negative one-time impact of the US tax
reform, grew more than twice as fast as our top line, up 32% to € 1.430 billion.
2018 outlook
We will continue our momentum in 2018, with a bias for quality growth. We are targeting a
currency-neutral sales increase of around 10% against difficult comparisons, given two
consecutive years of strong double-digit growth.
By increasingly leveraging our scalable operating model, net income is expected to once again
grow significantly faster than revenues, to a level of more than € 1.6 billion. This will not only
keep us on track toward our 2020 financial ambition, but also allows us to raise the bar once
more: We are now targeting even higher net income growth, between 22% and 24% on average
per year, for our current strategic cycle from 2015 until 2020.
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LETTER FROM THE CEO
IN CLOSING
Our mission is to be the best sports company in the world, but we are only as good as what our
consumers, athletes, teams, partners, shareholders, and the media say about us. When all our
stakeholders call us the best, market share, leadership, and profitability will follow.
This logic is reflected in our 2017 performance and 2018 outlook. Our strategy Creating the
New paired with an athlete’s mindset enables us to deliver sustainable value for our
stakeholders, our employees, and for society at large – now and in the future.
We will consistently put Creating the New into practice. Our strategy might span only until 2020
but, like any athlete, we keep aiming for better. We play to win.
Thank you for your ongoing support.
Sincerely yours,
K A S P E R R O R S T E D
C E O
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EXECUTIVE BOARD
E X E C U T I V E
B O A R D
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G L O B A L B R A N D S
H A R M O H L M E Y E R
C H I E F F I N A N C I A L O F F I C E R
K A S P E R R O R S T E D
C H I E F E X E C U T I V E O F F I C E R
R O L A N D A U S C H E L
G L O B A L S A L E S
K A R E N P A R K I N
G L O B A L H U M A N R E S O U R C E S
G I L S T E Y A E R T
G L O B A L O P E R A T I O N S
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EXECUTIVE BOARD
OUR
EXECUTIVE
BOARD IS
COMPRISED OF
SIX MEMBERS.
EACH BOARD
MEMBER IS
RESPONSIBLE
FOR AT LEAST ONE
MAJOR FUNCTION
WITHIN THE
COMPANY.
ROLAND AUSCHEL
GLOBAL SALES
Roland Auschel was born in Bad Waldsee, Germany, in 1963 and is a German
citizen. After obtaining his Bachelor’s degree in European Business Studies in
Germany and the UK as well as an MBA in the United States, he joined the
adidas team as a Strategic Planner in 1989. During his career with the
company, he has held many senior management positions, including Business
Unit Manager, Key Account Manager Europe and Head of Region Europe,
Middle East and Africa. In 2009, he became Chief Sales Officer Multichannel
Markets. In 2013, Roland Auschel was appointed to the Executive Board, where
he assumed responsibility for Global Sales.
KASPER RORSTED
CHIEF EXECUTIVE OFFICER
Kasper Rorsted was born in Aarhus, Denmark, in 1962 and is a Danish national.
After studying Business Economics at the International Business School in
Copenhagen, he completed a series of Executive Programs at Harvard
Business School. Kasper Rorsted then gained valuable experience within the
IT sector through various management positions at Oracle, Compaq and
Hewlett Packard. In 2005, Kasper Rorsted joined consumer goods manufacturer
Henkel as Executive Vice President Human Resources, Purchasing, Information
Techno logies and Infra structure Services. Three years after joining Henkel, he
was appointed Chief Executive Officer. In August 2016, Kasper Rorsted joined
adidas. After two months as a Board member, he took over as Chief Executive
Officer of adidas in October 2016.
Kasper Rorsted is also:
— Member of the Supervisory Board, Bertelsmann SE & Co. KGaA,
Gütersloh, Germany
— Member of the Supervisory Board, Danfoss A/S, Nordborg, Denmark 1
1 Until April 1, 2017.
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HARM OHLMEYER
CHIEF FINANCIAL OFFICER 3
Harm Ohlmeyer was born in 1968 in Hoya, Germany, and is a German national.
He holds a degree in Economics from Regensburg University, Germany, as well
as an MBA from Murray State University, USA. Harm Ohlmeyer started his
career with adidas in 1998 and gained extensive experience in the areas of
Finance and Sales, including responsibility as Senior Vice President Finance
TaylorMade-adidas Golf in Carlsbad, USA, Senior Vice President Finance adidas
Brand and Senior Vice President Finance for Global Sales (adidas and Reebok).
From 2011, he led the company’s e-commerce business, most recently as Senior
Vice President Digital Brand Commerce. From 2014 to 2016, he held additional
responsibility as Senior Vice President Sales Strategy and Excellence. Harm
Ohlmeyer was appointed to the Executive Board effective March 7, 2017 and
became Chief Financial Officer and Labor Director effective May 11, 2017.
3 Since May 11, 2017.
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ERIC LIEDTKE
GLOBAL BRANDS
Eric Liedtke, a US citizen, holds a Bachelor of Arts degree in Journalism from
the University of Wisconsin-Madison. He joined adidas in 1994 as Global Line
Manager for Cross Training in Portland/Oregon. During his 20-year career
with adidas, he has held senior management positions of increasing
responsibility at adidas America, including Director of Footwear Marketing
and Vice President Brand Marketing. In 2006, Eric Liedtke moved to the
corporate headquarters in Herzogenaurach, Germany, to become Senior Vice
President Global Brand Marketing. From 2011, he held the position of Senior
Vice President adidas Sport Performance, responsible for all adidas brand
sports categories globally. Eric Liedtke has been Executive Board member
since March 2014, responsible for Global Brands (the adidas and Reebok
brands). In addition to his Executive Board position, he is a passionate member
of the Steering Committee of Parley for the Oceans.
Eric Liedtke is also:
— Member of the Board of Directors, Carbon, Inc., Redwood City, USA 2
2 Since December 19, 2017.
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KAREN PARKIN
GLOBAL HUMAN RESOURCES 4
Karen Parkin was born in 1965, is a British national and also holds a US
passport. She obtained a Bachelor’s degree in Education from Sheffield
Hallam University, UK, and completed the Business Management Leadership
Program at Lancaster University Management School. Karen Parkin joined
adidas in 1997 as Sales Director adidas UK, where she subsequently was
Business Development Director from 2003 to 2005. In 2005, she moved to
adidas America as Vice President Business Development, subsequently taking
on responsibility for the supply chain function at adidas America in 2007 as
Vice President Logistics and Supply Chain North America. In 2013 and 2014,
Karen Parkin acted as Senior Vice President Global Supply Chain, based at the
company’s headquarters in Herzogenaurach and at the adidas America
headquarters in Portland, Oregon. Since 2014, she has held the position of
Chief HR Officer. Karen Parkin was appointed to the Executive Board, responsible
for Global Human Resources, effective May 12, 2017.
4 Since May 12, 2017.
FOR MORE
INFORMATION
ON THE
ADIDAS AG
EXECUTIVE
BOARD
↗ ADIDAS-GROUP.COM/
EXECUTIVE-BOARD
GIL STEYAERT
GLOBAL OPERATIONS 5
Gil Steyaert was born in Belgium in 1962 and is a French national. He holds a
degree in Business from ISC Paris Business School. Gil Steyaert started at
adidas in 1999 as Joint Managing Director for France and has since worked in
various local and regional roles with increasing responsibility. From 2003 to
2013, he was Managing Director North (UK, Ireland, Benelux and Scandinavia).
Subsequently, he led Western Europe as Managing Director. Gil Steyaert was
appointed to the Executive Board effective May 12, 2017 and took over
responsibility for Global Operations on August 5, 2017.
5 Since August 5, 2017.
ROBIN J. STALKER
CHIEF FINANCIAL OFFICER 6
GLENN BENNETT
GLOBAL OPERATIONS 7
6 Until May 11, 2017.
7 Until August 4, 2017.
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SUPERVISORY BOARD
SUPERVISORY BOARD
IGOR LANDAU
CHAIRMAN
residing in Lugano, Switzerland
Pensioner
WILLI SCHWERDTLE
DEPUTY CHAIRMAN
residing in Munich, Germany
Independent Management Consultant as
well as Partner, WP Force Solutions GmbH,
Bad Homburg v. d. Höhe, Germany
— Member of the Supervisory Board,
Eckes AG, Nieder-Olm, Germany
— Chairman of the Supervisory Board,
Windeln.de SE, Munich, Germany
SABINE BAUER*
DEPUTY CHAIRWOMAN
residing in Erlangen, Germany
Full-time member of the Works Council
Herzogenaurach, adidas AG
Chairwoman of the Central Works Council,
adidas AG
Chairwoman of the European Works Council,
adidas AG
DIETER HAUENSTEIN*
residing in Herzogenaurach, Germany
Full-time member of the Works Council
Herzogenaurach, adidas AG
IAN GALLIENNE
residing in Gerpinnes, Belgium
Co-Chief Executive Officer, Groupe Bruxelles
Lambert, Brussels, Belgium
— Member of the Board of Directors,
Pernod Ricard SA, Paris, France
— Member of the Board of Directors,
SGS SA, Geneva, Switzerland
— Member of the Board of Directors,
Umicore SA, Brussels, Belgium 1
— Member of the Board of Directors,
Erbe SA, Loverval, Belgium
Mandates within the Groupe Bruxelles Lambert:
— Member of the Board of Directors,
Imerys SA, Paris, France
— Member of the Board of Directors, Sienna
Capital S.à r.l., Strassen, Luxembourg
— Member of the Board of Directors, GBL
Energy S.à r.l., Strassen, Luxembourg 2
— Member of the Board of Directors, GBL
Verwaltung SA, Strassen, Luxembourg 3
* Employee representative.
1 Until April 25, 2017.
2 Since January 1, 2017.
3 Until January 1, 2017.
4 Since September 1, 2017; formerly Managing Director in charge of Public
Relations and Scholarships, Hans-Böckler-Stiftung, Düsseldorf, Germany.
DR. WOLFGANG JÄGER*
residing in Bochum, Germany
Research Fellow at the Institute for Social
Movements at the Ruhr Universität Bochum,
Expert Commission ’Cultures of remembrance
of social democracy‘ of Hans-Böckler-Stiftung,
Bochum, Germany 4
BIOGRAPHICAL
INFORMATION
ON OUR
SUPERVISORY
BOARD MEMBERS
IS AVAILABLE
ONLINE
↗ ADIDAS-GROUP.COM/SUPERVISORY-BOARD
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DR. STEFAN JENTZSCH
residing in New York, USA
Corporate Finance Consultant/Partner,
Perella Weinberg Partners LP, New York, USA
— Deputy Chairman of the Supervisory
Board, AIL Leasing München AG,
Grünwald, Germany
KATJA KRAUS
residing in Hamburg, Germany
Author/Managing Partner, Jung von Matt/
sports GmbH, Hamburg, Germany
ROLAND NOSKO*
residing in Wolnzach, Germany
Trade Union Official, IG BCE, Headquarters
Nuremberg, Nuremberg, Germany
— Deputy Chairman of the Supervisory
Board, CeramTec GmbH, Plochingen,
Germany
— Member of the Supervisory Board, Plastic
Omnium Automotive Exteriors GmbH,
Munich, Germany 5
KATHRIN MENGES
residing in Neuss, Germany
Executive Vice President Human Resources
and Infrastructure Services,
Henkel AG & Co. KGaA, Düsseldorf, Germany
Mandates within the Henkel Group:
— Member of the Supervisory Board,
Henkel Central Eastern Europe GmbH,
Vienna, Austria
— Member of the Supervisory Board,
Henkel Nederland B.V., Nieuwegein,
The Netherlands
— Member of the Board of Directors,
Henkel Norden AB, Stockholm, Sweden
— Member of the Board of Directors,
Henkel Norden Oy, Vantaa, Finland
HERBERT KAUFFMANN
residing in Stuttgart, Germany
Independent Management Consultant,
Stuttgart, Germany
— Member of the Supervisory Board,
DEUTZ AG, Cologne, Germany
UDO MÜLLER*
residing in Herzogenaurach, Germany
Director Future Communication, adidas AG
* Employee representative.
5 Since July 13, 2017.
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HANS RUPRECHT*
residing in Herzogenaurach, Germany
Vice President Customer Service Central
Europe West, adidas AG
NASSEF SAWIRIS
residing in London, Great Britain
Chief Executive Officer & Member of the
Board of Directors, OCI N.V., Amsterdam,
The Netherlands
— Member of the Board of Directors,
LafargeHolcim Ltd., Jona, Switzerland
Mandates within the OCI N.V. Group:
— Member of the Board of Directors,
OCI Partners LP, Wilmington,
Delaware, USA
HEIDI THALER-VEH*
residing in Uffenheim, Germany
Member of the Central Works Council,
adidas AG
KURT WITTMANN*
residing in Markt Bibart, Germany
Full-time member of the Works Council
Herzogenaurach, adidas AG
First Deputy Chairman of the Works Council
Herzogenaurach, adidas AG
STANDING COMMITTEES
Steering Committee — Igor Landau (Chairman), Sabine Bauer*, Willi Schwerdtle
General Committee — Igor Landau (Chairman), Sabine Bauer*, Roland Nosko*, Willi Schwerdtle
Audit Committee — Herbert Kauffmann (Chairman), Ian Gallienne 6, Dr. Wolfgang Jäger*, Hans Ruprecht*
Finance and Investment Committee — Igor Landau (Chairman), Sabine Bauer*, Dr. Wolfgang Jäger*, Herbert Kauffmann
Nomination Committee — Igor Landau (Chairman), Kathrin Menges, Willi Schwerdtle
Mediation Committee pursuant to § 27 section 3 Co-Determination Act (MitbestG) — Igor Landau, Sabine Bauer*, Willi Schwerdtle, Heidi Thaler-Veh*
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* Employee representative.
6 Committee member since March 7, 2017; previously Dr. Stefan Jentzsch until March 7, 2017.
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S U P E R -
V I S O R Y
B O A R D
R E P O R T
I G O R L A N D A U
C H A I R M A N O F T H E S U P E R V I S O R Y B O A R D
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W E L L P O S I T I O N E D
T O C O N T I N U E T O
G R O W P R O F I T A B L Y . «
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SUPER VISORY BOARD REPORT
DEAR SHAREHOLDERS,
We look back on another exceptional year. Thanks to strong brands, unique partnerships and
collaborations in the world of sport as well as a sharp focus on our consumers’ needs, the
company was able to record another year of strong top- and bottom-line growth. Driven by
innovative products and powerful marketing campaigns, the momentum experienced by our
brands remained high throughout the year. This led to sales and earnings results that clearly
surpassed targets set at the beginning of the year. These positive developments are the
consequence of numerous measures which have been implemented to support the successful
execution of our strategic business plan ‘Creating the New’. First introduced in 2015, Creating
the New was updated with several complementary initiatives at the beginning of 2017 in order
to grow the top and bottom line even faster than initially projected. Consequently, adidas
updated its outlook for 2020 and presented an even more ambitious set of financial targets. In
2017 again, we generated double-digit sales growth rates in almost all regions, including in the
focus markets North America and Greater China as well as the important e-commerce channel.
Paired with an exceptional profitability improvement, this shows that the company’s success is
both broad-based and well balanced. The divestiture of the TaylorMade, Adams Golf and
Ashworth brands as well as the CCM Hockey business was completed during the course of
2017, which will allow the company to focus even more on the execution of its strategic business
plan. Newly appointed members of the Executive Board have assumed their roles fast and
smoothly, with Harm Ohlmeyer taking over as Chief Financial Officer, Karen Parkin being
elevated to Executive Board Member responsible for Human Resources and Gil Steyaert
becoming Executive Board Member responsible for Global Operations. All three appointments
were internal ones, which speaks for the quality and depth of the organization’s pool of talent.
Taking all this into consideration, the company is well positioned to continue to grow profitably
in 2018 and beyond.
SUPERVISION AND ADVICE IN DIALOGUE
WITH THE EXECUTIVE BOARD
In the year under review, we performed all of our tasks laid down by law, the Articles of
Association, the German Corporate Governance Code (the ‘Code’) and the Rules of Procedure
carefully and conscientiously, as in previous years. In 2017, we also followed intensively the
work of the Executive Board. In this context, we regularly advised the Executive Board on the
management of the company and diligently and continuously supervised its management
activities. We assured ourselves of the legality, expediency and regularity of the management
activities and found that there were no objections to be raised.
The Executive Board involved us directly and in a timely and comprehensible manner in all of
the company’s fundamental decisions. After in-depth consultation and examination of the
detailed information submitted to us by the Executive Board, we approved individual transactions
where required by law.
The Executive Board informed us extensively and in a timely manner through written and oral
reports. This information covered all relevant aspects of the company’s business strategy,
business planning, including finance, investment and personnel planning, the course of
business and the company’s financial position and profitability. We were also kept up to date on
matters relating to the risk situation, risk management and compliance as well as all major
decisions and business transactions.
The Executive Board always explained immediately and in a detailed manner any deviations in
business performance from the established plans, and the Supervisory Board as a whole
discussed these matters in depth.
The Executive Board regularly provided us with comprehensive written reports for the
preparation of our meetings. We thus always had the opportunity to critically analyze the
Executive Board’s reports and resolution proposals within the committees and within the
Supervisory Board as a whole and to put forward suggestions before passing resolutions after
in-depth examination and consultation. At the Supervisory Board meetings, the Executive
Board was available to discuss and answer our questions. In the periods between our meetings,
the Executive Board also provided us with extensive, timely monthly reports on the current
business situation. We critically examined, specifically challenged and checked the plausibility
of the information provided by the Executive Board.
In the year under review, we held seven regular meetings of the entire Supervisory Board, two
of which took place outside Germany. The attendance rate of the members in the Supervisory
Board meetings was around 95% in the year under review. The committee meetings, with the
exception of one General Committee meeting and two Finance and Investment Committee
meetings from which one member was excused in each case, were fully attended. The external
auditor, KPMG AG Wirtschaftsprüfungsgesellschaft (‘KPMG’), attended all regular meetings of
the Supervisory Board – the exception being the two meetings which took place outside
Germany – insofar as no Executive Board matters were dealt with. KPMG also attended all
meetings of the Audit Committee.
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2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SUPER VISORY BOARD REPORT
In the periods between meetings, the Supervisory Board Chairman and the Audit Committee
Chairman maintained regular contact with the Chief Executive Officer and the Chief Financial
Officer, conferring on matters such as corporate strategy, business planning and development,
the risk situation and risk management as well as compliance. In addition, the Executive Board
immediately informed the Supervisory Board Chairman about any significant events of
fundamental importance for the management and for evaluating the situation and development
of the company, where necessary also at short notice.
TOPICS FOR THE ENTIRE SUPERVISORY BOARD
Our consultations and examinations focused on the following topics:
SITUATION AND BUSINESS DEVELOPMENT
The development of sales and earnings, the employment situation as well as the financial
position of the company and the business development of the company’s individual business
areas and markets were presented to us in detail by the Executive Board at every Supervisory
Board meeting and were discussed regularly. Further topics which were always discussed
were the possible impact of global economic developments as well as the development of our
individual brands and markets.
At our February and March meeting, we dealt with the ‘Acceleration Plan’ and with the updated
financial targets for 2020. Various initiatives for the key pillars ‘Portfolio, adidas North America,
ONE adidas, Digital’ were launched in the context of the Acceleration Plan. Those initiatives aim
at supporting the momentum experienced by our brands and accelerating sales and net income
growth compared to the original five-year plan.
In August, we examined the topic of retail profitability. Furthermore, we dealt with the CSR
Directive Implementation Act and the non-financial reporting legally required for the first time
therein. In this connection, we assigned the Audit Committee the task of preparing the audit
of the non-financial reporting by the Supervisory Board. We commissioned an external
examination of the content pursuant to § 111 section 2 sentence 4 German Stock Corporation
Act (Aktiengesetz – AktG). One topic of the October meeting was a detailed and sound analysis
of the strategic business plan. In addition, the business in the Asia/Pacific region was discussed.
At the December meeting, as stipulated in the Rules of Procedure of the Supervisory Board,
one agenda item was the report by the Executive Board on the marketing and sponsorship
agreements concluded in the respective calendar year.
TRANSACTIONS REQUIRING SUPERVISORY BOARD APPROVAL
In accordance with statutory regulations and the Rules of Procedure of the Supervisory Board,
certain transactions and measures require a formal resolution or the prior approval of the
Supervisory Board.
The topic of our February and March meetings was, after thorough discussion, the approval of
the 2017 Budget and Investment Plan presented by the Executive Board. In March, we resolved
upon the resolutions to be proposed to the 2017 Annual General Meeting, including the proposal
regarding the appropriation of retained earnings for the 2016 financial year as well as the
proposal to change the Supervisory Board compensation.
At our February meeting, we additionally dealt with the planned divestiture of TaylorMade,
Adams Golf, Ashworth and CCM Hockey and the integration of the FiveTen brand into adidas
Outdoor. The competent Finance and Investment Committee ultimately approved the sale of
TaylorMade and CCM Hockey.
COMPOSITION OF THE EXECUTIVE BOARD
Following in-depth discussions about the resolution proposal prepared by the General
Committee on the appointment of Harm Ohlmeyer as successor to the long-standing Chief
Financial Officer Robin J. Stalker, we resolved at our March meeting to appoint Harm Ohlmeyer
as Executive Board member with effect from March 7, 2017 and as Chief Financial Officer with
effect from the end of the Annual General Meeting on May 11, 2017. We also resolved upon the
conclusion of his Executive Board service contract. Prior to this, we had approved the mutually
agreed termination of the Executive Board mandate of Robin J. Stalker with effect from the end
of the Annual General Meeting on May 11, 2017. Furthermore, after in depth-consultation, we
approved the conclusion of the corresponding termination agreement regarding the Executive
Board service contract.
At the May meeting, we furthermore approved the mutually agreed termination of the long-
standing Executive Board mandate of Glenn Bennett by the end of the third quarter of 2017 at
the latest and approved the termination agreement to be concluded. In this context, we
appointed Gil Steyaert, successor to Glenn Bennett, as Executive Board member with effect
from May 12, 2017 and approved the conclusion of his Executive Board service contract.
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2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SUPER VISORY BOARD REPORT
Furthermore, Karen Parkin was appointed as member of the Executive Board for the newly
created Executive Board function Human Resources. We resolved upon the appointment of
Karen Parkin as member of the Executive Board with effect from May 12, 2017 and approved
the conclusion of her Executive Board service contract.
In December, we resolved upon the termination of the appointment and the concurrent
reappointment of Roland Auschel and Eric Liedtke with effect from January 1, 2018 and
approved the conclusion of their new Executive Board service contracts. Thus, we were able to
commit Roland Auschel and Eric Liedtke long-term to the company as both of them are key for
the company and its successful development.
EXECUTIVE BOARD COMPENSATION
All matters regarding Executive Board compensation were prepared comprehensively by the
General Committee, as provided for in the Rules of Procedure of the Supervisory Board,
explained to the Supervisory Board as a whole and submitted for resolution.
Each year at our February meeting of the entire Supervisory Board, the main subject is
Executive Board compensation. At this meeting, following an in-depth review of the performance
of the individual Executive Board members and their respective achievement of the targets set
in the 2016 Performance Bonus Plan, we resolved upon the bonuses to be paid to the Executive
Board members based on the 2016 Performance Bonus Plan. Furthermore, we also discussed
in detail the criteria and key targets for the 2017 Performance Bonus Plan and the individual
bonus target amounts and determined them for each Executive Board member.
In line with the Code, in the year under review we commissioned an external, independent
compensation expert to review the structure of the Executive Board compensation and the
individual compensation levels of the Executive Board members. The review found that the
compensation meets the requirements of the German Stock Corporation Act and of the Code.
However, current compensation levels could be oriented even more toward market standards.
At our meetings in February and October, we considered in detail the results of the review of
the compensation levels and structure. We agreed with the compensation expert’s assessment.
On this basis and on the occasion of the reappointments of Roland Auschel and Eric Liedtke, we
resolved in December to adjust their compensation in accordance with the results of the review
by the independent compensation expert with effect from January 1, 2018.
COMPOSITION OF AND CHANGES ON THE SUPERVISORY BOARD
There were no personnel changes with regard to the full Supervisory Board in the reporting
period. At the March meeting of the Audit Committee, the composition of the Audit Committee
was addressed. Dr. Stefan Jentzsch stated that he would leave the Audit Committee for
professional reasons. As his replacement, Ian Gallienne was elected as new member of the
Audit Committee. At the May meeting of the Audit Committee, Herbert Kauffmann was
reelected as Chairman of the Audit Committee.
With regard to the representation of women and men, the Supervisory Board complies with the
statutory minimum quota pursuant to § 96 section 2 sentences 1, 3 and 4 AktG. Both the
shareholder representatives and the employee representatives resolved in accordance with
§ 96 section 2 sentence 3 AktG that the minimum quota of 30% women and 30% men on the
Supervisory Board shall be fulfilled separately for the shareholder representatives and the
employee representatives.
The term of office of the Supervisory Board members, including the four members who were
elected as new shareholder or employee representatives in the supplementary election, will
expire as scheduled at the end of the Annual General Meeting in May 2019.
CORPORATE GOVERNANCE
The Supervisory Board regularly monitors the application and further development of the
corporate governance regulations within the company, in particular the implementation of
the recommendations of the Code. Therefore, in the year under review, we also dealt with the
Code, in particular with the amendments resolved upon by the Government Commission on
February 7, 2017.
The last Declaration of Compliance was issued by the Executive Board and Supervisory Board
of adidas AG pursuant to § 161 AktG on February 13, 2017.
In February 2018, we discussed in depth the current 2018 Declaration of Compliance and then
resolved upon it and made it permanently available to our shareholders on our corporate
website. ↗ ADIDAS-GROUP.COM/S/CORPORATE-GOVERNANCE
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At our May, August, October and December meetings, within the framework of our regular self-
evaluation, we dealt with the planning and preparation of a new efficiency examination of the
Supervisory Board and Audit Committee which began in late 2017 and will be concluded in 2018.
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SUPER VISORY BOARD REPORT
Pursuant to the new recommendation of the Code, we also developed a competency profile for
the full Supervisory Board. Under consideration of the specific features which result from the
activities of the organization as a globally present, public listed company, we ensured that the
full Supervisory Board has the knowledge, skills and professional expertise required to properly
perform its duties. Details can be found in the Corporate Governance Report including the
Declaration on Corporate Governance (‘Corporate Governance Report’).
SEE CORPORATE
GOVERNANCE REPORT INCLUDING THE DECLARATION ON CORPORATE GOVERNANCE, P. 33
— The Steering Committee did not meet in the year under review.
— The General Committee held six meetings in the 2017 financial year. The main focus of
the meetings was the preparation of the resolutions of the Supervisory Board as a whole,
detailed individually above, in particular the resolution on the changes on the Executive
Board, the targets for the 2017 Performance Bonus, the target achievement of the
2016 Performance Bonus and the determination of the Executive Board compensation and
review of its appropriateness. The drafting of the long-term compensation plan 2018/2020
(LTIP 2018/2020) was also an agenda item.
In December, we discussed the independence of the members of the Supervisory Board and
the respective independence criteria. A corresponding resolution was passed in February 2018.
Based thereon, in the Supervisory Board’s assessment, currently all members are independent.
— The Audit Committee also held six meetings in the year under review. The Chief Financial
Officer and the auditor were present at all meetings and reported to the committee
members in detail.
In the year under review, no conflicts of interest arose in regard to the Executive Board
members. There were also no conflicts of interest within the Supervisory Board. It is pointed
out that in December 2015, the Supervisory Board approved the conclusion of a three-year
contract, effective January 1, 2016, with a company in which one Supervisory Board member is
involved. The order volume is to be confirmed annually by the Supervisory Board. A resolution
was passed by the Supervisory Board as regards the order volume for the 2018 financial year
at the meeting in December 2017. In the view of the Supervisory Board, there was no conflict of
interest. Nevertheless, as in the previous years, the Supervisory Board member concerned did
not participate in the respective resolution.
Further information on corporate governance within the company can be found in the
Corporate Governance Report.
SEE CORPORATE GOVERNANCE REPORT INCLUDING THE DECLARATION ON
CORPORATE GOVERNANCE, P. 33
EFFICIENT COMMITTEE WORK
In order to perform our tasks in an efficient manner, we have established a total of six standing
Supervisory Board committees.
The committees prepare resolutions and topics for the meetings of the entire Supervisory
Board. Within the legally permissible framework and in appropriate cases, we have furthermore
delegated the Supervisory Board‘s authority to pass certain resolutions to individual
committees. With the exception of the Audit Committee, the Supervisory Board Chairman also
chairs all the standing committees. The committee chairpersons inform the Supervisory Board
about the content and results of the committee meetings at the subsequent meeting of the
entire Supervisory Board.
In addition to the supervision of the accounting process, the committee’s work also focused
on the comprehensive review of the first quarter report, the first half year report and the
report on the first nine months together with the Chief Financial Officer and the auditor before
the respective dates of publication, also the examination of the annual financial statements
and the consolidated financial statements for 2016, including the combined Management
Report of adidas AG and the Group, as well as the Executive Board’s proposal regarding the
appropriation of retained earnings. Following an in-depth review of the audit reports with
the auditor, the committee decided to recommend that the Supervisory Board approve the
2016 annual financial statements and consolidated financial statements. In addition, after
obtaining the auditor‘s declaration of independence and after conclusion of a disclosure
agreement, the Audit Committee prepared the Supervisory Board’s proposal to the Annual
General Meeting concerning the selection of the auditor of the annual financial statements
and the consolidated financial statements for the 2017 financial year and the auditor for
the audit review of interim management reports (half year report and quarterly reports) for
the 2017 financial year and, insofar as interim financial reports are to be prepared prior to
the 2018 Annual General Meeting, for the 2018 financial year and recommended that the
Supervisory Board propose KPMG to the Annual General Meeting in this respect. The Audit
Committee declared to the Supervisory Board in this regard that the recommendation is free
from undue influence by a third party and that no clause of the kind referred to in Article 16
section 6 of the EU Regulation No. 537/2014 of the European Parliament and of the Council
of April 14, 2014 on specific requirements regarding the statutory audit of public-interest
entities has been imposed upon it.
In the year under review, the CSR Directive Implementation Act was a regularly discussed
topic at Audit Committee meetings. In particular, the Audit Committee dealt with the
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SUPER VISORY BOARD REPORT
preparation of the non-financial reporting which is to be audited by the Supervisory Board
and which is legally required for the first time.
Furthermore, the Audit Committee dealt intensively with the monitoring of the effectiveness
of the risk management system, the compliance management system, the internal control
system and the internal audit system. Moreover, the committee addressed the findings of
Internal Audit and the audit plan.
In addition, at every meeting of the Audit Committee, the Chief Compliance Officer gave
regular reports.
— The Finance and Investment Committee held two meetings in the year under review, both
of which were held by way of a conference call.
At the May meeting, the sale of TaylorMade was discussed and subsequently approved. At
the June meeting, the committee approved the divestiture of CCM Hockey.
— The Nomination Committee held one meeting in the year under review to discuss the
competency profile newly recommended by the Code.
— The Mediation Committee, established in accordance with the German Co-Determination
Act (Mitbestimmungsgesetz — MitbestG), did not have to be convened in 2017.
EXAMINATION OF THE 2017 ANNUAL FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENTS
KPMG audited the 2017 consolidated financial statements prepared by the Executive Board in
accordance with § 315e German Commercial Code (Handelsgesetzbuch – HGB) in compliance
with IFRS and issued an unqualified opinion thereon. The auditor also approved without
qualification the 2017 annual financial statements of adidas AG, prepared in accordance with
HGB requirements, and the combined Management Report of adidas AG and the Group.
Furthermore, at the request of the Supervisory Board, KPMG audited the non-financial
statement, which had to be prepared for the first time. The financial statements, the proposal
put forward by the Executive Board regarding the appropriation of retained earnings and the
auditor’s reports were distributed by the Executive Board to all Supervisory Board members in
a timely manner. We examined the documents in depth, with a particular focus on legality and
regularity, in the presence of the auditor at the Audit Committee meeting held on March 2, 2018
and at the Supervisory Board’s March 6, 2018 financial statements meeting, during which the
Executive Board explained the financial statements in detail. At both meetings, the auditor
reported the material results of the audit, inter alia with regard to the priority topics agreed and
the key audit matters and was available for questions and the provision of additional information.
The auditor did not report any significant weaknesses with respect to the internal control and
risk management system relating to the accounting process. We also discussed in depth with
the Executive Board the proposal concerning the appropriation of retained earnings, which
provides for a dividend of € 2.60 per dividend-entitled share and adopted this significant
increase to € 2.60 compared with the previous year under consideration of the strong business
development in the 2017 financial year, the company’s good financial situation and future
prospects. Based on our own examinations of the annual and consolidated financial statements
(including the non-financial statement), we came to the conclusion that there are no objections
to be raised. At our financial statements meeting, therefore, following the recommendation of
the Audit Committee, we approved the audit results and the financial statements including the
non-financial statement prepared by the Executive Board. The annual financial statements of
adidas AG were thus approved.
EXPRESSION OF THANKS
On behalf of the entire Supervisory Board, I wish to thank the members of the Executive Board
and all adidas employees around the world for their great personal dedication and their ongoing
commitment, and I also thank the employee representatives for their trusting collaboration.
I would particularly like to thank our departed long-standing Executive Board members Glenn
Bennett and Robin J. Stalker who sustainably shaped the company. The success story of adidas
is closely linked to Glenn Bennett’s responsibilities in the area of Global Operations. During
Robin J. Stalker’s term of office as CFO, the company’s value increased from € 3 billion to more
than € 30 billion. These are outstanding achievements, for which I would like to express my
sincere appreciation to Glenn Bennett and Robin J. Stalker on behalf of the Supervisory Board
and all adidas employees.
For the Supervisory Board
I G O R L A N DA U
CHAIRMAN OF THE SUPERVISORY BOARD
March 2018
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ADIDAS ANNUAL REPORT 2017
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
CORPORATE GOVERNANCE REPORT
INCLUDING THE DECLARATION ON
CORPORATE GOVERNANCE
CORPORATE
GOVERNANCE REPORT
INCLUDING THE
DECLARATION ON
CORPORATE
GOVERNANCE 1
Corporate Governance stands for responsible and trans-
parent management and corporate control oriented toward
a sustainable increase in value. We are convinced that good
corporate governance is an essential foundation for
sustainable corporate success and enhances the confidence
placed in our company by our shareholders, business
partners, employees and the financial markets. The
following report includes the Corporate Governance Report
and the Declaration on Corporate Governance issued by the
Executive Board and Supervisory Board.
DECLARATION BY THE EXECUTIVE BOARD AND
SUPERVISORY BOARD OF ADIDAS AG ON THE
GERMAN CORPORATE GOVERNANCE CODE
PURSUANT TO § 161 GERMAN STOCK
CORPORATION ACT (AKTIENGESETZ – AKTG)
The Executive Board and Supervisory Board of adidas AG
issued their last Declaration of Compliance pursuant to
§ 161 AktG on February 13, 2017. For the period from the
publication of the last Declaration of Compliance up to and
including May 19, 2017, the following Declaration refers to the
German Corporate Governance Code (hereinafter referred to
as the ‘Code’) as amended on May 5, 2015. For the period as
of May 20, 2017, the following Declaration refers to the
recommendations of the Code as amended on February 7, 2017,
which was published in the Federal Gazette on April 24, 2017
and May 19, 2017 (corrected version).
The Executive Board and Supervisory Board of adidas AG
declare that the recommendations of the ‘Government
Commission on the German Corporate Governance Code’
have been and are met with the following deviations:
Definition of the target level of provision (section 4.2.3 subsection 3)
For Executive Board members of adidas AG initially appointed
on or after October 1, 2013 and for Executive Board members
to be appointed in future, there are defined contribution
pension plans which, due to their structure, do not aim to
reach a defined target level of provision. In the view of the
Supervisory Board, this structure leads to a higher degree of
control and future planning capability with regard to the
company’s expenses for pension plans.
Specification of a regular limit of length of membership for
Supervisory Board members (section 5.4.1 subsection 2 sentence 2
in conjunction with sentence 1 new version)
In accordance with section 5.4.1 subsection 2 sentence 2 in
conjunction with sentence 1 of the Code, the Supervisory Board
has specified concrete objectives for its composition. However,
it has not specified a regular limit of length of membership for
Supervisory Board members. The Supervisory Board is of the
opinion that an extended length of membership of individual
Supervisory Board members may, in the individual case, be in
the interest of the company and of those entitled to elect
members to the Supervisory Board, which would not be taken
into consideration if there was a general limit.
1 The Corporate Governance Report including the Declaration on Corporate Governance is an unaudited section of the combined Management Report.
Maximum number of non-group mandates held by members of the
Supervisory Board (section 5.4.5 subsection 1 sentence 2)
One member of the Supervisory Board, Ian Gallienne, holds
more than three mandates in supervisory bodies of non-
group companies with similar requirements. Ian Gallienne is
Co-Chief Executive Officer of Groupe Bruxelles Lambert (GBL).
GBL is a holding company and, in its capacity as an institutional
investor represented by, inter alia, its Co-Chief Executive
Officer, regularly holds mandates in supervisory bodies of its
portfolio companies. All companies in which Ian Gallienne
holds mandates in supervisory bodies are portfolio or group
companies of GBL and these mandates thus have to be
attributed to his main occupation as Co-Chief Executive
Officer. Therefore, we are of the opinion that, as regards its
intent and purpose, the recommendation of section 5.4.5
subsection 1 sentence 2 is not applicable to Ian Gallienne.
However, as a precaution, we declare a deviation based on the
good reasons set out above. Moreover, the Supervisory Board
has assured itself that Ian Gallienne has sufficient time to
perform his Supervisory Board mandate at adidas AG.
Herzogenaurach, February 2018
For the Executive Board
KASPER RORSTED
Chief Executive Officer
For the Supervisory Board
IGOR LANDAU
Chairman of the Supervisory Board
The aforementioned Declaration of Compliance has been
published on and can be downloaded from our website.
↗ ADIDAS-GROUP.COM/S/CORPORATE-GOVERNANCE
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
CORPORATE GOVERNANCE REPORT
INCLUDING THE DECLARATION ON
CORPORATE GOVERNANCE
SUGGESTIONS OF THE GERMAN CORPORATE
GOVERNANCE CODE LARGELY FULFILLED
In addition to the recommendations, the Code contains a
number of suggestions for good and responsible corporate
governance, compliance with which is not required to be
disclosed separately by law. adidas is compliant with the
suggestions of the Code except for the suggestion outlined in
section 4.2.3 subsection 2 sentence 9 of the Code according
to which early disbursements of multiple-year, variable
remu neration components should not be permitted.
SEE COMPENSATION REPORT, P. 39
DUAL BOARD SYSTEM
As a globally operating public listed company with its registered
seat in Herzogenaurach, Germany, adidas AG is, inter alia,
subject to the provisions of German stock corporation law.
A dual board system, which assigns the management of the
company to the Executive Board and advice and supervision of
the Executive Board to the Supervisory Board, is one of the
fundamental principles of German stock corporation law.
These two boards are strictly separated both in terms of
members and of competencies. In the interest of the company,
however, both Boards cooperate closely.
COMPOSITION AND WORKING METHODS OF
THE EXECUTIVE BOARD
The composition of our Executive Board, which consists of six
members, reflects the international character of our company.
No member of the Executive Board has accepted more than a
total of three supervisory board mandates in non-group listed
companies or in supervisory bodies of non-group companies
with similar requirements.
SEE EXECUTIVE BOARD. P. 20 The
Executive Board is responsible for independently managing
the company, determining the company’s strategic orientation,
agreeing this with the Supervisory Board and ensuring its
implementation. Further, it defines business targets, company
policy and the organization of the company. Additionally, the
Executive Board ensures appropriate risk management and
risk controlling as well as compliance with statutory
regulations and internal guidelines. It is bound to the
company’s interest and obligated to strive for a sustainable
increase in company value.
Irrespective of the Executive Board’s overall responsibility, its
members are individually responsible for managing their
respective business areas in accordance with the Executive
Board’s Business Allocation Plan. There are no Executive
Board committees. The CEO is responsible in particular for
leading the entire Executive Board as well as for guiding
business development, including the coordination of the
business segments, brands and markets. The members of the
Executive Board keep each other informed regularly and
comprehensively on all significant developments in their
business areas and align on all cross-functional measures.
Further details on collaboration within the Executive Board
are governed by the Rules of Procedure of the Executive Board
and the Business Allocation Plan. These documents specifically
stipulate requirements for meetings and resolutions as well as
for cooperation with the Supervisory Board.
At the Supervisory Board meetings, the Executive Board
reports in writing and orally on the agenda items and
resolution proposals and answers all questions from the
individual Supervisory Board members. The CEO and the
CFO maintain regular contact with the Chairman of the
Supervisory Board and the Audit Committee Chairman and
consult with them on key aspects of strategy, planning and
business development as well as on questions of risk
management and compliance within the company.
COMPOSITION AND WORKING METHODS OF
THE SUPERVISORY BOARD
Our Supervisory Board consists of 16 members. It comprises
eight shareholder representatives and eight employee
representatives in accordance with the German Co-Deter-
mination Act (Mitbestimmungsgesetz – MitbestG).
SUPERVISORY BOARD, P. 24 The shareholder representatives are
elected by the shareholders at the Annual General Meeting,
and the employee representatives by the employees. The last
periodic election took place in 2014. In the 2016 financial year,
supplementary elections of the Supervisory Board took place.
The term of office of the current members of the Supervisory
Board expires at the end of the 2019 Annual General Meeting.
SEE
Taking into account the recommendations of the Code, the
Supervisory Board resolved upon the following objectives for
its composition in February 2016 and confirmed these in
November 2016:
— The composition of the Supervisory Board including
members with international background shall be
maintained to the current extent. Diversity in terms
of expertise and experience on the grounds of origin,
education or professional activity shall continue to be taken
into account in the future.
— The number of women on the Supervisory Board, namely
four, but no less than the number stipulated by law, shall be
maintained. Furthermore, one woman shall be a member
of the Nomination Committee.
— As in the past, all members of the Supervisory Board
shall be independent. This presupposes that all employee
representatives also in principle meet the independence
criteria as defined by the Code. Substantial, not merely
temporary conflicts of interest shall be avoided.
— The members of the Supervisory Board shall have sufficient
time for performing their mandate.
— The age limit of, in general, 72 years at the time of election
shall be taken into account.
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In accordance with the reasons stated in the Declaration
of Compliance, we do not follow the recommendation to
specify a regular limit of length of membership for Super-
visory Board members.
Together, the members of the Supervisory Board have the
knowledge, skills and professional expertise required to
properly perform their duties. All of them are familiar with the
sector in which the company operates. As they furthermore
have extensive knowledge of various professional fields and
many years of international experience, they bring a broad
spectrum of expertise and experience to the performance
of the Supervisory Board’s function. The number of female
Supervisory Board members currently amounts to four.
The members of our Supervisory Board do not exercise
directorships or similar positions or advisory tasks for key
competitors of the company. Further, they do not have
business or personal relations with adidas AG, its Executive
Board and Supervisory Board or a controlling shareholder
which may cause a substantial and not merely temporary
conflict of
the aforementioned
independence criteria and assuming that all of the employee
representatives also in principle meet these criteria for
Supervisory Board members as defined by the Code, in the
Supervisory Board’s assessment, currently all of its members
interest. Based on
Further information on corporate governance
More information on topics covered in this report can be found on our website
↗ ADIDAS-GROUP.COM/S/CORPORATE-GOVERNANCE
including:
— Articles of Association
— Rules of Procedure of the Executive Board
— Rules of Procedure of the Supervisory Board
— Rules of Procedure of the Audit Committee
— Supervisory Board Committees (composition and tasks)
— CVs of Executive Board members and Supervisory Board members
SEE SUPERVISORY
independent. The names of all Supervisory Board
are
members are stated in this Annual Report.
BOARD, P. 24 Based on the Supervisory Board’s assessment, the
appropriate number of independent members of shareholder
representatives amounts to at least 80% or six members. The
age limit of, in general, 72 years at the time of election was
taken into account in the selection process. The composition
of the Supervisory Board consequently fully complies with the
specified set of objectives.
In accordance with the recommendation of the Code, the
Supervisory Board prepared a profile of skills and expertise
(competency profile) for the entire Supervisory Board at its
meeting in February 2018. According to this competency
profile, the main objective is that the Supervisory Board is
composed in such a way that it can fulfill its duties stipulated
by law and in the Articles of Association in the interest of the
company. This
includes, above all, ensuring qualified
supervision of and provision of advice to the Executive Board.
To this end, criteria such as personality, integrity and
independence are
important. Moreover, based on their
knowledge, skills and experience, the members of the
Supervisory Board are expected to be able to perform the
duties of a supervisory board member in an international
company. For this purpose, the goal is that the entire
Supervisory Board reflects the entire extent of knowledge and
experience considered essential in view of adidas’ activities.
This includes, inter alia, knowledge and experience in the
areas of technology, digitalization, e-commerce and retail.
Moreover, the Supervisory Board is expected to possess
knowledge and experience in the business segments/
markets important for adidas, in particular the Asian and US-
American markets, and in the management of an international
company. Furthermore, the entire Supervisory Board is to
possess knowledge and experience in the areas of corporate
strategy, compliance and corporate governance. At least one
independent member of the Supervisory Board shall possess
expertise in the areas of accounting and annual auditing as
well as specific expertise and experience with regard to the
application of accounting principles and internal control
systems. In particular, the Supervisory Board shall also
consist of persons who have leadership experience in an
international company because they hold a management
position or because they are members of a supervisory board
or a comparable body. The entire Supervisory Board currently
fulfills the competency profile.
With regard to the Supervisory Board’s future composition,
when proposing candidates to the Supervisory Board, the
Nomination Committee will not only take into account the
requirements of the law, the Code and the Supervisory Board’s
Rules of Procedure but also the targets and criteria resolved
upon and the competency profile prepared. The best interests
of the company will continue to play a decisive role when
nominating candidates for election.
The Supervisory Board supervises and advises the Executive
Board in questions relating to the management of the
company. The Executive Board regularly, expeditiously and
comprehensively reports on business development and
planning as well as on the risk situation including compliance
and coordinates the strategy of the company and
its
implementation with the Supervisory Board. The Supervisory
Board examines and approves the annual financial statements
of adidas AG and the adidas Group, taking into consideration
the auditor’s reports, and resolves upon the proposal of the
Executive Board on the appropriation of retained earnings.
Additionally, it resolves upon the resolution proposals to be
presented to the Annual General Meeting. Certain business
transactions and measures of the Executive Board with
fundamental significance are subject to prior approval by the
Supervisory Board or by a Supervisory Board committee.
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The Supervisory Board is also responsible for the appointment
and dismissal of members of the Executive Board. When
appointing members of the Executive Board, the Supervisory
Board pays attention to the best possible composition of the
Executive Board. Inter alia, experience, industry knowledge
and personal expert qualifications play an important role in
this regard. In addition, taking into account the international
structure of the company, the Supervisory Board considers
diversity. This applies, in particular, also with regard to age,
internationality and other important personal qualities. The
Supervisory Board further determines the Executive Board
compensation system, examines it regularly and decides on
the individual overall compensation of each Executive Board
member. To this end, the relation between Executive Board
compensation and that of senior management and the entire
employees is taken into account, also in terms of its
development over time. Further information on Executive
Board compensation is compiled in the Compensation Report.
SEE COMPENSATION REPORT, P. 39
In order to increase the efficiency of its work and to deal with
complex topics, the Supervisory Board has formed six
permanent expert committees from within its members,
which, inter alia, prepare its resolutions and, in certain cases,
pass resolutions on its behalf. These committees are the
Steering Committee, the General Committee, the Audit
Committee, the Finance and Investment Committee, the
Mediation Committee in accordance with § 27 section 3
MitbestG and the Nomination Committee. The chairmen of
the committees report to the entire Supervisory Board on the
results of the committee work on a regular basis. The
composition of the committees can be found in the respective
overview of the Supervisory Board.
Further information on the committees’ tasks is available on
our website. ↗ ADIDAS-GROUP.COM/S/SUPERVISORY-BOARD-COMMITTEES
SEE SUPERVISORY BOARD, P. 24
Apart from the tasks and responsibilities, the Rules of
Procedure of the Supervisory Board and of the Audit
Committee also set out the individual requirements expected
of the members and the procedure for meetings and passing
resolutions. These Rules of Procedure are available on our
website. The Supervisory Board Report provides information
on the activities of the Supervisory Board and its committees
in the year under review.
SEE SUPERVISORY BOARD REPORT, P. 27
The members of the Supervisory Board are individually
responsible for undertaking any necessary training and
professional development measures required for their tasks
and, in doing so, are supported by adidas AG. The company
informs the Supervisory Board regularly about current
legislative changes as well as opportunities for external
training, and provides the Supervisory Board with relevant
specialist literature.
Every two years, the Supervisory Board and the Audit
Committee examine the efficiency of their work. As a result,
suggestions for even better cooperation can be made. The
current efficiency examinations, which are being conducted
with the help of an external consultant, began in late 2017 and
will be concluded in 2018.
COMMITMENT TO THE PROMOTION OF THE
EQUAL PARTICIPATION OF WOMEN AND MEN IN
LEADERSHIP POSITIONS
When filling leadership positions in the company, the Executive
Board takes diversity into consideration and especially aims
for an appropriate consideration of women. The Supervisory
Board is also convinced that an increase in the number of
women
is
necessary to ensure that, in the future, an increased number
of female candidates are available for Executive Board
positions. The Supervisory Board thus supports the diversity
in leadership positions within the company
inclusion
and
the company, particularly
concerning the promotion of women in leadership positions.
initiatives of
SEE PEOPLE AND CULTURE, P. 81
Pursuant to the ‘Law on Equal Participation of Women and
Men in Leadership Positions in the Private and Public Sector’,
the percentage of women and men on the Supervisory Board
must be at least 30% each. The shareholder representatives
and the employee representatives have each resolved in
accordance with § 96 section 2 sentence 3 AktG that this
minimum quota shall be fulfilled separately for the shareholder
representatives and the employee representatives. Both the
shareholder representatives and the employee representatives
fulfill the statutory minimum quota.
Furthermore, target figures for the percentage of female
representation on the Executive Board and the first two
management levels have been determined for adidas AG. All
implementation periods expired for the first time on
June 30, 2017. Since Karen Parkin’s appointment in May 2017,
the target of appointing one woman to the Executive Board is
fulfilled. The target figure of 18% for the first management
level below the Executive Board was also fulfilled. The target
figure of 30% for the second management level below
the Executive Board was only just missed, at 29%, due to
unplanned departures from the company.
The Supervisory Board or Executive Board have once again
determined target figures and respective implementation
deadlines for the percentage of female representation on the
Executive Board of adidas AG as well as for the first and
second management levels below the Executive Board. The
target figures are as follows:
— The target figure for the Executive Board is 1/7 or 14.29%.
The deadline for achieving this target figure is June 30, 2022.
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— The target figure for the first management level below the
Executive Board is 24% and 30% for the second management
level below the Executive Board. The implementation period
for both targets expires on December 31, 2019.
and social standards, environmental responsibility, chemical
management and our social commitment, such as supporting
refugees, is available in this Annual Report and on our website.
SEE SUSTAINABILITY, P. 88 ↗ ADIDAS-GROUP.COM/SUSTAINABILITY
AVOIDING CONFLICTS OF INTEREST
The members of the Executive Board and Supervisory Board
are obligated to disclose any conflicts of interest to the
Supervisory Board without any delay. Substantial transactions
between the company and members of the Executive Board or
persons in a close relation with them require Supervisory
Board approval. Contracts between the company and
members of the Supervisory Board also require Supervisory
Board approval. The Supervisory Board reports any conflicts
of interest, as well as the handling thereof, to the Annual
General Meeting. In the year under review, neither the
members of the Executive Board nor the members of the
Supervisory Board – with the exception of the matter outlined
in the Supervisory Board Report – faced any conflicts of interest.
SEE SUPERVISORY BOARD REPORT, P. 27
SHARE OWNERSHIP OF AND SHARE
TRANSACTIONS CONDUCTED BY THE
EXECUTIVE BOARD AND SUPERVISORY BOARD
An overview of the managers’ transactions notified to adidas AG
in 2017 by persons discharging managerial responsibilities
pursuant to Article 19 of the Market Abuse Regulation is
published on our website.
↗ ADIDAS-GROUP.COM/S/MANAGERS-TRANSACTIONS
RELEVANT MANAGEMENT PRACTICES
Our business activities are oriented towards the legal
systems in the various countries and markets in which we
operate. This implies a high level of social and environmental
responsibility. Further information on company-specific
practices which are applied in addition to statutory require-
ments, such as our Code of Conduct, on compliance with working
COMPLIANCE AND RISK MANAGEMENT
Compliance with laws, internal and external provisions and
responsible risk management are part of corporate
governance at adidas. Our compliance management system is
organizationally linked to the company’s risk and opportunity
management system. As part of our global ‘Fair Play Concept’,
the compliance management system establishes
the
organizational framework for company-wide awareness of
our internal rules and guidelines and for the legally compliant
It underscores our strong
conduct of our business.
commitment to ethical and fair behavior
in our own
organization and also sets the parameters for how we deal
with others. The principles of our compliance management
system are set out in the Risk and Opportunity Report. The
risk and opportunity management system ensures risk-
aware, opportunity-oriented and
in a
dynamic business environment in order to guarantee the
competitiveness and sustainable success of adidas.
informed actions
SEE RISK AND OPPORTUNITY REPORT, P. 131
Further information on the principles
of our management
More information on topics covered in this report can be found
on our website at ↗ ADIDAS-GROUP.COM
including:
— Code of Conduct
— Sustainability
— Social commitment
— Risk and opportunity management and compliance
— Information and documents on the Annual General Meeting
— Managers’ transactions
— Accounting and annual audit
TRANSPARENCY AND PROTECTION OF
SHAREHOLDERS’ INTERESTS
It is our goal to inform all institutional investors, private
shareholders,
financial analysts, business partners,
employees and the interested public about the company’s
situation, at the same time and to an equal extent, through
regular, transparent and up-to-date communication. We
publish all essential information, such as press releases, ad
hoc announcements and voting rights notifications as well as
all presentations from roadshows and conferences, all financial
reports and the financial calendar on our website. With our
comprehensive Investor Relations activities, we maintain close
and continuous contact with our current and potential share-
holders. ↗ ADIDAS-GROUP.COM/S/INVESTORS
SEE OUR SHARE, P. 57
In addition, we provide all documents and information on our
Annual General Meeting on our website. The shareholders of
adidas AG exercise their shareholders’ rights at the Annual
General Meeting. Each share grants one vote. Our shareholders
are involved in all fundamental decisions at the Annual
General Meeting through their participation rights. It is our
intention to support our shareholders in exercising their
voting rights at the Annual General Meeting. At our next
Annual General Meeting, taking place in Fuerth (Bavaria) on
May 9, 2018, we will again provide our shareholders with the
best possible service. Shareholders have the possibility, inter
alia, to electronically register for the Annual General Meeting
through our shareholder portal or to participate in voting by
granting powers of representation and voting instructions
online to the proxies appointed by the company. Further, all
shareholders can follow the Annual General Meeting in full
length live on the company’s website, subject to technical
availability of the website.
SHARE-BASED PROGRAMS
In the 2017 financial year, a long-term incentive (LTI) plan,
which is part of the long-term remuneration for senior
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executives of adidas, was implemented. Based on this plan,
the plan participants receive registered stock units (RSU).
SEE NOTE 27, P. 186
SEE PEOPLE AND CULTURE, P. 81
As per their contracts, each member of the Executive Board is
entitled to participate in a Long-Term Incentive Plan set up for
the Executive Board members. The new LTIP 2018/2020 aims
to link the long-term compensation of the Executive Board
even more strongly to the company’s performance and thus to
the interests of the shareholders. Furthermore, the decisive
assessment factors are to be simplified and made more
transparent and the long-term compensation of the Executive
Board and senior management is to be aligned. Against this
background, the LTIP 2018/2020 is – in contrast to the previous
LTIP 2015/2017 – share-based as it comprises the acquisition
of adidas shares subject to a lock-up period.
SEE COMPENSATION REPORT, P. 39
ACCOUNTING AND ANNUAL AUDIT
adidas AG prepares the annual financial statements in
accordance with the provisions of the German Commercial
Code (Handelsgesetzbuch – HGB) and the Stock Corporation
Act. The annual consolidated financial statements are
prepared in accordance with the principles of the International
Financial Reporting Standards (IFRS), as adopted by the
European Union (EU).
KPMG AG Wirtschaftsprüfungsgesellschaft was appointed as
auditor for the 2017 annual financial statements and annual
consolidated financial statements by the Annual General
Meeting. The Supervisory Board had previously assured itself
of the auditor’s independence.
SEE INDEPENDENT AUDITOR’S REPORT, P. 221
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COMPENSATION REPORT
For adidas, transparent and comprehensible reporting on
the compensation of the Executive Board and Supervisory
Board is an essential element of good corporate governance.
The Compensation Report is a component of the combined
Management Report and outlines the principles of the
compensation system for the members of the Executive
Board and Supervisory Board as well as the level and
structure of the compensation in accordance with the legal
requirements and the recommendations of the German
Corporate Governance Code (the ‘Code’) as amended on
February 7, 2017.
COMPENSATION OF THE EXECUTIVE
BOARD MEMBERS
Following preparation by the Supervisory Board’s General
Committee, the compensation system for our Executive Board
and the total compensation of each member of the Executive
Board is determined and regularly reviewed by the entire
Supervisory Board. The compensation and personnel topics
dealt with by the Supervisory Board and General Committee
in the year under review are described in detail in the
Supervisory Board Report.
SEE SUPERVISORY BOARD REPORT, P. 27
than the incentive to achieve the targets decisive for being
granted the one-year variable compensation component.
Corresponding contractual provisions ensure that this
weighting can be maintained in the future. In terms of the
appropriateness of the Executive Board compensation, when
determining the compensation, the Supervisory Board takes
into consideration factors such as the size and the global
orientation, the economic situation, the success and outlook
of the company, as well as the common level of the
compensation in comparison with peer companies and with
the compensation structure applicable for other areas of the
company. To this end, the relation between the Executive
Board compensation and that of Senior Management and
employees overall is taken into account, both in total and in
terms of its development over time, with the relevant groups
of persons having been determined by the Supervisory Board.
In addition, when determining the compensation, the tasks
and contribution of each Executive Board member to the
company’s success, their individual performance as well as
the overall performance of the Executive Board are taken into
consideration. The compensation system aims to appropriately
remunerate exceptional performance, while diminishing
variable compensation when targets are not met. Thus, in the
Supervisory Board’s opinion, an appropriate level of
compensation, which is reviewed annually by the Supervisory
Board and adjusted if required, can be ensured.
The compensation system is geared toward creating an
incentive for successful, sustainably value-oriented corporate
management and development. Against this background,
more than 50% of the variable target compensation component
is based upon multi-year performance criteria. The variable
compensation components are designed in such a way that
the incentive to achieve the long-term targets decisive for the
multi-year variable target compensation component is higher
The compensation system for the members of the Executive
Board which has been applicable since the 2015 financial year
was adopted by the shareholders at the Annual General
Meeting on May 7, 2015. The Supervisory Board resolved to
change individual elements of the existing compensation
system described in the following with effect from the 2018
financial year. Details on the changed elements can be found
following the description of the previous compensation system.
PREVIOUS COMPENSATION SYSTEM
Previously, in case of 100% target achievement, the total
compensation (without other benefits and pension payments)
was essentially made up of 35% fixed compensation, 30%
annual Performance Bonus and 35% LTIP Bonus. In addition,
there are various pension commitments. Moreover, at its
equitable discretion, the Supervisory Board may grant a
special bonus in case of extraordinary performance by an
Executive Board member which is not related to performance
criteria
the
Performance Bonus or the LTIP Bonus. Such special bonus is
limited to a maximum of 100% of the annual fixed salary of the
calendar year for which the special bonus is granted.
that were already decisive
for granting
The compensation system consists of the following components:
Non-performance-related components
Fixed compensation
The fixed compensation consists of the annual fixed salary.
In principle, it is paid in twelve equal monthly installments
and generally remains unchanged during the term of the
service contract.
Other benefits
The other benefits primarily consist of paying for, or providing
the monetary value of, non-cash benefits and of other benefits
such as premiums or contributions to insurance schemes
normal for the market, the assumption of relocation costs, the
provision of a company car or the use of the internal driver
service or the payment of a car allowance and, if Executive
Board members are also subject to taxation abroad, the costs
for tax consultants selected by adidas. The total amount of
these other benefits is capped at 5% of the total compensation
comprising the fixed salary and a (possible) Performance
Bonus granted in the respective financial year.
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Compensation system for Executive Board members in 2017
1
Fixed compensation
35% of target direct compensation.
2017 Performance Bonus
30% of target direct compensation.
LTIP 2015/2017
35% of target direct compensation.
The fixed compensation is paid out
monthly in twelve equal installments.
For the performance criteria deter-
mined at the beginning of the 2017
financial year, see the section ‘2017
Performance Bonus’ on page 47.
The bonus amount is payable following
approval of the consolidated financial
statements of the past financial year.
For the performance criteria deter-
mined in the 2015 financial year, see
the section ‘LTIP 2015/2017’ on page 47.
Payout of the LTIP Bonus will be
effected after the 2017 consolidated
financial statements are approved.
Target direct
compensation
(in case of 100%
target achievement)
Cap of overall
compensation
(maximum
compensation)
Fixed compensation
2017 Performance Bonus
The Performance Bonus is capped at a
maximum of 150% of the individual Bonus
target amount. If the overall degree of target
achievement lies at or below 50%, the
Executive Board member is not entitled to
the Performance Bonus.
LTIP 2015/2017
The LTIP Bonus is capped at a maximum of 150% of the
individual LTIP target amount. If the overall degree of
target achievement lies at or below 50%, the Executive
Board member is not entitled to the LTIP Bonus.
For the ultimate evaluation of the Executive Board’s
performance, qualitative criteria are taken into account.
Fixed compensation
One-year performance-related compensation
Multi-year performance-related compensation
Performance-related components
Performance Bonus
As the annual variable component, the Performance Bonus
serves as compensation for the Executive Board’s performance
in the past financial year in line with the short-term development
of the company.
At the beginning of the financial year, the Supervisory Board
establishes the respective weighted performance criteria and
determines the individual amount of the Performance Bonus
target amount for each member of the Executive Board, based
on a target achievement of 100% (Bonus target amount). The
individual performance criteria are designed in such a way
that the target achievement of the respective performance
criterion may also be zero. When targets are clearly not met,
the Performance Bonus may consequently be forfeited entirely.
At the end of the financial year, the precise target achievement
of each Executive Board member, which is, in principle, based
on a comparison of the predefined target values with the
values achieved in the year under review, is examined. The
Supervisory Board determines at its equitable discretion the
factor by which the Bonus target amount is multiplied by
adding up these degrees of target achievement (overall
degree of target achievement). The result is the individual
amount of the Performance Bonus to be paid (bonus amount).
When determining the degrees of target achievement and
thus when determining the bonus amount, the Supervisory
Board may take into account extraordinary developments
which are not related to the performance of the Executive
Board. The bonus amount is capped at a maximum of 150% of
the individual Bonus target amount. If the overall degree of
target achievement lies at or below 50%, the Executive Board
member is not entitled to the Performance Bonus.
If an Executive Board member takes or leaves office during a
financial year, the Performance Bonus is generally calculated
pro rata temporis based on the degree of target achievement
determined at the end of the financial year. In certain cases
defined in the Terms & Conditions of the Performance Bonus,
entitlement to the payout of a Performance Bonus is forfeited,
unless the Supervisory Board determines otherwise at its
equitable discretion.
The bonus amount is payable following approval of the
consolidated financial statements of the past financial year.
Long-Term Incentive Plan 2015/2017 (LTIP 2015/2017)
Based on the Long-Term Incentive Plan 2015/2017 (LTIP
2015/2017) measured over a three-year period, the LTIP
Bonus serves – in line with sustainability-oriented develop-
ment of the company – as compensation for the long-term
performance of the Executive Board. On this basis, at the
beginning of the 2015 financial year, the Supervisory Board
defined five weighted performance criteria oriented toward
sustainable growth of the company. Furthermore, at the
beginning of 2015 or upon appointment to the Executive
Board, the Supervisory Board defined the individual amount
of the LTIP Bonus target amount for each Executive Board
member, based on a target achievement of 100% (LTIP
target amount).
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At the end of the 2017 financial year, the precise target
achievement of each Executive Board member, which is based
on a comparison of the predefined target values with the
values achieved at the end of the three-year period covering
the years 2015 to 2017, was examined. The Supervisory Board
then determined at its equitable discretion the factor by which
the LTIP target amount is multiplied by adding up these
degrees of target achievement, while additionally taking into
account qualitative criteria. The result is the individual amount
of the LTIP Bonus to be paid (bonus amount). Payout of the
LTIP Bonus will be effected after the 2017 consolidated
financial statements are approved. When determining the
degrees of target achievement and thus when determining
the bonus amount, the Supervisory Board may take into
account extraordinary developments which are not related to
the performance of the Executive Board.
The LTIP Bonus is capped at a maximum of 150% of the
individual LTIP target amount. If the overall degree of target
achievement lies at or below 50%, the Executive Board
member is not entitled to the LTIP Bonus. If an Executive
Board member takes or leaves office during the term of the
LTIP 2015/2017 (Performance Period), the LTIP Bonus is
generally calculated on a pro rata basis. In certain cases
defined in the Terms & Conditions of the LTIP 2015/2017,
entitlement to the payout of an LTIP Bonus is generally
forfeited, unless the Supervisory Board determines otherwise
at its equitable discretion.
Pension commitments
The current members of the Executive Board generally have
defined contribution pension plans. The pension entitlement
of Glenn Bennett and Robin J. Stalker, who resigned from the
Executive Board in the 2017 financial year, will be covered by
the defined benefit pension plans granted to them.
Defined contribution pension plans
The defined contribution pension plans, each in the form of a
direct commitment, basically have the same structure as the
existing ‘ adidas Management Pension Plan’ for managers.
As part of the pension commitments, an amount equaling a
percentage determined by the Supervisory Board, which is
related to the individual annual fixed compensation, is credited
to the virtual pension account of the individual Executive
Board member each year. The Supervisory Board annually
resolves on this percentage, which most recently was set at
50%. When making its decision, the Supervisory Board takes
into account the targeted individual pension level and the
resulting annual and long-term expenses for the company.
The pension assets existing at the beginning of the respective
calendar year shall yield a fixed interest rate of 3% p.a., however
for no longer than until the pension benefits first become due.
As a rule, interest shall be credited as at the close of
December 31 in each calendar year, and on the due date in the
year in which the pension benefits are first due. Entitlement to
the pension benefits becomes vested immediately.
The entitlements to pension benefits comprise pensions to be
received upon reaching the age of 65, or, on application, early
retirement pensions to be received upon reaching the age of
62 (early pensions), or invalidity and survivors’ benefits.
On occurrence of the pension-triggering event, the pension
benefits generally correspond to the balance of the pension
account including accumulated interest on that date. In case
of invalidity or death prior to reaching the age of 62, for the
minimum coverage, the Executive Board member’s pension
account will be credited with the outstanding pension
contributions for the time until the Executive Board member
would have reached the age of 62, but no longer than for
120 months (without interest accrual). The pension benefits
due upon death of the Executive Board member are payable to
the widow, the widower or the registered civil partner and the
children entitled to pension benefits as joint creditors.
At the option of the Executive Board member or the surviving
dependents, the payout of all pension benefits is made either
as a one-time payment or in up to ten equal annual install-
ments. If no choice is made by the Executive Board member or
by the surviving dependents, the pension benefits are paid out
in three equal annual installments. As a rule, in case of a
payout in annual installments, the installments are due in
January of the respective year. The still outstanding install-
ments of the benefit phase bear the maximum interest rate of
the first due date of the pension benefits for the calculation of
the actuarial reserve according to the German Actuarial
Reserve Ordinance (DeckRV) for life insurance companies.
As regards insolvency insurance, the pension plans can be
integrated into the existing trust model, the Contractual Trust
Arrangement (CTA).
Defined benefit pension plans
Starting from a base amount totaling 10% (Robin J. Stalker) or
20% (Glenn Bennett) of the respective pensionable income
granted in the pension plan, a module of two percentage points
of the pensionable income, or three percentage points since
March 6, 2015, is created for the Executive Board members for
each full year of tenure as an Executive Board member (in
deviation herefrom, the starting date chosen for Glenn Bennett,
who was a member of the Executive Board as of March 6, 1997
was January 1, 2000).
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As its targeted level of provision, the Supervisory Board has
determined for the Executive Board members a pension
entitlement amounting to a maximum of 50% of an Executive
Board member’s pensionable
income. The amount of
pensionable income currently equals the individual annual
fixed salary indicated in the table ‘Benefits granted’.
The pension benefits comprise retirement pensions to be
received upon reaching the age of 65 as well as disability and
survivors’ benefits.
In the event that an Executive Board member leaves the
company prior to reaching retirement age, the non-forfeiture
of the pension entitlement will be in line with legal provisions.
The pension entitlement is not, as legally envisaged, reduced
pro rata temporis, i.e. it amounts to at least the base amount
of the pension commitment made to the Executive Board
member, plus the pension modules accumulated annually
during the term of office.
Following the pension-triggering event, ongoing pensions are
adjusted in line with the development of state pensions.
adidas Management Pension Plan
The Executive Board members who were active members of
the Executive Board in the 2017 financial year and who
belonged to the group of senior executives of adidas AG prior
to their Executive Board appointments 1 will at the time of
their retirement receive additional payments from the ‘ adidas
Management Pension Plan’. Until their appointment as
Executive Board members, adidas AG had contributed pension
components under these supplementary provisions which
were introduced for all of these senior executives of the
company in 1989.
Commitments to Executive Board members upon termination of tenure
Unless otherwise agreed in the individual case, if the service
contract ends upon the Executive Board member reaching the
age of 65 or upon non-renewal of the service contract, the
Executive Board member is entitled to receive his annual fixed
salary on a pro rata basis up to the date on which he leaves
office as well as a potential prorated Performance Bonus and
a potential prorated LTIP Bonus. Further, Executive Board
members are subject to a post-contractual competition
prohibition of two years. As consideration, for the duration of
the competition prohibition, the Executive Board members
generally receive a compensation amount totaling 50% of the
fixed compensation last received, subject to offsetting (e.g. of
income from other use of his work capacity). Under certain
circumstances, the departing Executive Board member also
receives a follow-up bonus 2. This follow-up bonus is payable
in two tranches, twelve and 24 months following the end of the
contract.
In case of premature termination of tenure in the absence of
good cause, the Executive Board service contracts cap
potential severance payments at a maximum of twice the total
annual compensation, not exceeding payment claims for the
remaining period of the service contract (Severance Payment
Cap). If the service contract is terminated due to a change of
control, a possible severance payment is limited to 150% of
the Severance Payment Cap.
If an Executive Board member dies during his term of office,
his spouse or partner receives or, alternatively, any dependent
children receive, in addition to pension benefits, the pro rata
annual fixed salary for the month of death and the following
three months, but no longer than until the agreed end date of
the service contract.
1 Roland Auschel, Eric Liedtke, Harm Ohlmeyer and Robin J. Stalker.
2 As regards the current members of the Executive Board, such a follow-up bonus was agreed with Roland Auschel and Eric Liedtke, in each case in the amount of 75% of the Performance Bonus granted to them
for the last full financial year. Furthermore, a follow-up bonus will be paid to Glenn Bennett (75%) and Robin J. Stalker (100%), who both departed from the Executive Board in 2017.
COMPENSATION SYSTEM APPLICABLE AS OF
THE 2018 FINANCIAL YEAR
The Supervisory Board resolved to change individual elements
of the existing compensation system described above with
effect from the 2018 financial year. In this way, the entire
compensation system of the Executive Board is to be simplified
and the assessment factors will be made more transparent.
With the compensation system applicable as of the 2018
financial year, at least 80% of the variable compensation
(Performance Bonus and LTIP) is directly linked to the short-
and long-term sales and profitability targets externally
communicated. At the same time, the compensation of the
Executive Board members is being directly brought into line
with the interests of the shareholders.
The changes to the compensation system concern the
following aspects:
Apportionment of the overall payments
The components of the total compensation remain unchanged,
consisting of fixed compensation, an annual Performance
Bonus, an LTIP Bonus and other benefits and pension
payments. In case of 100% target achievement, the share of
the fixed compensation component in the total compensation
(without other benefits and pension payments) still amounts
to 35%; the annual Performance Bonus component, however,
now only amounts to 25% (instead of the previous general
value of 30%), while the share of the LTIP Bonus component is
increased from the previous general value of 35% to 40%.
Performance-related components
2018 Performance Bonus
As the annual variable component, the Performance Bonus
still serves as compensation for the Executive Board’s
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performance in the past financial year in line with the short-
term development of the company.
In future, the amount of the Performance Bonus will be
determined based on the achievement of, generally, four
weighted targets which are determined – as before – by the
Supervisory Board at the beginning of the financial year. Two
of these targets are the same for all Executive Board members
and are weighted at 60%. In this regard, the targets for the
respective financial year are directly linked to the annual
forecast externally communicated and, at the same time,
follow directly from the – also externally communicated –
long-term growth targets of adidas. For instance, for the 2018
financial year, these targets are currency-neutral sales
growth and the operating margin. It is intended to retain these
targets in the years to come. 100% target achievement thereby
reflects the communicated guidance for the financial year
(2018: currency-neutral sales to
increase around 10%,
operating margin to increase to a level between 10.3% and
10.5%). The other two targets are individual targets with a
40% weighting. All targets are designed in such a way that
target achievement may also be zero. When targets are clearly
not met, the Performance Bonus may consequently be
forfeited entirely.
As before, at the end of the financial year, the Supervisory
Board examines the precise target achievement of each
Executive Board member, which is, in principle, based on a
comparison of the predefined target values with the values
achieved in the year under review. The Supervisory Board
determines the factor by which the Bonus target amount is
multiplied by adding up these degrees of target achievement
(overall degree of target achievement). The result is the
individual amount of the Performance Bonus to be paid (bonus
amount). When determining the degrees of target achievement
and thus when determining the bonus amount, the Supervisory
Board may, at its equitable discretion, take into account
extraordinary developments which are not related to the
performance of the Executive Board. Even in the case of an
overall degree of target achievement of more than 150%, the
bonus amount is capped at a maximum of 150% of the
individual Bonus target amount. If the overall degree of target
achievement lies at or below 50%, the Executive Board
member is not entitled to the Performance Bonus.
If an Executive Board member takes or leaves office during a
financial year, the Performance Bonus is generally calculated
pro rata temporis based on the degree of target achievement
determined at the end of the financial year. In certain cases
defined in the Terms & Conditions of the Performance Bonus,
entitlement to the payout of a Performance Bonus is forfeited,
unless the Supervisory Board determines otherwise at its
equitable discretion.
The bonus amount is payable following approval of the
consolidated financial statements of the past financial year.
Compensation system for Executive Board Members from 2018
2
Fixed compensation
35% of target direct compensation.
2018 Performance Bonus
25% of target direct compensation.
LTIP 2018/2020
40% of target direct compensation.
The fixed compensation is paid out
monthly in twelve equal installments.
For the performance criteria deter-
mined at the beginning of the 2018
financial year, see the section ‘2018
Performance Bonus’ on this page.
The bonus amount is payable following
approval of the consolidated financial
statements of the past financial year.
For the performance criterion ‘absolute
increase in net income from continuing
operations’ determined in the 2018
financial year, see the section ‘LTIP
2018/2020’ on page 44.
The Grant Amount for the respective
annual LTIP tranche is payable
following approval of the consolidated
financial statements for the respective
performance year. 1
Target direct
compensation
(in case of 100%
target achievement)
Cap of overall
compensation
(maximum
compensation)
Fixed compensation
2018 Performance Bonus
The Performance Bonus is capped at a
maximum of 150% of the individual Bonus
target amount. If the overall degree of target
achievement lies at or below 50%, the Executive
Board member is not entitled to the Perfor-
mance Bonus.
LTIP 2018/2020
If the annual increase in net income is below € 140 million,
the Executive Board member is not entitled to a Grant
Amount for the respective performance year. 2
Even if the increase in net income exceeds € 280 million
in the respective performance year, the factor of target
achievement is capped at a maximum of 150%.
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Fixed compensation
One-year performance-related compensation
Multi-year performance-related compensation
1 The Grant Amount must be invested in the acquisition of adidas AG shares which are subject to a lock-up period.
2 If the increase in net income from continuing operations is below € 210 million in the performance year 2018 or 2019, the target value for 100% target achievement is increased correspondingly for the following
performance year, unless the Supervisory Board decides otherwise at its equitable discretion.
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Long-Term Incentive Plan 2018/2020 (LTIP 2018/2020)
As of 2018, the previous LTIP 2015/2017 is replaced by a new
Long-Term Incentive Plan 2018/2020 (LTIP 2018/2020). The
LTIP 2018/2020 aims to link the long-term compensation of
the Executive Board even more strongly to the company’s
performance and thus to the interests of the shareholders.
Furthermore, the decisive assessment factors are to be
simplified and made more transparent and the long-term
compensation of the Executive Board and Senior Management
is to be aligned.
Against this background, the LTIP 2018/2020 – in contrast to
the previous LTIP 2015/2017 – is share-based. It now consists
of three annual tranches (2018, 2019 and 2020). Moreover, the
assessment basis is extended. The compensation of the
Executive Board members for each annual LTIP tranche is
now no longer assessed based on a period of three years but
based on a period of approximately four and a half years.
Each of the three annual LTIP tranches consists of a
performance year and a subsequent lock-up period of about
three years. At the beginning of 2018, the Supervisory Board
determined as performance criterion for each of the three
performance years (2018, 2019 and 2020) the absolute increase
in net income from continuing operations compared to the
respective previous year. In this respect, the target values for
the annual LTIP tranches follow directly from the externally
published long-term net income growth targets of the
company. For instance, if net income from continuing
operations increased by a total of € 630 million (100% target
achievement) in the three-year period from 2018 to 2020, net
from continuing operations would amount to
income
€ 2,060 million in 2020.
SEE TABLE BELOW Compared to 2015,
this would correspond to an average increase in net income of
23% per year, which would be within the target corridor of 22% to
24%, as defined in our corporate strategy.
Performance year
2018 (compared to 2017 1)
2019 (compared to 2018)
2020 (compared to 2019)
Growth target for net income from
continuing operations
+ € 210 million
+ € 210 million
+ € 210 million
1 The basis for 2017 is net income from continuing operations in the amount of € 1,430 million (without
the negative tax-related one-time effect in the 2017 financial year).
if net
income
instance,
If the increase in net income from continuing operations is
below € 210 million in the performance year 2018 or 2019, the
target value for 100% target achievement is increased
correspondingly for the following performance year, unless
the Supervisory Board decides otherwise at its equitable
discretion. For
increases by
€ 180 million in the performance year 2018, net income in the
performance year 2019 must increase by € 240 million for a
target achievement of 100%. However, if the increase in net
income is higher than € 210 million in a performance year,
the target for the following performance year remains
unaffected by this. This means that compared to the previous
year net income in the following performance year must still be
increased by € 210 million for a target achievement of 100%,
despite the higher net income achieved in the previous year.
Against this background, the Supervisory Board determined
the individual amount of the annual LTIP target amount for
each Executive Board member based on a target achievement
of 100%.
The precise target achievement will be determined for the
respective performance year on the basis of the adopted
consolidated financial statements. In this respect, the
Supervisory Board may, at its equitable discretion, take into
account extraordinary developments which are not related to
the performance of the Executive Board. The factor by which
the annual LTIP target amount determined for the respective
Executive Board member is multiplied is derived from the
amount of the actual increase in net income from continuing
operations for the respective performance year:
Increase in net income from continuing
operations compared to the previous
year
≥ + € 280 million
+ € 210 million
+ € 140 million
< + € 140 million
Factor
150%
100%
50%
0%
If the actual increase in net income from continuing operations
compared to the previous year is between the above-
mentioned values, the factor is determined based on a
sliding scale. If the annual increase in net income is below
€ 140 million, the factor is zero. Furthermore, the factor is
capped at 150%, even if the increase in net income (significantly)
exceeds € 280 million.
By multiplying the factor thus calculated with the annual LTIP
target amount determined by the Supervisory Board for the
respective Executive Board member based on a target
achievement of 100%, the Grant Amount is determined, which
is paid out to the Executive Board member for the respective
annual LTIP tranche for the performance year following the
adoption of the consolidated financial statements of adidas.
The Executive Board members have to invest the Grant
Amount which remains after deducting applicable taxes and
social security contributions into the acquisition of adidas AG
shares. The shares purchased are subject to a lock-up period.
The lock-up period ends in the third financial year after the
acquisition of the shares upon expiry of the month in which
the Annual General Meeting takes place. The Executive Board
members may only dispose of the shares after expiry of the
lock-up period. Due to this mechanism, the compensation
which the Executive Board members eventually receive from
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the LTIP 2018/2020 is directly dependent on the share price
performance during the respective, approximately three-year
lock-up period and thus dependent on the long-term
performance of the company. The Executive Board members
are entitled to any amounts distributed in connection with
these shares during the lock-up period.
Therefore, taking the annual LTIP tranche for the 2018
financial year as an example, the LTIP 2018/2020 is structured
as follows:
— In the 2019 financial year, the degree of target achievement
for the 2018 performance year (increase in net income from
continuing operations in the 2018 financial year compared
to the 2017 financial year) is determined following the
adoption of the consolidated financial statements for the
2018 financial year.
— The Grant Amount determined on this basis is paid out to
the Executive Board members by the end of March 2019.
If the increase in net income from continuing operations
is below € 140 million, the Executive Board members do
not receive a Grant Amount; if the increase in net income
amounts to more than € 280 million, the cap of 150%
applies.
— The Grant Amount (reduced by applicable taxes and social
security contributions) is then invested into the acquisition
of adidas AG shares.
— The Executive Board members may only dispose of these
shares upon expiry of the month in which the Annual
General Meeting in 2022 takes place (i.e. if the Annual
General Meeting takes place in May 2022, the Executive
Board members can dispose of the shares as of June 2022).
If an Executive Board member takes or leaves office during a
performance year, the Grant Amount for the respective annual
tranche of the LTIP 2018/2020 is generally calculated on a pro
rata basis. The departed Executive Board member does not
participate in the annual LTIP tranches for performance years
which begin after the respective Executive Board member’s
departure. In certain cases defined in the plan terms of the
LTIP 2018/2020, any claims in connection with the LTIP
2018/2020 are generally forfeited and adidas AG shares
already purchased, for which the lock-up period has not yet
expired, must be transferred to adidas without compensation
payments, unless the Supervisory Board determines other-
wise at its equitable discretion.
Furthermore, the plan terms of the LTIP 2018/2020 contain
malus and claw back provisions which allow the Supervisory
Board, under certain circumstances, to reduce at its equitable
discretion the compensation from the LTIP 2018/2020 until
expiry of the lock-up period (malus) and beyond (claw back).
Such circumstances are, in particular, material misstatements,
for instance, in the financial reports as well as serious
compliance violations.
In all other respects, the details of the previous compensation
system also apply to the changed compensation system. The
compensation system applicable as of the 2018 financial
year will be presented to the 2018 Annual General Meeting
for approval.
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Transparency of
performance criteria
Cap
Claw
back/
Malus
Share-
based
Defining
period
3
Alignment
between
Executive Board
and Senior
Management
Performance
Bonus
LTIP
Performance
Bonus
LTIP
Limited
Limited
Capped at 150%;
no payout if the
overall degree
of target
achievement lies
at or below 50%
Capped at 150%;
no payout if the
overall degree
of target
achievement lies
at or below 50%
LTIP
No
LTIP
No
LTIP
3 years
LTIP
No
Comparison of previous compensation system and new compensation system
Components of compensation system 1
Performance criteria
Fixed
compen-
sation
Performance
Bonus
35%
30%
LTIP
35%
Performance
Bonus 2
5 criteria
LTIP 3
5 criteria
– 3 shared targets:
increase in
earnings per share
(EPS), operating
margin and Net
Promoter Score
(NPS)
– 2 individual
targets
– 5 shared targets:
net income from
continuing opera-
tions, increase in
presence on the
US market, share
price development,
improvement in
retail profitability,
improvement in
sustainability
Previous
compensation
system
New compen-
sation system
(applicable as of
the 2018 financial
year) 4
35%
25%
40%
4 criteria
1 criteria
– 2 shared targets
(60% weighting):
currency-neutral
sales growth,
operating margin
– 1 shared target:
absolute increase
in net income
from continuing
operations
– 2 individual
targets (40%
weighting)
Capped at 150%;
no payout if the
overall degree of
target
achievement lies
at or below 50%
Capped at 150%
(with defined
and externally
communicated
threshold);
no payout below
defined threshold
Yes
Yes
Around
4.5 years
Yes
100% target
achievement
for shared
targets
made trans-
parent and
is in sync
with
externally
commu-
nicated
outlook
100% target
achievement
for each
year made
transparent
and is in
sync with
externally
commu-
nicated
long-term
outlook
1 Assuming 100% target achievement.
2 Reflects the 2017 financial year for previous compensation system and 2018 financial year for new compensation system.
3 Reflects the LTIP 2015/2017 for previous compensation system and LTIP 2018/2020 for new compensation system.
4 The compensation system applicable as of the 2018 financial year will be presented to the 2018 Annual General Meeting for approval.
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EXECUTIVE BOARD COMPENSATION 2017
2017 Performance Bonus
For the Performance Bonus, the Supervisory Board determined
an increase
— in earnings per share (EPS),
— in the operating margin,
— in the Net Promoter Score (NPS) on a global scale and
two criteria relating to the individual performance of the
Executive Board members as success parameters. Based on
the targets actually achieved, this results in a degree of target
achievement between 132% and 140% for the respective
individual Executive Board members for the year under review.
LTIP 2015/2017
For the LTIP 2015/2017, the Supervisory Board determined
the following Performance criteria in the 2015 financial year:
— achievement of a defined amount of net income from
continuing operations
— increase in the presence on the US market measured by/
assessed on the basis of the increase in market shares
of adidas footwear and an improvement in the brand’s
popularity
— increase in the adidas AG share price over three years and
relative outperformance of the adidas AG share compared
to the DAX-30 price index
— increase in profitability of the retail segment
— improvement of sustainability measured by/assessed on
the basis of the improvement of employee satisfaction and
an increase in the percentage of female representation in
management positions within the company.
In addition, the Supervisory Board decided that qualitative
criteria should also be taken into account when determining
the overall degree of target achievement. Based on the targets
actually achieved, with regard to the LTIP, this results in an
overall degree of target achievement of more than 150% for
the respective individual Executive Board members for the
year under review. This means that the cap for the LTIP
2015/2017 applies, i.e. the payout of the LTIP Bonus is limited
to 150% of the respective individual Bonus target amount
despite the higher overall degree of target achievement.
In the year under review, no payout in connection with the
LTIP 2015/2017 was made to the current members of the
Executive Board because the performance period did not end
until December 31, 2017. The payout will be made in the 2018
financial year, depending on the target achievement following
the approval of the consolidated financial statements for the
2017 financial year.
Commitments to Executive Board members in connection with
termination of tenure
In connection with the termination of Robin J. Stalker’s and
Glenn Bennett’s tenure by mutual consent at the end of the
Annual General Meeting of adidas AG on May 11, 2017 and on
August 4, 2017, respectively, it was agreed that the contractual
commitments on the part of the company will continue to be
granted until expiry of their respective service contracts on
March 31, 2018.
— For the period from May 12, 2017 to March 31, 2018,
Robin J. Stalker receives fixed compensation in the
amount of € 590,363 and other benefits in the amount of
€ 25,222. His past service costs for this period amount to
€ 343,876. The Performance Bonus for the 2017 financial
year amounts to € 739,746. For the 2018 financial year,
Robin J. Stalker will receive a prorated Performance Bonus
in the amount of € 139,050. The bonus payment from the
LTIP 2015/2017 corresponds to € 3,338,100. Robin J.
Stalker does not participate in the new LTIP 2018/2020.
The prorated fixed compensation for 2018 was already paid
out to him in 2017. Furthermore, in 2017, adidas made a
prepayment to Robin J. Stalker in the amount of € 695,250
in connection with the Performance Bonus for the 2017
financial year and prorated for the 2018 financial year and
a prepayment in the amount of € 2,225,400 in connection
with the bonus amount from the LTIP 2015/2017; any
overpayments or underpayments which may result when
comparing these amounts with the amounts determined
once the final figures are available will be offset in the 2018
and 2019 financial year. At the end of April 2019 and at the
end of April 2020, Robin J. Stalker will be paid out 75%
and 25%, i.e. € 554,810 and € 184,937, of the Performance
Bonus granted to him for the 2017 financial year as a
follow-up bonus. In accordance with the stipulation in his
service contract, he will be paid monthly compensation
in the amount of € 27,729 gross for the post-contractual
competition prohibition for a period of 24 months. This
corresponds to 50% of the last fixed monthly salary. The
reserves set up for this compensation for post-contractual
competition prohibition amount to € 665,500. The claims to
pension payments deriving from the adidas Management
Pension Plan and the pension commitment dated
February 15, 2001, as amended on December 17, 2014,
remain unaffected and will be paid out in accordance with
the contractual regulations.
— For the period from August 5, 2017 to March 31, 2018, Glenn
Bennett receives fixed compensation in the amount of
€ 464,942 and other benefits in the amount of € 21,929. His
past service costs for this period amount to € 198,085. The
Performance Bonus for the 2017 financial year amounts to
€ 924,113. For the 2018 financial year, Glenn Bennett will
receive a prorated Performance Bonus in the amount of
€ 173,705. From the LTIP 2015/2017, he will be paid out an
amount of € 3,995,313. Glenn Bennett does not participate
in the new LTIP 2018/2020. At the end of April 2019 and at
the end of April 2020, he will be paid out 50% and 25%, i.e.
€ 462,056 and € 231,028, of the Performance Bonus granted
to him for the 2017 financial year as a follow-up bonus.
In accordance with the stipulation in his service contract,
he will be paid monthly compensation in the amount of
€ 29,535 gross for the post-contractual competition
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prohibition for a period of 24 months. This corresponds
to 50% of the last fixed monthly salary. The reserves set
up for this compensation for post-contractual competition
prohibition amount to € 708,846. The claims to pension
payments deriving from the pension commitment dated
December 16, 2002, as amended on December 17, 2014,
remain unaffected and will be paid out in accordance with
the contractual regulations.
Pension commitments
The service costs for the pension commitments granted to the
Executive Board members in the 2017 financial year and the
cash values of the vested rights are set out individually:
Pension commitments in the 2017 financial year in €
4
Executive Board members incumbent as at December 31, 2017
Kasper Rorsted 1
Roland Auschel
Eric Liedtke
Harm Ohlmeyer 2
Karen Parkin 3
Gil Steyaert 3
Total
Executive Board members departing in the 2017 financial year
Glenn Bennett 4
Robin J. Stalker 5
Total
Executive Board members incumbent until September 30, 2016
Herbert Hainer 6
Total
Service costs
Accumulated pension obligation for
the pension commitments excluding
deferred compensation
2016
587,372
360,846
359,588
n. a.
n. a.
n. a.
2017
2016
2017
1,243,202
430,138
502,371
385,521
289,045
296,747
615,559
1,137,760
1,201,127
n. a.
n. a.
n. a.
1,523,987
1,457,786
1,387,206
385,521
289,045
296,747
1,307,806
3,147,024
2,954,446
5,340,292
260,911
346,914
607,825
872,497
880,423
7,043,697
6,102,723
1,752,920
13,146,420
2,837,209
2,837,209
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
1 Member of the Executive Board as of August 1, 2016 and Chief Executive Officer as of October 1, 2016.
2 Member of the Executive Board as of March 7, 2017.
3 Member of the Executive Board as of May 12, 2017.
4 Member of the Executive Board until August 4, 2017. The prorated service costs 2017 for Glenn Bennett also comprise the contractually agreed follow-up bonus in the amount of € 693,085 a due to his departure at
the end of August 4, 2017 as the follow-up bonus is a commitment for other pension benefits in the case of a member leaving office prematurely which is concluded in advance.
5 Member of the Executive Board until May 11, 2017. The prorated service costs 2017 for Robin J. Stalker also comprise the contractually agreed follow-up bonus in the amount of € 739,746 due to his departure with
effect from the end of the Annual General Meeting on May 11, 2017 as the follow-up bonus is a commitment for other pension benefits in the case of a member leaving office prematurely which is concluded in advance.
6 Chief Executive Officer and member of the Executive Board until September 30, 2016. The prorated service costs 2016 for Herber Hainer also comprise the contractually agreed follow-up bonus in the amount of
€ 2,540,625 due to his departure at the end of September 30, 2016 as the follow-up bonus is a commitment for other pension benefits in the case of a member leaving office prematurely which is concluded in advance.
Overall compensation for 2017 in accordance with the Code
Based on the Supervisory Board’s determination outlined
above, the overall compensation of the Executive Board for
the 2017 financial year amounts to € 38.013 million (2016:
€ 16.086 million). Due to the high Performance Bonus paid for
the successful financial year and the payout in connection
with the LTIP 2015/2017 as well as the increase in the
number of Executive Board members, the appointment of
Harm Ohlmeyer as member of the Executive Board and as
successor to Robin J. Stalker with effect from March 7, 2017,
the appointment of Gil Steyaert as member of the Executive
Board and as successor to Glenn Bennett with effect from
May 12, 2017 and the appointment of Karen Parkin as member
of the Executive Board also with effect from May 12, 2017, the
total compensation for the year under review is higher than
the total compensation for the 2016 financial year.
The recommendations of the Code to individually disclose the
compensation components for each Executive Board member
and to use the sample tables attached to the Code are
implemented in the following.
Benefits granted in accordance with the Code
In the following table, the benefits granted for the 2016 and
2017 financial years are disclosed including other benefits
and service costs, and also including the maximum and
minimum achievable compensation.
In accordance with the requirements of the Code, the
Performance Bonus is disclosed with the amount granted
in case of 100% target achievement. Pursuant to the
recommendations of the Code, the LTIP Bonus resulting from
the LTIP 2015/2017 measured over a three-year period is to
be indicated with the pro rata temporis target amount of an
average probability scenario at the time of granting, whereas
adidas AG takes the 100% target amount as a basis.
0
4
8
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
COMPENSATION REPORT
Benefits granted in €
5
Fixed compensation
Other benefits
Total
One-year variable compensation 1, 2
Multi-year variable compensation
LTIP 2015/2017 3, 4
Total
Service costs 5, 6
Overall compensation
Fixed compensation
Other benefits
Total
One-year variable compensation 1, 2
Multi-year variable compensation
LTIP 2015/2017 3, 4
Total
Service costs 5, 6
Overall compensation
Kasper Rorsted
Executive Board member, Chief Executive Officer
since August 1, 2016 and October 1, 2016, respectively
Roland Auschel
Executive Board member, Global Sales
2016
2017
2017 (min.)
2017 (max.)
2016
2017
2017 (min.)
2017 (max.)
833,333
18,800
852,133
625,000
833,333
833,333
2,310,466
587,372
2,897,838
2,000,000
2,000,000
2,000,000
452
2,000,452
1,714,286
2,000,000
2,000,000
5,714,738
1,243,202
6,957,940
452
2,000,452
0
0
0
2,000,452
1,243,202
3,243,654
452
2,000,452
2,571,429
3,000,000
3,000,000
7,571,881
1,243,202
8,815,083
650,000
17,943
667,943
557,000
616,667
616,667
1,841,609
360,846
2,202,455
750,000
17,943
767,943
642,857
750,000
750,000
2,160,800
430,138
2,590,938
750,000
17,943
767,943
0
0
0
767,943
430,138
1,198,081
750,000
17,943
767,943
964,286
1,125,000
1,125,000
2,857,228
430,138
3,287,366
Eric Liedtke
Executive Board member, Global Brands
2016
2017
2017 (min.)
2017 (max.)
650,000
13,396
663,396
557,000
616,667
616,667
1,837,062
359,588
2,196,650
820,000
12,575
832,575
702,857
820,000
820,000
2,355,432
502,371
2,857,803
820,000
12,575
832,575
0
0
0
832,575
502,371
1,334,946
820,000
12,575
832,575
1,054,286
1,230,000
1,230,000
3,116,861
502,371
3,619,232
Harm Ohlmeyer
Executive Board member, Chief Financial Officer
since March 7, 2017 and since the end of the Annual General Meeting
on May 11, 2017, respectively
2016
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
2017
2017 (min.)
2017 (max.)
561,603
14,650
576,254
481,374
561,603
561,603
1,619,231
385,521
2,004,752
561,603
14,650
576,254
0
0
0
576,254
385,521
961,775
561,603
14,650
576,254
722,061
842,405
842,405
2,140,720
385,521
2,526,241
0
4
9
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
COMPENSATION REPORT
Benefits granted in €
5
Fixed compensation
Other benefits
Total
One-year variable compensation 1, 2
Multi-year variable compensation
LTIP 2015/2017 3, 4
Total
Service costs 5, 6
Overall compensation
Fixed compensation
Other benefits
Total
One-year variable compensation 1, 2
Multi-year variable compensation
LTIP 2015/2017 3, 4
Total
Service costs 5, 6
Overall compensation
Karen Parkin
Executive Board member, Global Human Resources
since May 12, 2017
Gil Steyaert
Executive Board member, Global Operations
since May 12, 2017 and August 5, 2017, respectively
2016
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
2017
2017 (min.)
2017 (max.)
437,829
14,070
451,899
375,282
437,829
437,829
1,265,010
289,045
1,554,055
437,829
14,070
451,899
0
0
0
451,899
289,045
740,944
437,829
14,070
451,899
562,923
656,743
656,743
1,671,565
289,045
1,960,610
2016
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
2017
2017 (min.)
2017 (max.)
437,829
8,590
446,419
375,282
437,829
437,829
1,259,529
296,747
1,556,276
437,829
8,590
446,419
0
0
0
446,419
296,747
743,166
437,829
8,590
446,419
562,923
656,743
656,743
1,666,085
296,747
1,962,832
Herbert Hainer
Chief Executive Officer
until September 30, 2016
Glenn Bennett
Executive Board member, Global Operations
until August 4, 2017
2016
1,200,000
26,917
1,226,917
1,355,000
1,694,000
1,694,000
4,275,917
2,837,209
7,113,126
2017
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
2017 (min.)
2017 (max.)
2016 7
2017 8, 9
2017 (min.)
2017 (max.)
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
721,474
35,056
756,531
686,602
903,665
903,665
2,346,798
260,911
2,607,709
421,115
19,862
440,977
694,822
887,847
887,847
2,023,647
872,497
2,896,144
421,115
19,862
440,977
0
0
0
440,977
872,497
1,313,475
421,115
19,862
440,977
1,042,233
1,331,771
1,331,771
2,814,981
872,497
3,687,479
0
5
0
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
COMPENSATION REPORT
Benefits granted in €
5
Fixed compensation
Other benefits
Total
One-year variable compensation 1, 2
Multi-year variable compensation
LTIP 2015/2017 3, 4
Total
Service costs 5, 6
Overall compensation
Robin J. Stalker
Chief Financial Officer
until the end of the Annual General Meeting on May 11, 2017
2016
2017 10
2017 (min.)
2017 (max.)
665,500
20,018
685,518
540,000
741,800
741,800
1,967,318
346,914
2,314,232
241,512
7,265
248,777
556,200
741,800
741,800
1,546,777
880,423
2,427,199
241,512
7,265
248,777
0
0
0
248,777
880,423
1,129,199
241,512
7,265
248,777
834,300
1,112,700
1,112,700
2,195,777
880,423
3,076,199
1 Contractually agreed Performance Bonus target amount 2016 for Kasper Rorsted due to his intra-year appointment to the Executive Board with effect from August 1, 2016. Contractually agreed Performance Bonus target amount 2016 due to the termination of Herbert Hainer’s Executive Board mandate (with effect from
the end of September 30, 2016) during the plan term.
2 Contractually agreed Performance Bonus target amount 2017 due to the intra-year appointment of Harm Ohlmeyer (with effect from March 7, 2017), Karen Parkin (with effect from May 12, 2017) and Gil Steyaert (with effect from May 12, 2017) to the Executive Board. Contractually agreed Performance Bonus target amount
2017 due to the termination of the Executive Board mandates of Robin J. Stalker (with effect from the end of the Annual General Meeting on May 11, 2017) and Glenn Bennett (with effect from the end of August 4, 2017) during the plan term.
3 Contractually agreed LTIP Bonus target amount 2015/2017 due to the appointment of Kasper Rorsted (with effect from August 1, 2016) , Harm Ohlmeyer (with effect from March 7, 2017), Karen Parkin (with effect from May 12, 2017) and Gil Steyaert (with effect from May 12, 2017) to the Executive Board during the plan term.
4 Contractually agreed LTIP Bonus target amount 2015/2017 due to the termination of the Executive Board mandates of Herbert Hainer (with effect from the end of September 30, 2016), Robin J. Stalker (with effect from the end of the Annual General Meeting on May 11, 2017) and Glenn Bennett (with effect from the end of
August 4, 2017) during the plan term.
5 Service costs 2016 stated pro rata temporis due to the intra-year termination of Herbert Hainer’s Executive Board mandate with effect from the end of September 30, 2016. The service costs 2016 for Herbert Hainer also comprise the contractually agreed follow-up bonus in the amount of € 2,540,625 due to his departure
with effect from the end of September 30, 2016 as the follow-up bonus is a commitment for other pension benefits in the case of a member leaving office prematurely which is concluded in advance.
6 Service costs 2017 stated pro rata temporis due to the intra-year termination of the Executive Board mandates of Robin J. Stalker (with effect from the end of the Annual General Meeting on May 11, 2017) and Glenn Bennett (with effect from the end of August 4, 2017). The service costs 2017 for Robin J. Stalker and Glenn
Bennett also comprise the contractually agreed follow-up bonus (Robin J. Stalker: in the amount of € 739,746 , Glenn Bennett: in the amount of € 693,085 ) due to the intra-year departures as the follow-up bonus is a commitment for other pension benefits in the case of a member leaving office prematurely which is
concluded in advance.
7 Exchange rate 1.10690 $/€ (annual average rate 2016).
8 Exchange rate 1.12662 $/€ annual average rate 2017).
9 Executive Board compensation stated pro rata temporis due to the intra-year termination of Glenn Bennett’s Executive Board mandate at the end of August 4, 2017. Glenn Bennett’s service contract terminates with effect from March 31, 2018. The variable compensation components (Performance Bonus and LTI) granted
for the 2017 financial year were already fully earned by Glenn Bennett during his term of office as Executive Board member. In addition to the overall compensation set out, Glenn Bennett received the following compensation for the period from August 5, 2017 to December 31, 2017: fixed compensation in the amount of
€ 287,730 and other benefits in the amount of € 13,571. This compensation and the service costs for the period from August 5, 2017 to December 31, 2017 in the amount of € 122,585 are set out in the Compensation Report as part of the overall payments to former members of the Executive Board.
10 Executive Board compensation stated pro rata temporis due to the intra-year termination of Robin J. Stalker’s Executive Board mandate with effect from the end of the Annual General Meeting on May 11, 2017. Robin J. Stalker’s service contract terminates with effect from March 31, 2018. The variable compensation
components (Performance Bonus and LTI) granted for the 2017 financial year were already fully earned by Robin J. Stalker during his term of office as Executive Board member. In addition to the overall compensation set out, Robin J. Stalker received the following compensation for the period from May 12, 2017 to
December 31, 2017: fixed compensation in the amount of € 423,988 and other benefits in the amount of € 18,725. This compensation and the service costs for the period from May 12, 2017 to December 31, 2017 in the amount of € 246,965 are set out in the Compensation Report as part of the overall payments to former
members of the Executive Board.
0
5
1
ADIDAS ANNUAL REPORT 2017
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
COMPENSATION REPORT
Allocation in accordance with the Code
Pursuant to the recommendations of the Code, the fixed
com pensation, other benefits and the service costs as well as
the Performance Bonus are disclosed as an allocation for the
financial year in which the compensation was granted. In the
year under review, the LTIP Bonus resulting from the LTIP
2015/2017 measured over a three-year period is disclosed in
total as an allocation because, as stipulated by the Code, it is
to be disclosed in the year in which the plan ends.
Allocation in €
6
Fixed compensation
Other benefits
Total
One-year variable compensation 1, 2
Multi-year variable compensation
LTIP 2015/2017 3, 4
Other
Total 5
Service costs 6, 7
Overall compensation
Fixed compensation
Other benefits
Total
One-year variable compensation 1, 2
Multi-year variable compensation
LTIP 2015/2017 3, 4
Other
Total 5
Service costs 6, 7
Overall compensation
Kasper Rorsted
Executive Board member,
Chief Executive Officer
since August 1, 2016 and
October 1, 2016, respectively
Roland Auschel
Executive Board member,
Global Sales
Eric Liedtke
Executive Board member,
Global Brands
2016
2017
2016
2017
2016
2017
833,333
18,800
852,133
937,500
n. a.
n. a.
n. a.
1,789,633
587,372
2,377,005
2,000,000
452
2,000,452
2,400,000
4,250,000
4,250,000
n.a.
8,650,453
1,243,202
9,893,655
650,000
17,943
667,943
835,500
n. a.
n. a.
n. a.
1,503,443
360,846
1,864,289
750,000
17,943
767,943
880,714
2,975,000
2,975,000
n.a.
4,623,657
430,138
5,053,795
650,000
13,396
663,396
835,500
n. a.
n. a.
n. a.
1,498,896
359,588
1,858,484
820,000
12,575
832,575
969,943
3,080,000
3,080,000
n. a.
4,882,518
502,371
5,384,889
Harm Ohlmeyer
Executive Board member,
Chief Financial Officer
since March 7, 2017 and with effect
from the end of the Annual General
Meeting on May 11, 2017, respectively
Karen Parkin
Executive Board member,
Global Human Resources
since May 12, 2017
Gil Steyaert
Executive Board member,
Global Operations
since May 12, 2017 and
August 5, 2017, respectively
2016
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
2017
561,603
14,650
576,254
640,228
842,405
842,405
n. a.
2,058,886
385,521
2,444,407
2016
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
2017
437,829
14,070
451,899
495,372
656,743
656,743
n. a.
1,604,015
289,045
1,893,060
2016
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
2017
437,829
8,590
446,419
502,878
656,743
656,743
n. a.
1,606,040
296,747
1,902,787
0
5
2
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
COMPENSATION REPORT
Allocation in €
6
Fixed compensation
Other benefits
Total
One-year variable compensation 1, 2
Multi-year variable compensation
LTIP 2015/2017 3, 4
Other
Total 5
Service costs 6, 7
Overall compensation
Herbert Hainer
Chief Executive Officer
until September 30, 2016
Glenn Bennett
Executive Board member,
Global Operations
until August 4, 2017
Robin J. Stalker
Chief Financial Officer
until the end of the Annual General
Meeting on May 11, 2017
2016
2017 8
2016 9
2017 10, 11
2016
2017 12
1,200,000
26,917
1,226,917
2,032,500
n. a.
n. a.
n. a.
3,259,417
2,837,209
6,096,626
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
n. a.
721,474
35,056
756,531
1,029,903
n. a.
n. a.
n. a.
1,786,434
260,911
2,047,345
421,115
19,862
440,977
924,113
3,995,313
3,995,313
n. a.
5,360,404
872,497
6,232,901
665,500
20,018
685,518
810,000
n. a.
n. a.
n. a.
1,495,518
346,914
1,842,432
241,512
7,265
248,777
739,746
3,338,100
3,338,100
n. a.
4,326,623
880,423
5,207,045
1 Contractually agreed Performance Bonus target amount 2016 for Kasper Rorsted due to his intra-year appointment to the Executive Board with effect from August 1, 2016. Contractually agreed Performance Bonus target amount 2016 due to the termination of Herbert Hainer’s Executive Board mandate (with effect from
the end of September 30, 2017) during the plan term.
2 Contractually agreed Performance Bonus target amount 2017 due to the intra-year appointments of Harm Ohlmeyer (with effect from March 7, 2017), Karen Parkin (with effect from May 12, 2017) and Gil Steyaert (with effect from May 12, 2017) to the Executive Board. Contractually agreed Performance Bonus target amount
2017 due to the termination of Robin J. Stalker’s (with effect from the end of the Annual General Meeting on May 11, 2017) and Glenn Bennett’s (with effect from the end of August 4, 2017) Executive Board mandates during the plan term.
3 Contractually agreed LTIP Bonus target amount 2015/2017 due to the appointment of Kasper Rorsted (with effect from August 1, 2016) , Harm Ohlmeyer (with effect from March 7, 2017), Karen Parkin (with effect from May, 12 2017) and Gil Steyaert (with effect from May 12, 2017) to the Executive Board during the plan term.
4 Contractually agreed LTIP Bonus target amount 2015/2017 due to the termination of the Executive Board mandates of Robin J. Stalker (with effect from the end of the Annual General Meeting on May 11, 2017) and Glenn Bennett (with effect from August 4, 2017) during the plan term.
5 The compensation components set out above constitute the overall compensation both for the 2017 financial year and for the previous year, which have to be set out individually in accordance with German Commercial Law.
6 Service costs stated pro rata temporis due to the intra-year termination of Herbert Hainer’s Executive Board mandate with effect from the end of September 30, 2016. The service costs 2016 for Herbert Hainer also comprise the contractually agreed follow-up bonus in the amount of € 2,540,625 due to his departure with
effect from the end of September 30, 2016 as the follow-up bonus is a commitment for other pension benefits in the case of a member leaving office prematurely which is concluded in advance.
7 Service costs stated pro rata temporis due to the intra-year termination of the Executive Board mandates of Robin J. Stalker (with effect from the end of the Annual General Meeting on May 11, 2017) and Glenn Bennett (with effect from the end of August 4, 2017). The service costs 2017 for Robin J. Stalker and Glenn
Bennett also comprise the contractually agreed follow-up bonuses (Robin J. Stalker: in the amount of € 739,746, Glenn Bennett: in the amount of € 693,085) due to their intra-year departures as the follow-up bonus is a commitment for other pension benefits in the case of a member leaving office prematurely which is
concluded in advance.
8 In addition to the overall compensation stated, Herbert Hainer received an LTIP Bonus 2015/2017 in the amount of € 5,082,000. This compensation is set out in the Compensation Report as part of the overall payments to former members of the Executive Board.
9 Exchange rate 1.10690 $/€ (annual average rate 2016).
10 Exchange rate 1.12662 $/€ (annual average rate 2017).
11 Executive Board compensation stated pro rata temporis due to the intra-year termination of Glenn Bennett’s Executive Board mandate at the end of August 4, 2017. Glenn Bennett’s service contract terminates with effect from March 31, 2018. The variable compensation components (Performance Bonus and LTI) granted
for the 2017 financial year were already fully earned by Glenn Bennett during his term of office as Executive Board member. In addition to the overall compensation set out, Glenn Bennett received the following compensation for the period from August 5, 2017 to December 31, 2017: fixed compensation in the amount of
€ 287,730 and other benefits in the amount of € 13,571. This compensation and the service costs for the period from August 5, 2017 to December 31, 2017 in the amount of € 122,585 are set out in the Compensation Report as part of the overall payments to former members of the Executive Board.
12 Executive Board compensation stated pro rata temporis due to intra-year termination of Robin J. Stalker’s Executive Board mandate with effect from the end of the Annual General Meeting on May 11, 2017. Robin J. Stalker’s service contract terminates with effect from March 31, 2018. The variable compensation
components (Performance Bonus and LTI) granted for the 2017 financial year were already fully earned by Robin J. Stalker during his term of office as Executive Board member. In addition to the overall compensation set out, Robin J. Stalker received the following compensation for the period from May 12, 2017 to
December 31, 2017: fixed compensation in the amount of € 423,988 and other benefits in the amount of € 18,725. This compensation and the service costs for the period from May 12, 2017 to December 31, 2017 in the amount of € 246,965 are set out in the Compensation Report as part of the overall payments to former
members of the Executive Board.
0
5
3
ADIDAS ANNUAL REPORT 2017
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
COMPENSATION REPORT
Overall payments to former members of the Executive Board and their
surviving dependents
In the 2017 financial year, overall payments to former
members of the Executive Board and their surviving dependents
amounted to € 13.520 million (2016: € 8.754 million). The
increase is attributable, on the one hand, to the inclusion of
the bonus paid to Herbert Hainer in connection with the LTIP
2015/2017 in the overall payments for 2017. On the other, the
increase is attributable, in particular, also to the inclusion of
the compensation and the service costs for Robin J. Stalker
for the period from May 12, 2017 to March 31, 2018 and for
Glenn Bennett for the period from August 5, 2017 to
March 31, 2018 as well as the compensation for the post-
contractual competition prohibition and the follow-up bonus
in connection with the termination of their Executive Board
mandates in the overall payments. For details, see the section
‘Commitments to Executive Board members in connection
with termination of tenure’.
SEE PAGE 47
Provisions for pension entitlements for the former members
of the Executive Board who resigned on or before December 31,
2005 and their surviving dependents were created, amounting
to € 44.587 million (2016: € 45.821 million) in total as at
December 31, 2017.
There are pension commitments toward six former Executive
Board members who resigned after December 31, 2005,
which are covered by a pension fund or a pension fund in
combination with a reinsured pension trust fund. From this,
indirect obligations amounting to € 40.106 million (2016:
€ 29.472 million) arise for adidas AG, for which no accruals were
established due to financing through the pension fund and
pension trust fund. This increase is attributable, in particular,
to the resignation of Robin J. Stalker and Glenn Bennett.
The dynamization of the pensions paid to former Executive
Board members is effected in accordance with statutory
regulations or regulations under collective agreements,
unless a surplus from the pension fund is used for an increase
in pension benefits after pension payments have already begun.
Review of Executive Board compensation
In the 2017 financial year, the Supervisory Board had the
Executive Board compensation system reviewed with regard
to appropriateness by an independent external compensation
expert. In doing so, the overall annual target compensation of
the individual Executive Board members and the structure of
the Executive Board compensation were examined in detail.
This review found that while the compensation meets the
requirements of the German Stock Corporation Act and the
Code, it could be aligned even more closely with customary
market levels. Against this background, the Supervisory
Board resolved in December 2017 to increase the compen-
sation of Roland Auschel and Eric Liedtke with effect from
January 1, 2018.
Miscellaneous
The Executive Board members do not receive any additional
compensation for mandates within adidas. The Executive
Board members have not received any loans and advance
payments from adidas AG; due to his departure from the
Executive Board, prepayments were made to Robin J. Stalker
with regard to the 2017 Performance Bonus and prorated for
2018 as well as with regard to the LTIP 2015/2017.
SEE PAGE 47
COMPENSATION OF THE
SUPERVISORY BOARD MEMBERS
COMPENSATION SYSTEM
In accordance with § 18 of adidas AG’s Articles of Association,
the compensation of the Supervisory Board members consists
of two components: fixed compensation and additional
compensation for membership in committees. The Supervisory
Board members are not granted variable compensation.
Furthermore, the Supervisory Board members receive
attendance fees and are reimbursed for expenses they incur.
Fixed compensation for Supervisory Board function
Each member receives fixed compensation which is paid
following the end of the respective financial year. The
Chairman of the Supervisory Board and his deputies receive
higher fixed compensation.
Member
Chairman
Deputy Chairman/
Chairwoman
300% of the
base amount
200% of the
base amount
Amount deter-
mined by the
Annual General
Meeting (base
amount)
€ 50,000
€ 150,000
€ 100,000
€ 80,000
€ 240,000
€ 160,000
General
calculation
Amount until
June 30, 2017
(based on full
year)
Amount from
July 1, 2017
(based on full
year)
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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FINANCIAL REVIEW
STATEMENTS
COMPENSATION REPORT
for membership
Additional compensation for membership in committees
Furthermore, the Supervisory Board members receive
in certain
additional compensation
committees; in this regard, too, compensation is increased if
the chairmanship of a committee is assumed. In accordance
with § 18 of the Articles of Association, the amount of the
respective additional compensation is based on the fixed
compensation (base amount) determined for the Supervisory
Board members by the Annual General Meeting and depends
on the tasks and responsibilities connected with the respective
committee membership.
General Committee and
Finance and Investment
Committee
Audit Committee
Member
Chairman
Member
Chairman
50%
100%
100%
150%
200% since
July 1, 2017
€ 25,000
€ 50,000
€ 50,000
€ 75,000
€ 40,000
€ 80,000
€ 80,000
€ 160,000
General
calculation (in
% of the base
amount)
Amount until
June 30, 2017
(based on full
year)
Amount from
July 1, 2017
(based on full
year)
The compensation paid for a committee chairmanship also
covers the membership in such committee. The members of
the Steering Committee, the Mediation Committee, the
Nomination Committee and committees which are established
ad hoc do not receive additional compensation. If a Supervisory
Board member is a member of more than one committee, the
member only receives compensation for his task in the
committee with the highest compensation.
Reduced fixed compensation and additional compensation in case of
membership for only part of financial year
If a member belongs to the Supervisory Board or a committee
for only part of a financial year, the fixed compensation and
additional compensation are reduced accordingly on a pro
rata temporis basis.
Attendance fees
Furthermore, for meetings requiring personal attendance,
an attendance fee is granted. Until June 30, 2017, the at-
tendance fee amounted to € 750 and since July 1, 2017 it
amounts to € 1,000.
Expenses
The Supervisory Board members are reimbursed for necessary
expenses and travel expenses incurred in connection with their
mandates as well as for the VAT payable on their compensation,
insofar as they charge for it separately.
increase
SUPERVISORY BOARD COMPENSATION 2017
Fixed compensation and attendance fees
The total compensation paid to our Supervisory Board in the
2017 financial year amounted to € 1.78 million (2016:
€ 1.26 million). In addition, attendance fees totaling € 126,750
(2016: € 70,500) were paid. The
in the total
compensation for the 2017 financial year compared to the
2016 financial year is attributable, in particular, to the fact
that the Annual General Meeting on May 11, 2017 approved
the amendment to the Articles of Association regarding the
adjustment of the Supervisory Board compensation with
effect from July 1, 2017. Moreover, as the Annual General
Meeting on May 12, 2016 resolved to enlarge the Supervisory
Board by four members, 2017 was the first full financial
year during which the Supervisory Board was composed of
16 members.
Miscellaneous
The Supervisory Board members have not received any loans
or advance payments from adidas AG.
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
COMPENSATION REPORT
Compensation of Supervisory Board members in €
7
Supervisory Board members incumbent as at December 31, 2017
Igor Landau
(Chairman of the Supervisory Board, Chairman of the General Committee,
Chairman of the Finance and Investment Committee)
Sabine Bauer
(Deputy Chairwoman of the Supervisory Board, Member of the General Committee,
Member of the Finance and Investment Committee)
Willi Schwerdtle
(Deputy Chairman of the Supervisory Board, Member of the General Committee)
Ian Gallienne 1
(Member of the Audit Committee since March 7, 2017)
Dieter Hauenstein
Roswitha Hermann 2
Dr. Wolfgang Jäger
(Member of the Audit Committee, Member of the Finance and Investment Committee)
Dr. Stefan Jentzsch
(Member of the Audit Committee until March 7, 2017)
Herbert Kauffmann
(Chairman of the Audit Committee, Member of the Finance and Investment Committee)
Katja Kraus
Kathrin Menges
Udo Müller 3
Roland Nosko
(Member of the General Committee)
Hans Ruprecht
(Member of the Audit Committee)
Nassef Sawiris 1
Michael Storl 2
Heidi Thaler-Veh
Kurt Wittmann 3
Total
1 Member of the Supervisory Board with effect from June 15, 2016.
2 Member of the Supervisory Board for the period from June 24, 2016 to October 6, 2016.
3 Member of the Supervisory Board with effect from October 6, 2016.
2016
fixed
compensation
2016
compensation
committee work
2016
attendance fees
2017
fixed
compensation
2017
compensation
committee work
2017
attendance fees
150,000
50,000
5,250
195,000
65,000
9,750
100,000
100,000
27,322
50,000
14,208
50,000
50,000
50,000
50,000
50,000
11,885
50,000
50,000
27,322
14,208
50,000
11,885
25,000
25,000
n. a.
n. a.
n. a.
50,000
50,000
75,000
n. a.
n. a.
n. a.
25,000
50,000
n. a.
n. a.
n. a.
n. a.
5,250
5,250
1,500
3,750
750
6,750
7,500
7,500
3,000
3,750
750
5,250
7,500
1,500
750
3,750
750
130,000
32,500
130,000
32,500
65,000
65,000
n. a.
55,860
n. a.
n. a.
9,750
9,000
10,000
6,250
n.a.
65,000
65,000
10,750
65,000
65,000
65,000
65,000
65,000
9,140
7,000
117,500
n. a.
n. a.
n. a.
10,750
6,250
4,250
6,250
65,000
32,500
9,750
65,000
65,000
n. a.
65,000
65,000
65,000
n. a.
n. a.
n. a.
n. a.
10,750
5,250
n.a.
5,500
5,500
906,831
350,000
70,500
1,300,000
475,000
126,750
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
OUR SHARE
OUR SHARE
throughout
the year,
Despite some minor setbacks
international stock markets ended the year 2017 on a
positive note. While the DAX-30 and the EURO STOXX 50
increased by 13% and 6%, respectively, the MSCI World
Textiles, Apparel & Luxury Goods Index was up 32%. The
adidas AG share traded fairly in line with international stock
markets and ended 2017 with an increase of 11% compared
to the prior year. As a result of the strong operational
performance in 2017 as well as Management’s confidence in
the strength of the company’s financial position and long-
term growth aspirations, we intend to propose a dividend
per share of € 2.60 at our 2018 Annual General Meeting.
ADIDAS AG SHARE CONTINUES UPSWING IN 2017
In 2017, international stock markets ended the year on a
positive note, despite some minor setbacks throughout the
year. The strong performance was supported by business-
friendly policy decisions following the US elections, including
Five-year share price development 1
a significant US tax reform, strong global economic growth,
the outcome of the French parliamentary election as well as
accommodative monetary policies by central banks around
the world. The Federal Reserve’s decisions on interest rate
increases and balance sheet cuts, the strengthening of the
euro, terror attacks and geopolitical risks only temporarily put
pressure on international equity markets. As a result, the
DAX-30 increased a strong 13%, while the EURO STOXX 50
gained 6% in 2017. The MSCI World Textiles, Apparel & Luxury
Goods Index ended the year with a 32% increase.
SEE TABLE 9
The adidas AG share traded fairly in line with international
stock markets and ended the year 11% above the 2016 year-
end level. In particular, the publication of the company’s 2020
acceleration plan, including an increase in the company’s
financial 2020 ambition, strongly supported the positive trend
of the share during the course of 2017. In addition, the release
of strong financial results, driven by the relentless execution
of the strategic business plan ‘Creating the New’, which
resulted in an upgrade of the company’s full year 2017 outlook
at the end of July, helped to reinforce investors’ confidence
in the successful execution of Creating the New and the
company’s ability to sustainably grow revenues and
improve margins in the years to come. Consequently, the
adidas AG share reached a new all-time high of € 199.95 on
August 4, 2017. However, unfavorable newsflow regarding the
US retail environment as well as some profit-taking and
strategic asset re-allocation executed by capital market
participants, following the strong share price development
during the first nine months, temporarily put pressure on the
adidas AG share towards the end of 2017. Consequently, the
adidas AG share closed the year at € 167.15 and thus 11%
above the prior year-end level.
SEE DIAGRAM 8
Performance of the adidas AG share and important indices
at year-end 2017 in %
9
adidas AG
DAX-30
EURO STOXX 50
MSCI World Textiles, Apparel &
Luxury Goods
8
Source: Bloomberg.
1 year
3 years
5 years
10 years
11
13
6
32
190
148
32
11
26
70
33
52
226
60
(20)
133
| Dec. 31, 2012
Dec. 31, 2017 |
300
250
200
150
100
50
1 Index: December 31, 2012 = 100.
adidas AG
DAX-30
EURO STOXX 50
MSCI World Textiles, Apparel & Luxury Goods Index
LEVEL 1 ADR PERFORMS IN LINE WITH
COMMON STOCK
Our Level 1 ADR closed 2017 at US $ 99.82, representing an
increase of 27% versus the prior year level (2016: US $ 78.55).
The more pronounced increase of the Level 1 ADR price
compared to the ordinary share price was due to the
depreciation of the US dollar versus the euro in 2017. The
number of Level 1 ADRs outstanding decreased to 7.1 million at
year-end 2017 compared to 8.8 million at the end of 2016. The
average daily trading volume decreased to around 60,200 ADRs
in 2017 (2016: around 101,200). Further information on our ADR
program can be found on our website. ↗ ADIDAS-GROUP.COM/ADR
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
OUR SHARE
ADIDAS AG SHARE MEMBER OF
IMPORTANT INDICES
The adidas AG share is included in a variety of high-quality
indices around the world, most importantly the DAX-30, the
EURO STOXX 50 Index as well as the MSCI World Textiles,
Apparel & Luxury Goods Index, which comprises our major
competitors. At December 31, 2017, our weighting in the
DAX-30, which is calculated on the basis of free float market
capitalization and twelve-month share turnover, improved
to 3.01% (2016: 2.89%). Our higher weighting compared to the
prior year was due to the increase in market capitalization
of adidas AG. Within the DAX-30, we ranked 11 on market
capitalization (2016: 14) and 12 on turnover (2016: 12) at
year-end 2017. Our weighting in the EURO STOXX 50 Index,
which is based on free-float market capitalization, amounted
to 1.28% on December 31, 2017 (2016: 1.31%). Additionally, in
recognition of our social and environmental efforts, adidas AG
is listed in several key sustainability indices.
SEE TABLE 10
MORE THAN 90% OF THE
CONVERTIBLE BOND CONVERTED
In March 2012, adidas AG successfully issued a convertible
bond, due on June 14, 2019, for an aggregate nominal amount
of € 500 million. Proceeds from the offering have allowed the
company to further optimize its debt structure. The bonds
were priced with a 0.25% annual coupon and a conversion
premium of 40% above the reference price of € 59.61,
resulting in an initial conversion price of € 83.46 per share. As
a consequence of contractual provisions relating to dividend
protection, the conversion price was adjusted to € 81.13
per share. This adjustment became effective on May 12, 2017.
The bonds have been callable by the issuer since June 2017.
In 2017, 2,814,470 shares were transferred following the
exercise of conversion rights, all of which were serviced from
treasury shares of the company. The remaining bonds were
convertible into up to 377,190 new or existing adidas AG shares.
SEE NOTE 18, P. 175 Consequently, as at December 31, 2017, 94%
of the convertible bond was con verted (2016: 48%). The
convertible bond closed the year 12% above the prior year
level at € 205.91 (2016: € 183.40).
DIVIDEND PROPOSAL OF € 2.60 PER SHARE
As a result of the strong operational performance in 2017, the
company’s robust financial position as well as Manage-
ment’s confidence in our long-term growth aspirations, the
adidas AG Executive and Supervisory Boards will recommend
paying a dividend of € 2.60 per dividend-entitled share to
shareholders at the Annual General Meeting (AGM) on
May 9, 2018. This represents an increase of 30% compared to
the prior year dividend (2016: € 2.00). Subject to the meeting’s
approval, the dividend will be paid on May 15, 2018. The total
payout of € 530 million (2016: € 405 million) reflects a payout
ratio of 37.1% (2016: 37.4%) of net income from continuing
operations excluding the negative one-time tax impact as a
result of the US tax reform in 2017.
SEE TABLE 10 This is within
the target range of between 30% and 50% of net income from
continuing operations as defined in our dividend policy.
SHAREHOLDER RETURN PROGRAM EXPIRED
On October 1, 2014, adidas AG announced a multi-year
shareholder return program of up to € 1.5 billion in total to be
completed by December 31, 2017. The shareholder return
program was executed by buying back shares via the stock
exchange under the authorization given by the Annual General
Meeting on May 8, 2014, and on May 12, 2016, for the period
The adidas AG share
10
Number of shares outstanding 2
Basic earnings per share 3
Diluted earnings per share 3
Year-end price
Year high
Year low
Market capitalization4
Dividend per share
Dividend payout
Dividend payout ratio 3
Dividend yield
Shareholders’ equity per share 4
Price-earnings ratio at year-end 6
2017 1
2016
Important indices
shares
203,861,234
201,489,310 — DAX-30
€
€
€
€
€
€ in millions
€
€ in millions
%
%
€
%
7.05
7.00
167.15
199.95
143.80
34,075
2.60 5
530 4
37.1 4
1.6
31.64
23.7
653,389
5.39
5.29
150.15
159.50
83.45
30,254
2.00
405
37.4
1.3
32.12
27.8
892,646
— EURO STOXX 50
— MSCI World Textiles, Apparel &
Luxury Goods
— Deutsche Börse Prime Consumer
— Dow Jones Sustainability Indices
(World and Europe)
— ECPI Ethical Equity Indices
(Euro and EMU)
— ECPI ESG Equity (Euro and World)
— Ethibel Sustainability Indices
(Global and Europe)
— Euronext Vigeo (Eurozone 120,
Europe 120)
— FTSE4Good Index Series
— MSCI Global Sustainability Indexes
— MSCI SRI Indexes
— STOXX Global ESG Leaders
0
5
8
Average trading volume per trading day 7
shares
1 2017 excluding negative one-time tax impact of € 76 million.
2 All shares carry full dividend rights.
3 Based on net income from continuing operations.
4 Based on number of shares outstanding at year-end.
5 Subject to Annual General Meeting approval.
6 Based on basic EPS from continuing operations.
7 Based on number of shares traded on all German stock exchanges.
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
OUR SHARE
adidas AG high and low share prices per month 1 in €
11
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
230
210
190
170
150
130
0
4
.
5
5
1
0
3
.
4
4
1
0
4
.
8
5
1
0
8
.
3
4
1
0
7
.
5
8
1
0
6
.
5
7
1
5
1
.
4
8
1
5
8
.
9
6
1
0
6
.
7
7
1
5
3
.
4
6
1
0
0
.
3
9
1
5
3
.
8
6
1
0
2
.
3
8
1
0
8
.
9
5
1
5
9
.
9
9
1
0
2
.
3
8
1
0
2
.
9
9
1
5
8
.
7
8
1
0
1
.
6
9
1
5
3
.
6
8
1
30-day moving average
High and low share prices
1 Based on daily Xetra closing prices.
0
7
.
7
8
1
0
2
.
5
7
1
0
6
.
0
8
1
5
1
.
7
6
1
Source: Bloomberg.
Shareholder structure by investor group 1
12
Shareholder structure by region 1, 2
13
through to May 11, 2021. The authorization covers the
repurchase of up to 10% of the company’s share capital on the
stock exchange. The total number of shares bought back by
adidas AG within the framework of the shareholder return
program amounted to 11,146,969. This corresponds to a
notional amount of € 11,146,969 in the nominal capital and
consequently 5.33% of the company’s nominal capital. The total
aggregate acquisition costs (excluding incidental purchasing
costs) for the shareholder return program amounted to around
€ 900 million.
STRONG INTERNATIONAL INVESTOR BASE
Based on our share register, we estimate that adidas AG
currently has more than 70,000 shareholders (2016: 60,000).
In our latest ownership analysis conducted in January 2018,
we identified almost 100% of our shares outstanding.
Institutional investors represent the largest investor group,
holding 87% of shares outstanding (2016: 87%). Private
investors and undisclosed holdings account for 10% (2016:
8%). Lastly, adidas AG currently holds 3% of the company’s
shares as treasury shares (2016: 4%); this decline versus
the prior year reflects treasury shares transferred following
the exercise of conversion rights from the convertible bond
partly offset by shares purchased as part of our share buyback
program.
SEE DIAGRAM 12
10%
Private investors and
undisclosed holdings
1 As of January 2018.
6%
3%
France
Treasury shares
87%
Institutional investors
9%
Belgium
11%
Germany
15%
Rest of world
1 As of January 2018.
2 Reflects institutional investors only.
40%
North America
18%
United Kingdom
In terms of geographical distribution, the North American
market currently accounts for 40% of institutional share-
holdings (2016: 40%), followed by the UK with 18% (2016:
21%). Identified German institutional investors hold 11% of
shares outstanding (2016: 8%). Belgium and France account
for 9% (2016: 9%) and 6% (2016: 5%), respectively. 15% of
institutional shareholders were identified in other regions of
the world (2016: 17%).
SEE DIAGRAM 13
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
OUR SHARE
ADIDAS AG SHARE RECEIVES STRONG
ANALYST SUPPORT
Both the company and the adidas AG share continued to
receive strong analyst support in 2017. Around 40 analysts
from investment banks and brokerage firms regularly
published research reports on adidas. The vast majority
of analysts are confident about the medium- and long-
term potential of the company. This is reflected in the
recommendation split for our share as at December 31, 2017.
46% of analysts recommended investors to ’buy’ our share
(2016: 27%). 46% advised to ‘hold’ our share (2016: 56%) and 8%
of the analysts recommended to ‘sell’ our share (2016: 17%).
SUCCESSFUL INVESTOR RELATIONS ACTIVITIES
adidas AG strives to maintain close contact to institutional and
private shareholders as well as analysts. In 2017, Management
and the Investor Relations team spent 46 days on roadshows
(2016: 47) and also spent 21 days presenting at 14 national
and international conferences (2016: 28 days at 16 con ferences).
Furthermore, in order to present additional information
around Creating the New, our strategic business plan until
2020, as well as the newly introduced acceleration plan, we
hosted an Investor Day on March 14 at the company’s head-
quarters in Herzogenaurach, Germany. More than 100 investors
and analysts attended the event in person.
For the fourth time in five years, adidas was awarded a Red
Dot Communication Design Award for its Annual Report. In
addition, the adidas Investor Relations team won the
prestigious European IR Magazine Award in the following
categories: ‘Best in sector: Consumer Discretionary’ and
‘Best in region: Germany’.
VOTING RIGHTS NOTIFICATIONS PUBLISHED
All voting rights notifications received in 2017 and thereafter
in accordance with §§ 33 et seq. of the German Securities
Trading Act (Wertpapierhandelsgesetz – WpHG) (§§ 21 et seq.
German Securities Trading Act old version) can be viewed on our
corporate website. ↗ ADIDAS-GROUP.COM/VOTING_RIGHTS_NOTIFICATIONS
Information on reportable shareholdings that currently
exceed or fall below a certain threshold can also be found in
the Notes section of this Annual Report.
SEE NOTE 26, P. 182
MANAGERS’ TRANSACTIONS REPORTED ON
CORPORATE WEBSITE
Managers’ transactions involving adidas AG shares (ISIN
DE000A1EWWW0) or related financial instruments, as defined
by Article 19 of the European Market Abuse Regulation (MAR),
conducted by members of our Executive or Supervisory
Boards, by key executives or by any person in close relationship
with these persons, are reported on our website.
↗ ADIDAS-GROUP.COM/S/MANAGERS-TRANSACTIONS
EXTENSIVE FINANCIAL INFORMATION
AVAILABLE ONLINE
We offer extensive information around our share as well as
the company’s strategy and financial results on our corporate
website. Our event calendar lists all conferences and roadshows
we attend and provides all presentations for download. In
addition to live webcasts of all major events such as the
Annual General Meeting, Investor Days and our IR Tutorial
Workshops, we also offer webcasts of our quarterly conference
calls. ↗ ADIDAS-GROUP.COM/S/INVESTORS
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ADIDAS ANNUAL REPORT 2017 G R O U P
M A N A G E M E N T
R E P O R T
O U R C O M P A N Y
7
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
S
A
D
D
A
I
Corporate Strategy
adidas Brand Strategy
Reebok Brand Strategy
Sales and Distribution Strategy
Global Operations
062
067
070
072
074
Innovation
People and Culture
Sustainability
Non-Financial Statement
078
081
088
100
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Group Management Report: This report contains the Group Management Report of the adidas Group,
comprising adidas AG and its consolidated subsidiaries, and the Management Report of adidas AG.
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
CORPORATE STRATEGY
CORPORATE STRATEGY
Everything we do is rooted in sport. With sport playing an
increasingly important role in more and more people’s lives,
on and off the field of play, we operate in a highly attractive
industry. Through our authentic sports brands, we push the
boundaries of products, experiences and services to drive
brand desire and capitalize on the growth opportunities in
sport as well as in sports-inspired casual and activewear.
OUR CORE BELIEF: THROUGH SPORT, WE HAVE
THE POWER TO CHANGE LIVES
The importance of sport, however, goes far beyond that. Sport
is central to every culture and society and is core to an
individual’s health and happiness. Therefore, we believe that,
through sport, we have the power to change lives. And we
work every day to inspire and enable people to harness the
power of sport in their lives.
OUR MISSION: TO BE THE BEST SPORTS
COMPANY IN THE WORLD
It is our mission to be the best sports company in the world.
Best means that we design, build and sell the best sports
products in the world, with the best service and experience,
and that we do so in a sustainable way. Best is what our
consumers, athletes, teams, partners, media and share-
holders will say about us. We are confident that we will see
improvements with regard to market share, leadership and
profitability once people are saying that we are the best.
STRATEGIC BUSINESS PLAN: CREATING THE NEW
‘Creating the New’ is our strategic business plan until the
year 2020. Our ambition to further drive top- and bottom-line
growth by significantly increasing brand desirability builds the
core of Creating the New. The strategic business plan
therefore focuses on our brands as they connect and engage
with our consumers. This consumer-centric approach is
driving significant improvements in the desirability of our
brands and has increased our relevance with consumers
around the globe. As a result, we are gaining market share in
those categories, markets and cities that we have identified as
future growth drivers for our company.
STRATEGIC CHOICES
Our strategic business plan has a powerful foundation in our
unique corporate culture and is built around three strategic
choices that will support us in intensifying our focus on our
consumers and will drive brand desirability: Speed, Cities and
Open Source.
Culture
We have great talents in our organization who work with
passion for sports and our brands. Our people will bring our
strategy to life and our culture will make the difference in
achieving our long-term goals. We are convinced that a
culture of creativity, collaboration and confidence will be a key
enabler for us to Create the New.
SEE PEOPLE AND CULTURE, P. 81
Our leaders role model this behavior. To enhance our
leadership structure, we established the Core Leadership
Group at the end of 2016. This selected group of leaders is
mainly responsible for driving the execution of our strategic
business plan, with a particular focus on improving cross-
functional collaboration and decision making. In 2017, we
Our strategy: ‘Creating the New’
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CORPORATE STRATEGY
continued to sharpen our leadership structure by adding an
Extended Leadership Group which supports the Core
Leadership Group in implementing our strategy and which
will serve as a succession pipeline for Core Leadership Group
members. The Leadership Framework, introduced in 2017,
unites all leaders in our company through a clear definition of
what strong leadership looks like at adidas.
We believe that a performance culture is essential to
successfully executing our strategy. To further promote a
performance culture within our company, we have finalized a
new way of developing our people and evaluating their
performance. In addition, we made major progress
in
recalibrating our approach to compensation and benefits.
Long-term remuneration for our senior management, for
instance, will be simplified and linked to the development of
the company’s bottom line and our share price going forward
in order to further align the interests of our senior leaders
with the interests of our shareholders.
As a company, we value diversity and promote inclusivity.
While today our employee base is already very diverse in
terms of nationalities, we also aim to continuously increase
the share of females in leadership positions. With the
appointment of Karen Parkin to the Executive Board in May
2017, we have made further progress in this regard. In
addition, between July 2015 and June 2017, the share of
women at Board-1 level increased from 11% to 18%, and at
Board-2 level the percentage of women grew from 26% to
29% during the same period.
SEE PEOPLE AND CULTURE, P. 81
Speed
Driving brand desirability begins with putting our consumers
at the heart of everything we do and serving them in the best
possible way. This involves ensuring that consumers always
find fresh and desirable products where and when they want
them and with an unrivaled brand experience. This, in turn,
means to us being able to anticipate what consumers want
and reacting accordingly in a timely manner. Being fast will
give us a decisive competitive advantage. The benefits include
higher product availability, reduced inventory risk, incremental
net sales and higher margins. Speed is therefore a critical and
powerful lever for us.
We are using our industry-leading experience to further
evolve our entire business model end-to-end, from range
planning to product creation, sourcing, supply chain, go-to-
market and sales. In this context, our Speed concept builds on
three programs:
— Never out of stock: We strengthen our existing ‘never-
out-of-stock’ business proposition by setting a global,
permanent offer with longer life cycles and continuous
reproduction and replenishment. This ensures our most
iconic and desired products are permanently available to
our consumers.
— Planned responsiveness: Systematically monitoring trends
at the point of sale enables us to better read demand
signals, re-order seasonal products on shorter lead
times and deliver them within the season. By doing so, we
can repeat seasonal product successes and fulfil higher
consumer demand than initially forecast.
— In-season creation: We create ranges later in the season
to ensure we capture the latest trends in our industry. This,
in turn, helps us to create unexpected newness and drive
brand desire.
Since the launch of the Speed programs, we have steadily
expanded the coverage. All categories and markets have now
been fully onboarded and started to capitalize on the benefits
of the Speed programs. The net sales share of speed-enabled
products has continuously increased to a level of 28% in 2017
which is fully in line with our overall ambition to increase the
share of speed-enabled products to at least 50% by 2020. In
addition, we are making further progress to achieve a 20%
higher share of full-price sales with this part of our business
compared to the regular range.
In addition to focusing on Speed in our existing supply chain
and production processes, we also explore new, disruptive
business models and technologies to make us faster. At the
end of 2015, we opened our first Speedfactory
SEE GLOSSARY in
Ansbach, Germany. Using smart manufacturing instead of
centralized production, it brings production closer to where
the consumer is. It opens doors to the creation of products
completely unique to the fit and functional needs of our
consumers, through a combination of the craft of shoemaking
and cutting-edge technology. 2017 saw the first major product
to be created at the Speedfactory: The AM4 series, an
individually designed and manufactured shoe made for our
global key cities, went into production. In addition, we opened
a second Speedfactory in Atlanta, USA, to create product more
quickly for and closer to the US consumer. Bringing the two
factories up to speed is what we are focusing on in 2018. And
while Speedfactory enables us to rethink conventional manu-
facturing processes, it also enables us to continuously learn
from it, which in turn will help us to also improve efficiency
and increase opportunities within the traditional supply chain,
which will remain the backbone of our global sourcing activity.
SEE GLOBAL OPERATIONS, P. 74
SEE INNOVATION, P. 78
Cities
Urbanization continues to be a global megatrend. Most of the
global population lives in cities and already today cities
account for around 80% of global GDP. Cities are shaping
global trends and consumers’ perception, perspectives and
buying decisions. To be successful in the future, we therefore
need to win the consumer in the world’s most influential
cities. We have identified six global megacities in which we
want to over-proportionally invest to grow share of mind,
share of market, share of trend: London, Los Angeles, New
York, Paris, Shanghai and Tokyo.
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2 GROUP MANAGEMENT REPORT –
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FINANCIAL REVIEW
STATEMENTS
CORPORATE STRATEGY
We aim to deliver extraordinary experiences to consumers in
these cities across all touchpoints by engaging more deeply
with them in communities where they live, places where they
work, fields, courts and streets where they play and doors
where they shop. At the same time, we strive to create high
synergies between our activation and commercial efforts.
This also includes aligning our initiatives with similar activities
of key retail partners.
It is our goal to create an end-to-end ecosystem in these cities
which connects consumers to relevant products, through
bottom-up activation and holistic retail experiences:
— Activation: Our global key cities offer a unique platform
to activate our brands. Key successes in 2017 include the
‘Green Light Run’ in Tokyo, receiving six Cannes awards, as
well as the Parley ‘Run for the Oceans’ in New York City and
the launch of our new football footwear franchise Nemeziz
in London, which have not only created brand heat in the
respective cities but also received significant global social
media coverage.
— Products: We continue to drive a multi-pronged strategy of
product introductions, focused across all six cities, including
global campaign launches and exclusive collections. With
the launch of the AM4 series in 2017, we introduced the first
shoe that was co-created with consumers from our global
key cities and tailored to their unique demands. Produced
in our Speedfactory, the AM4 saw its debut in London and
Paris at the end of 2017, with the remaining four global key
cities to follow in 2018.
— Experiences: We are committed to providing premium
retail experiences to our consumers with executions that
connect, engage and inspire them. The opening of our
second adidas Originals flagship store in London in 2017 set
a new benchmark in the industry. Moreover, in collaboration
with our retail partners, we made significant progress in
transforming retail spaces into premium shopping spaces
in key doors within key trade zones.
The 2017 results for several KPIs (NPS and market share)
signal we are well on track to achieve our long-term target to
double revenues in our global key cities by the end of 2020
compared to 2015. Our global cities make an above-average
contribution to the overall growth of our company and help us
achieve market share gains. In addition, we also experienced a
relative improvement in brand desire in most of our key cities.
Open Source
Open Source is a collaboration-based innovation model
that aims to build brand advocacy by opening the brands’
doors to the consumer and by inviting him or her to co-
create the future of sport and sports culture with us. It is
about learning and sharing, about starting conversations
between the brand, external experts and consumers and
about giving them the chance to have an impact on what we
do. We provide access for externals to tools and resources
we use to create, thereby acquiring and nurturing creative
capital, and explore new territories so as to create
unprecedented brand value for the consumer beyond mere
transactional businesses.
We have defined three strategic initiatives for Open Source:
— Creative collaborations: Creative collaborations increase
our creative capital through new tools, new environments
and new perspectives from outside creative thinkers. They
are meant to give creativity a platform and provide the
right tools for ideas to blossom. With the Brooklyn Creator
Farm, for example, a design space and creation hub, we
offer urban creative talent a platform and invite them
in to fuel innovation in sport with their ideas, outside any
regular seasonal product creation calendars. Following
the initial set-up phase in 2016, the creator farm has
meanwhile started to have a visible impact on our creative
direction and leaves a footprint in the local creative
community. In addition, we have evolved our successful
creative partnerships with Alexander Wang, Kanye West
and Stella McCartney, among others, to further drive brand
desire and growth.
— Athlete collaborations: Through athlete collaborations we
aim to build communities of athletes that help shape the
future of their sport together with us. Such collaborations
include relationships with the world’s best athletes and
teams, but they also take place on a local level. To directly
engage and interact with a broader consumer community,
we have expanded our digital and physical space projects
in 2017. For instance, ‘adidas runners’, a highly engaged
community of runners, now counts over 50,000 active
runners in Western Europe alone. Other collaborations
include Wanderlust, a producer of the largest yoga lifestyle
events in the world, or our Tango League, a grassroots
event for the football enthusiast, among others.
SEE GLOSSARY
— Partner collaborations: The strategic initiatives in the
area of partner collaborations intend to open up our
knowledge of sport by working with the best in other fields.
By exchanging core competencies, we will create unique
value for our brands and ultimately also for our consumers.
Our partnership with Parley for the Oceans
serves as a prime example. As a founding member of the
organization, our support goes far beyond financial aid
to fund beach clean-ups. In 2017, we launched multiple
franchise silhouettes, such as the UltraBOOST, NMD or EQT,
made out of Parley Ocean Plastic
SEE GLOSSARY. In total, we
have produced more than one million pairs of shoes using
Parley Ocean Plastic.
SEE SUSTAINABILITY, P. 88 In addition,
we joined forces with Carbon, a company pioneering in the
field of 3D printing, to launch a new product and platform:
Futurecraft 4D. Driven by athlete data, a production process
called ‘Digital Light Synthesis’ enables us to print previously
impossible designs without labor-intensive and complex
assembly. The Futurecraft 4D shoe launched in 2017 and
will be expanded in the course of 2018.
SEE INNOVATION, P. 78
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CORPORATE STRATEGY
We remain committed to embedding external creative capital
in our processes to extend our possibilities in creating the
future of sport. To ensure that we are at the pulse of the
consumer journey at key moments and touchpoints in their
lives, we have identified two key targets which we are
progressing against: On the one hand, we aim to drive brand
heat by inviting consumers to become part of our creative
culture, thereby measuring the user-generated content on
social media, and on the other hand to grow the number of
users in our digital ecosystem. For both targets, we made
considerable progress in 2017. By using the insights we
generate through Open Source, we will craft better products
and services for our consumers, driving improvements in
brand desire, sales, market share and profitability.
‘CREATING THE NEW’ ACCELERATION PLAN
In March 2017, we introduced a number of initiatives to foster
brand momentum and accelerate top- and bottom-line growth:
Portfolio
Every entity must contribute to the success of our company,
be it a brand, a channel or a market. We constantly revisit the
performance and strategic fit of our portfolio, now with a
narrowed focus on operating within our core strength areas of
athletic footwear and apparel. This will allow us to reduce
complexity and pursue our target consumer more aggressively
with both the adidas and the Reebok brand. In 2017, we
completed the sale of the TaylorMade, Adams Golf and
Ashworth brands as well as our CCM Hockey business. In
addition, we continued to execute upon Reebok’s turnaround
plan ‘Muscle Up’, aimed at accelerating the brand’s top-line
growth and improving its profitability.
adidas North America
North America represents the biggest market in the sporting
goods industry with a total share of approximately 40%. At the
same time, from a geographical perspective, North America
represents the biggest opportunity for the adidas brand, given
its relatively small market share compared to other regions.
To improve the adidas brand’s overall positioning in the region,
we have made North America a strategic priority and started
to significantly increase our investments into North America
in order to be more relevant and always visible to the
consumer. In this context, over the last years, we have stepped
up investments into our organizational set-up, including the
further expansion of our US headquarters in Portland,
elevated our marketing efforts and upgraded our distribution
infrastructure. As a consequence of those initiatives, North
America saw strong double-digit top-line growth in each of the
past three years, despite an increasingly challenging and
promotional environment. While we are pleased with the
progress we have been making in North America in recent
years, we are still not satisfied with our current position, which
leaves significant upside for the years to come. Therefore,
going forward, we will continue to execute our game plan for
North America in order to continue to increase our market
share and reach our target of € 5 billion in revenues for the
adidas brand by 2020. North America, however, is more than
just a market share story, as our profitability in the region
remains below our global profitability level even after
significant improvements in 2017.
ONE adidas
We continuously strive for operational excellence. ONE adidas
encompasses a set of initiatives that will enable our company
to work smarter, more efficiently and in a more aligned way.
By focusing on three pillars – Brand Leadership
SEE GLOSSARY,
marketing effectiveness and operating efficiency – we
challenge
in our
organization. In order to create a more scalable business
model, we will therefore focus on those opportunities that
enable us to standardize and harmonize current processes
and procedures. In this context, 2017 saw the kick-off of
improve our
several
the current standards and norms
initiatives which will significantly
operating efficiency and profitability in the years to come, and
disciplined execution has yielded some first positive results
already. For example, we achieved a further reduction of our
product range and marketing concepts. This not only has a
positive impact on profitability but also increases the impact
of our product franchises. Similarly, we carried out major
simplifications on the material, packaging and production
side, which helped us to realize an increase in product
margins. Our pipeline of
initiatives aimed at enabling
scalability and operating leverage is filled and we expect more
benefits to flow through in the years to come.
Digital
The digital transformation is fundamentally changing the way
our consumers behave and the way we work. Technology has
enabled us to accelerate building direct relationships with our
consumer. Improving digital capabilities along the entire
value chain enables us not only to interact with the consumer,
but also to become faster, better and more efficient in every
part of the organization. In 2017, we established the ’Digital
Leadership Team’ with the purpose to orchestrate the digital
initiatives across the company and support functional teams
in decision making. In collaboration with the Executive Board,
the Digital Leadership Team has defined a clear roadmap of
digital priorities. In this context, our own e-commerce sites
adidas.com and Reebok.com are our biggest and most
important stores, which enable growth by delivering a unique
consumer experience that
is premium, connected and
personalized. To support our 2020 own e-commerce revenue
target of € 4 billion, we went through a major paradigm shift
in 2017 in how we gear and align our activities towards digital.
As we continuously improve our digital capabilities in order to
serve our consumer in the best possible way, in 2017 we
introduced new features and technologies on our online
platform to improve the shopping experience. In addition,
2017 saw the launch of the adidas shopping app with more
than 600,000 downloads in less than two months. With 57%
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— To deliver on our commitment to increase shareholder
returns: Creating the New includes a strong commitment
to generating increasing returns for our shareholders.
Given our firm confidence in the strength of the company’s
financial position and future growth ambitions, we target
a consistent dividend payout ratio in a range between 30%
and 50% of net income from continuing operations.
growth, our e-commerce platform was by far the fastest-
growing channel in 2017.
FINANCIAL AMBITION UNTIL 2020
Creating long-term value for our shareholders drives our
overall decision-making process. Therefore, we are focused
on rigorously managing those factors under our control,
making strategic choices that will drive sustainable revenue
and earnings growth and, ultimately, operating cash flow.
We are committed to increasing returns to shareholders
with above-industry-average share price performance and
dividends.
SEE INTERNAL MANAGEMENT SYSTEM, P. 102
Our unique corporate culture and the three strategic choices
will continue to be step-changers with regard to brand
desirability and brand advocacy. In combination with the
initiatives that are part of our acceleration plan, this will
enable us:
— To achieve top-line growth significantly above industry
average: We aim to increase currency-neutral revenues
annually between 2015 and 2020 at a rate between 10%
and 12% on average (initially, in March 2015: high-single-
digit currency-neutral increase).
— To win significant market share across key categories and
markets: We have defined key categories within the adidas
and Reebok brands that will spur our growth going forward.
From a market perspective, we have defined clear roles for
each of our markets, depending on macroeconomic trends,
the competitive environment and our brand strength in the
respective markets.
— To improve our profitability sustainably: We plan to
substantially improve the company’s profitability, growing
our net income from continuing operations by an average
of between 22% and 24% per year between 2015 and 2020
(initially, in March 2015: increase at around 15%; updated
in March 2017: increase between 20% and 22%).
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ADIDAS ANNUAL REPORT 2017
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3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
CORPORATE STRATEGY
adidas Brand Strategy
ADIDAS BRAND STRATEGY
MISSION: TO BE THE BEST SPORTS BRAND
IN THE WORLD
The adidas brand has a long history and deep-rooted
connection with sport. Its broad and diverse sports portfolio,
from major global sports such as football and running, to
regional heartbeat sports such as American football and
rugby, has enabled the brand to transcend cultures and
become one of the most recognized and iconic global brands,
on and off the field of play. The adidas brand’s mission is to be
the best sports brand in the world, by designing, building and
selling the best sports products in the world, with the best
service and experience.
Driven by a relentless pursuit of innovation as well as decades
of accumulating sports science expertise, the adidas brand has
developed a truly unique and comprehensive sports offering.
Spanning footwear, apparel, equipment and services, the brand
caters for all, from elite professional athletes and teams to any
individual who wants to make sport part of their lives. We help
athletes of all levels to make a difference – in their game, in
their lives, in their world. This is anchored in our core belief
that, through sport, we have the power to change lives.
CONSUMER OBSESSION:
CREATING FOR THE CREATORS
The consumer is at the heart of everything the adidas brand
does. By constantly developing desirable products and
inspiring experiences, the brand strives to build a strong
image, trust and loyalty with consumers. Through ‘Creating
the New’, the adidas brand has refined its strategic direction,
operational processes and incentive systems, to foster a
culture of consumer obsession across its entire organization.
— Operating model: To ensure long-term success, it is
important that we continue to challenge ourselves to learn
and grow. We must constantly iterate to become faster and
SEE
stronger. Therefore, the adidas brand continues to evolve
directed by the guiding principles of Brand Leadership
GLOSSARY, our operating model. The aim of Brand Leader ship
is to provide an organizational structure which enables
a ‘consumer-obsessed’ culture that can act with speed,
agility and empowerment. In 2017, to further strengthen
collaboration and alignment in execution across the sport-
specific categories, we combined all of the sport-specific
business units under one leadership. Similarly, we have
created a new business unit called Core, which caters to the
value consumer across categories. Moreover, to simplify
the interaction between global and local organizations,
we consolidated Brand Management and Concept-to-
Consumer into a holistic marketing function. Finally, to
streamline and align the two most future-facing functions,
we consolidated Creative Direction and our Future Team
to create continuity and creative fidelity stretching from
upstream innovation, engineering and sports science
through future design, advanced design, brand design and
seasonal creative direction.
— Creator archetype: Owing to the rapid evolution of sport
and sports culture, the adidas brand targets key consumer
groups and influencers to create brand desirability and
momentum through a well-defined consumer segmentation
strategy. The consumer grid comprises six key quadrants
(Male Athlete, Female Athlete, Young Creator, Streetwear
Hound, Amplifier and Value Consumer), which are not
mutually exclusive. Within this grid, it is key to win the most
influential consumers, defined as the creator archetype.
True to the brand’s values, these influential consumers
define themselves as a work in progress – are all doers
and makers, first to adopt, focused on what’s new and what’s
next. A large portion of creators live, play and work in the
world’s most influential and aspirational cities, a key reason
for the company’s Cities strategic choice. In 2017, the adidas
brand accelerated global and local marketing initiatives to
amplify the brand’s creator positioning in the marketplace.
— Consumer centricity: Companies that put the consumer’s
voice as a centerpiece of their decision-making process
have proven higher levels of success in creating brand
advocacy. Therefore, we implemented a global Net
Promoter Score (NPS) ecosystem in order to drive brand
momentum in a measurable and objective manner. NPS,
first introduced in 2015, has become an important part
of the adidas brand’s advocacy program. Through this
program, we strive to understand consumers’ perception
(positive and negative) of the brand and the key drivers
which motivate them to recommend the brand to their
friends.
SEE INTERNAL MANAGEMENT SYSTEM, P. 102
PRODUCT FRANCHISES: CREATE THE MOST
DESIRED SYMBOLS IN SPORT
We are convinced that footwear has the highest influence on
brand perception among product categories. Footwear is also
the most powerful driver of NPS, which in turn translates
directly into consumer purchase intent and our potential to
grow market share. Therefore, the adidas brand is focused on
relentlessly creating newness in footwear, as a function of
cutting-edge technological innovation with references to
history, drawing from deep knowledge and an archive which
are unrivaled in the industry. At the same time, the brand has
a clear strategy to reduce the number of footwear models,
putting a stronger focus on key franchises that can really
make a difference for the brand. Such footwear franchises are
defined as long-term concepts that we commit to for a multi-
year period. The goal of franchises is not only to shape sport,
but also to influence culture. They are built to create trends,
rather than follow. They are targeted directly at the consumer
through iconic features, stories and functions, and have the
potential to be iterated and expanded over time. Their life
cycles are being carefully managed, to ensure longevity. In
addition, franchises will be prioritized throughout the value
chain, building on the company’s strategic choices of Speed,
Cities and Open Source. The adidas brand expects its top
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adidas Brand Strategy
footwear franchises to represent at least 30% of the brand's
footwear business by 2020. In 2017, key adidas brand
franchises included modern icons such as the UltraBOOST,
PureBOOST, Alphabounce, ‘X’, Nemeziz, NMD and EQT as
well as a blend of past icons such as the Superstar, Stan
Smith and Gazelle.
Following on from the strong success in footwear, in 2017 the
adidas brand started to extend its franchise methodology and
approach to apparel. Focused on a set of initiatives that have
proven to be successful in footwear, the brand aims at
accelerating its performance in apparel going forward. In this
context, 2017 saw the successful evolution of the Z.N.E.
Hoodie as part of the new Athletics apparel product line. The
Z.N.E. Hoodie, specifically engineered to remove distractions
and maximize athletes’ focus in the make or break period
before they compete, was succeeded by the Z.N.E. pants and
a suite of related apparel products during the course of the
year that live up to the same promise. At the same time, the
adidas brand increased its resources and focal point on
apparel innovation with a clear focus on fit, feel and aesthetic.
This will include the further development of the recently
launched Alphaskin franchise, a rejuvenation of the Clima
platform, as well as more iterations within exciting growth
platforms such as Primeknit in the years to come.
WOMEN’S: A NEW DIMENSION
TO DRIVE GROWTH
Winning the female consumer is an imperative for the adidas
brand and offers tremendous growth potential. Women are
active in all sports and, to a large extent, dominate social
media and household shopping behavior. Given the magnitude
of the business opportunity, in 2017, the adidas brand further
invested resources in building a cross-functional women’s
organization and support infrastructure to set direction for
creative, ranging, merchandising and marketing and to steer
cross-category planning.
The adidas brand will relentlessly focus on five products for her:
the bra, the tee, the tank, the tights and the running shoe. These
are the five products the brand will innovate against, with the aim
to create the best the industry has ever known in these five items.
In 2017, the first results of this approach proved successful, with
strong double-digit growth for our women’s business resulting in
an increase in the share of total business for the women’s
segment. A key highlight in this context was the launch of two
global marketing campaigns: ‘Unleash Your Creativity’ telling the
story of 15 female athletes who defy convention as well as a
running-specific campaign ‘Fearless AF’, which aims to break
down the stereotypes about female runners. In addition, the
adidas brand increased its roster of female influencers around
Karlie Kloss, Hannah Bronfman and Robin Arzon and continued
to build on the partnership with Wanderlust, organizer of some
of the largest yoga lifestyle events in the world.
MARKETING INVESTMENTS:
MEAN MORE BY DOING LESS
The adidas brand is focused on creating inspirational and
innovative marketing concepts that drive consumer advocacy
and build brand equity. As a result, we are committed to
continue increasing our absolute marketing investments
going forward. While the brand currently spends almost half
of its marketing investments on partnership assets, with the
remainder on brand marketing activities such as digital,
advertising, point-of-sale and grassroots activations, we will
decrease the ratio of marketing investments spent on promotion
partnerships
SEE GLOSSARY to less than 45% by 2020. In addition,
the brand will consolidate and focus resources to have the
biggest effect on the creator and the brand’s key franchises.
This will be achieved by focusing on three priorities:
— Reason to believe: By harnessing the brand’s creator
positioning, the emotion of sport, and the power of sport
to change lives, the adidas brand will communicate a
reason to believe in the brand, letting the world know what
distinguishes adidas from the competition.
— Reason to buy: The second priority is to harmonize and
deliver globally consistent and impactful communication
around the brand’s key franchises. By investing more
money against fewer items, the adidas brand will strive to
elevate and maintain the iconic status of its key franchises,
giving the consumer clear and compelling reasons to buy
the product.
— Sports communities: Sports communities is where loyalty
is built and earned. The adidas brand defines sports
communities as those places where athletes are fully
immersed in their sport with peers and friends. It’s the
football cage, the run base or the street court. Until 2020,
the brand will therefore significantly step up its grassroots
and local activation efforts, led by initiatives in the world’s
most influential cities.
In terms of partnership assets, while reducing the ratio of
marketing spend and the number of partnerships, the adidas
brand will nonetheless continue to bring its products to the
biggest stages in the world through:
— Events with global reach: such as the FIFA World Cup, the
UEFA EURO, the UEFA Champions League, Roland Garros
(French Open) and the Boston Marathon.
— High-profile teams: such as the national association
football teams of Germany, Spain, Argentina, Mexico,
Colombia, Belgium and Japan, as well as top clubs such as
Manchester United, Real Madrid, Bayern Munich, Juventus
and Flamengo Rio de Janeiro in football, the New Zealand
All Blacks in rugby, and American universities such as
Miami, Arizona State and Texas A&M.
— High-profile individuals: such as football stars Lionel
Messi, Paul Pogba, Gareth Bale, Mesut Özil and Gabriel
Jesus, basketball stars James Harden, Damian Lillard and
Andrew Wiggins, marathon record holder Dennis Kimetto,
American football players Aaron Rodgers and Von Miller,
baseball athletes Kris Bryant and Carlos Correa as well
as tennis stars Garbiñe Muguruza and Alexander Zverev.
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In addition, the adidas brand also has a number of strategic
partnerships and creative collaborations
in place. The
strategic partnership with Kanye West is likely to be the most
significant one ever created between an athletic brand and a
non-athlete, while the collaboration between adidas Originals
and Pharrell Williams remains highly
influential. Top
designers and design studios the brand works with include
Yohji Yamamoto, Stella McCartney, Raf Simons, Gosha
Rubchinskiy and Alexander Wang.
SEE GLOSSARY
SUSTAINABILITY
The adidas brand is committed to sustainability and our
strategic partnership with Parley for the Oceans
serves as a prime example. adidas has changed the game by
starting mass production of shoes using Parley Ocean Plastic
SEE GLOSSARY, and the brand continues to push for a more
eco-innovative future. In 2017, we created more than one
million pairs of shoes using Parley Ocean Plastic and restated
our ambition to reduce the use of virgin plastic. During 2017,
the initiative was extended to adidas Originals, yielding
pioneering outcomes such as the EQT Support ADV Parley,
as well as to apparel performance products in the form of
four Major League Soccer (MLS) football jerseys.
SEE SUSTAINABILITY, P. 88
ROLE OF CATEGORIES
The adidas brand has assigned each category a role and
ambition until 2020, allowing the brand to exploit short- and
medium-term potential, while at the same time incubating
long-term opportunities for the brand. There are four
overarching roles: Lead, Grow, Amplify and Authenticate.
Lead
— To lead in the sporting goods industry, we believe it is a
must to lead in the world’s most popular sport, football.
As such, the adidas brand aspires to be the number one
football brand in every market by 2020. This will be driven
by focusing on winning the football creator in key cities
as well as increasing investment in the brand’s football
footwear franchises. In 2017, the adidas brand pursued
its full reset of its football footwear business with the
continued focus on the ‘X’, Nemeziz and Copa franchises
as well as playing off its strong product heritage with the
re-introduction of the Predator.
— The adidas brand also strives for leadership in lifestyle in
every market with Originals. Not only is adidas the original
sports brand, it also was the first brand to bring sport to
the street. Brand credibility and heritage is an important
prerequisite to win the discerning streetwear hound
consumer. These consumers are looking for substance
and craft and are inspired by stories and design. Growth
in this category will be driven by iconic products from
the brand’s past such as the Samba, Stan Smith, Gazelle
and Superstar as well as pioneering new contemporary
silhouettes inspired by elements from the past and the
future, such as NMD, EQT, Tubular and Swift Runner, which
account for approximately 50% of the adidas Originals
footwear offering.
Grow
— The running category is the adidas brand’s biggest
growth opportunity across all genders and price points
SEE GLOSSARY. The brand’s goal is to double sales in the
category by 2020 compared to the 2015 financial year. Many
innovations in the sports industry start in running. With
groundbreaking innovation in materials such as Boost and
pioneering new manufacturing processes being driven
through Speedfactory, the timing is perfect for the adidas
brand to strike in this category. To spur growth, amongst
other things, adidas Running will significantly refine and
evolve its franchise strategy for the male and female
athlete, increase its investment in running communities
and grassroots activations such as the Berlin and Boston
Runbases, as well as play a central role in driving the future
of digital in sport in cooperation with Runtastic.
— The second category where the adidas brand is focused
on driving significant market share gains is adidas Core.
adidas Core targets a more price-conscious consumer,
particularly in emerging markets, offering entry-price point
styles across all categories. To ensure success, the adidas
Core formula employs a ‘fast fashion’ business model. This
means quick reaction to emerging trends through shorter
lead times and excellence in retail execution.
SEE INNOVATION, P. 78
Amplify
— The training category is the adidas brand’s largest
performance category and is also the apparel engine of
the brand. Led by cutting-edge innovation in fabrics and
materials, the adidas brand aims to significantly increase
its apparel footprint through Training, which provides
products for general training purposes as well as for specific
sports, as well as through Athletics, which is geared to
capturing the sports mindset of every athlete off the pitch.
Given the high visibility of its products in all markets,
this category plays a central role in amplifying the brand
message and DNA.
Authenticate
— In order to be the best sports brand in the world, the adidas
brand also needs to be true to sports on a local level. As
such, the brand will continue to cater to a wide range of
sports such as golf, basketball, American football, baseball,
outdoor, rugby, tennis, handball, volleyball, swimming and
boxing. To maximize impact and resources, in key markets
and cities, the adidas brand will prioritize those sports that
are most significant in terms of local culture, participation
and national pride.
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Reebok Brand Strategy
REEBOK BRAND STRATEGY
MISSION: TO BE THE BEST FITNESS BRAND
IN THE WORLD
Reebok is an American-inspired global brand with a deep
fitness heritage and the mission of being the best fitness
brand in the world. To realize this mission, the past years have
been characterized by a transformation from traditional
sports to fitness. The three sides of the Reebok Delta, a
symbol of change and transformation, represent the physical,
mental and social changes that occur when individuals
embrace the challenge of bettering themselves in the gym, in
their lives and in the world.
Throughout this journey, Reebok has invested in its training
and running businesses to develop products that cater to all
fitness routines, while returning to its fitness roots in Classics
to support a fashion-forward lifestyle outside of the gym.
Driven by its ambition to be the innovation leader in fitness,
Reebok continues to merge its iconic past with new technologies
that revolutionize both performance and lifestyle products.
CONSUMER OBSESSION: THE GAME CHANGERS
Reebok’s consumer obsession focuses on being distinctive,
relevant, and authentic with its focus consumers – the Game
Changers. These consumers, equally women and men, of all
ages, are driven by becoming their absolute best mentally,
socially and physically. The Game Changers participate in a
range of activities, are fitness-centric and are inspired by the
broader fitness world. They share four essential qualities to
create a unified mindset: self-betterment, perseverance,
confidence and non-complacency. These are the core values
that hold the Game Changers together. They blend fitness into
their lives, care about style, and are passionate about what
they do. Through robust research and interaction with
consumers, Reebok has taken significant time to understand
the complexities of their fitness lifestyle across both product
performance needs and style desires, and seeks to exceed
expectations across the spectrum.
further apparel franchises focused on the female Game
Changers.
Within that consumer group, Reebok will continue to focus on
the female Game Changers going forward. Rooted in Reebok’s
heritage, the brand is putting women at the heart of everything
the brand does. This female-centric approach, with women
being the focal point of content strategy, marketing activation
and distribution,
is a fundamentally different approach
compared to other brands in the industry. It will allow Reebok
to become truly dual-gender with the goal of its women’s
business representing 50% of the brand’s net sales. In recent
years, the brand has made significant strides in having a
distinct position with women by signing prominent influencers
that are relevant to her.
PRODUCT FRANCHISES:
LEVERAGING THE BRAND’S FITNESS DNA
Reebok recognizes the importance of building strong footwear
and apparel franchises, establishing innovative but repeatable
product lines that become annuities for the brand and core
items for the consumer. This is not only essential for enhancing
consumer perception and brand consideration, but also
essential for the efficiency of the Reebok brand.
For this reason, Reebok is heavily investing into franchises,
making them a key priority going forward. By 2020, Reebok
expects footwear franchises to represent at least 25% of the
brand’s total footwear business. Key franchises
include
performance products
SEE GLOSSARY such as the CrossFit Nano
or the recently launched FloatRide Run that have been
authenticated by their respective communities, as well as
styles that are unique to Reebok’s fitness DNA, such as the
Classic Leather and the Freestyle. In apparel, Reebok has
established franchises specifically for women, such as the Lux
Tight, which debuted in 2017. 2018 will see the introduction of
Reebok puts a strong emphasis on innovation. The brand is
committed to maintaining a full and innovative product pipeline,
bringing new technologies, styles and processes to life. In this
context, 2018 will see the launch of the PureMove Bra, a
revolutionary sports bra featuring patented fabric technology
that adapts to movement and intensity. Beyond technology
platforms, Reebok is further investing into innovation that
consumers can relate to, fostered by unique collaborations and
stories. For example, in 2017 the brand launched the Reebok
Innovation Collective, a consumer-facing platform to highlight
this type of storytelling.
SEE INNOVATION, P. 78
is focused on creating
MARKETING INVESTMENTS:
AMPLIFYING BRAND PURPOSE AND
DRIVING SCALE
inspirational marketing
Reebok
capabilities that build brand equity and consumer advocacy,
while unleashing powerful brand messages. A key element of
Reebok’s marketing and communication strategy is to connect
emotionally to consumers through its ‘Be More Human’
platform, supported by a number of relevant assets and
influencers in the digital ecosystem.
— Be More Human: Inspiring people to be their absolute best
physically, mentally and socially is not only the brand’s
guiding principle, but also the essence of Reebok’s global
marketing campaign Be More Human. Launched in 2015,
Be More Human celebrates everyday people who choose
to embrace fitness and lead more fulfilling and less
self-focused lives. A suite of films launched in 2017 marks
the evolution of Be More Human, opening the aperture
to even more types of fitness and people, but with the
same message that physicality unlocks a better version
of yourself. To celebrate the launch, ReebokONE trainers
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were available across several US cities, offering workouts
in exchange for a simple handshake as a way to physically
and socially connect people through fitness. The campaign
is supported by ‘Stories of Progress’, an online collection of
inspirational influencer testimonials, and related content
at brand events, retailers and Reebok FitHub locations.
— Authentic and influential fitness assets: To amplify the
brand and increase its relevance vis-à-vis the fitness
consumer, Reebok has entered into a series of partnerships
with some of the world’s most influential artists and
athletes, such as Future, Gigi Hadid and J.J. Watt. In 2017,
music artist Ariana Grande, actress Nina Dobrev and
high-profile designer Victoria Beckham joined Reebok’s
strong roster of brand ambassadors. In addition, to validate
its authenticity as the best fitness brand in the world,
Reebok has entered into partnerships with some of the
fastest-growing and most innovative organizations in the
fitness world, such as CrossFit, Ragnar, Midnight Runners
and Les Mills. Finally, continuing to build relationships with
fitness instructors is a crucial component of Reebok’s goal
of connecting with the global fitness community. With over
100,000 fitness instructors currently being part of its global
network, Reebok has made major progress towards its goal
to be the brand of choice for instructors around the world.
— Digital ecosystem: Reebok is changing the way it operates
digitally to realize maximum growth potential. The brand
recognizes the need to be relevant and authentic in the
digital ecosystem, particularly for women. As a result,
this ecosystem is the main channel for communication
and marketing initiatives as well as from a commercial
perspective, providing experiences and products online.
Reebok is focused on improving speed, usability and
consumer experience on Reebok.com, both mobile and
desktop, with 2018 seeing further enhancements to
Reebok’s digital ecosystem.
ROLE OF THE CATEGORIES
Running, Training and Classics each play vital roles for the
Game Changers. Consequently, Reebok is focusing on those
three categories to amplify its impact on the fitness enthusiast
and leverage commercial opportunities from major fitness
activities to lifestyle. Reebok Running’s insight-driven and
consumer-led approach supports authentic and desired
cushioning experiences, leveraging innovative technologies
for high-performance runners. Additionally, Reebok Running
has also developed several contemporary silhouettes, which
epitomize the intersection of innovation and style. Reebok
Training remains central to Reebok’s Game Changer mindset
and offers a complete range of both highly specialized and
versatile products that are at the forefront of fitness and true
to the culture and community that Game Changers train and
live in. Reebok Classics fuses the brand’s fitness heritage with
the modern looks of fitness reflected in Running and Training
to support the Game Changer consumer who seeks to reflect
a fitness lifestyle in every aspect of life.
‘MUSCLE UP’: REEBOK TRANSFORMATION
STRENGTHENS BRAND FUNDAMENTALS
Over the last years, Reebok has made major progress in its
transformation from a general sports brand to a 100% fitness-
focused brand. While Reebok has recorded top-line growth for
several years in a row, the brand’s overall market share
remains below levels seen in the past. In addition, there has
been no growth in Reebok’s home market, North America, in
the recent past and the brand’s margins are not accretive to
the company’s overall profitability.
Therefore, and as announced in 2016, Reebok continued to
execute upon its turnaround plan ‘Muscle Up’ in 2017, aimed
at accelerating Reebok’s top-line growth in the US and
improving its overall profitability. As part of this plan, the
company has created one united team for Reebok in North
America. As a result, Reebok’s global and US organizations
were merged under one leadership team to streamline
Reebok’s organization and create an environment that is fully
dedicated to fitness. In this context, Reebok moved its
headquarters to a new location in the heart of the city of
Boston during the course of 2017.
Furthermore, to win in North America, efficient and effective
distribution is key to Reebok’s future success in this all-
important market. The company has therefore accelerated its
initiatives to streamline Reebok’s store base in the market. In
total, the company will close nearly 50% of its own stores in
the US market – both concept stores and factory outlets – with
the majority of closures having been executed during 2017. At
the same time, the brand is also streamlining its wholesale
business, putting a clear focus on retailers helping Reebok to
elevate brand equity and improve the quality of its growth.
In addition to streamlining Reebok’s organizational set-up
and progressing on the brand’s turnaround efforts in the US
market, an integral part of Muscle Up is focused on rethinking
the core fundamentals of Reebok’s end-to-end operations.
Initiatives span across product development, go-to-market
initiatives and marketing effectiveness to measures that help
accelerate Reebok’s product margins.
Executing against those initiatives will have a positive impact
on Reebok’s operational and financial performance and will
accelerate the brand’s top-line growth as well as significantly
lift the brand’s profitability in the years to come. In 2017, the first
full year of executing Muscle Up, Reebok has already realized
meaningful profitability improvements, as reflected by the
brand’s increase in gross margin of 4.0 percentage points to a
level of 40.7%.
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Sales and Distribution Strategy
SALES AND DISTRIBUTION STRATEGY
TRANSFORMING THE MARKETPLACE
Our Global Sales function drives the commercial performance
of the company by converting brand desire into profitable and
sustainable business growth. It is our ambition to deliver the
best shopping experience within the sporting goods industry
across all consumer touchpoints. We strive to transform the
marketplace by moving from managing the marketplace as it
exists today toward shaping and growing our future destiny.
Our objective is to establish scalable business solutions in
order to deliver premium experiences, thereby meeting and
surpassing consumer expectations with an integrated brand
offering.
DRIVING OPERATIONAL EXCELLENCE ACROSS
OUR GLOBAL MARKETS
Our sales strategy is crafted by a centralized and integrated
marketplace team which supports the flawless execution of
our brand strategies and drives operational excellence across
the globe. In this context, in 2017 we continued to execute our
strategic business plan until 2020, ‘Creating the New’, across
our nine global markets. During the course of 2017, we also
completed all preparatory work to consolidate the markets
Greater China, Japan, South Korea and South-East Asia/
Pacific, creating one consolidated market for Asia Pacific
(APAC). This will allow us to better serve the converging
consumer and customer demands in the region in the years to
come. In a changing global landscape, our diverse market
portfolio is an important asset in maximizing the business,
elevating our competitiveness and achieving our ambitions
towards 2020.
SEAMLESS CONSUMER JOURNEY ACROSS
OUR CHANNELS
With more than 2,500 own-retail stores, around 13,000
mono-branded franchise stores and approximately 150,000
wholesale doors, we have an unrivaled network of consumer
touchpoints within our industry. In addition, through our own
e-commerce channel, our single biggest store available to
consumers in over 40 countries, we are leveraging a consistent
global framework. We are also seeing considerable success
in leveraging our strong cross-functional partnerships with
key wholesale partners, which is critical for ensuring a
consumer journey to the full extent. By seamlessly integrating
the channels within our market portfolio, we are uniquely
positioned to pursue and succeed in strategies that deliver
premium consumer experiences and increase the productivity
of our distribution footprint. As we replicate this model to
capitalize on new consumer opportunities through own retail
destinations (own retail stores and own e-commerce sites) as
well as our wholesale partner doors (wholesale managed
spaces and e-wholesale) we create halo effects across all
consumer touchpoints, resulting in further marketplace
expansion.
In 2017, we advanced our sales strategy with several initiatives
focused, amongst others, on premium consumer experience,
marketplace transformation and productivity of the sales
platform.
Premium consumer experiences
We aim to be ‘omni-present’ along the consumer journey and
strive to capture the full sales potential on the platforms
available to our consumers. We also strive to minimize
occasions when consumer demand is not met, by offering
innovative solutions. Based on these objectives, we focus on
the following omni-channel initiatives:
— ‘Inventory Check’ which allows online shoppers to view
in-store product availability.
— ‘Click & Collect’ which allows consumers to order online
and purchase or reserve items for pick-up in a local store.
— ‘Ship from Store’ which allows us to service consumers
faster than before by turning our stores into mini
distribution centers.
— ‘Buy Online, Return to Store’ which not only provides
consumers with a convenient way to return product
purchases but also offers new buying opportunities.
— ‘Partner Program’ which enables us to expand our online
offering to a larger group of consumers by making it
available to selected key wholesale partners.
— ‘Endless Aisle’ which provides in-store visitors with access
to our full range of products through our e-commerce
platform.
— Our newly introduced ‘adidas shopping App’ is an always-on
connection to the adidas brand and offers premium
shopping experiences.
In 2017, we deployed a strategic mix of these capabilities
across all our markets in our own-retail operations and at key
wholesale partner locations. For example, based on the initial
success of the Partner Program in 2016, we continued to
onboard multiple partners across Western Europe and North
America in 2017. In addition, 2017 saw the successful
introduction of the adidas shopping App in Western Europe
and the US. The App is directly linked to the adidas e-commerce
store and provides consumers with personal conversations, a
frictionless checkout, seamless order tracking as well as
personalized content. The success of the App will be
significantly enhanced by continued investments in Customer
Relationship Management (CRM), which will enable us to
develop a deeper consumer understanding and connection.
Marketplace transformation
Our goal is to leverage and scale the success of our initiatives
across our channels to better serve consumers. The key
contributor to this approach is controlled space. Whenever we
can actively manage the way our brands and products are
presented at the point of sale, the impact on the consumer
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Sales and Distribution Strategy
experience, and ultimately on our operational and financial
performance, is significant. We have the power to do so in own
retail (including e-commerce) and in wholesale (franchise
stores, wholesale managed space and in e-wholesale). By
2020, we aim to generate more than 60% of our revenues
through controlled space.
For us, own retail acts as a catalyst to our controlled space
ambition. We amplify our success in own retail by translating
key learnings to franchise stores and expanding franchising
as a business model in existing as well as into new
geographies. After the successful launch of our adidas
flagship store in New York City in 2016, we opened our biggest
ever adidas Originals flagship store in Chicago in 2017. We
expect these flagships to set new standards in terms of
product presentation, execution and service that will be
replicated across all other channels. We expect e-commerce
to continue to be the fastest-growing channel that we operate,
with revenues forecast to grow to € 4 billion in 2020. In
wholesale, we will continue to expand our footprint with a
focus on prioritized key accounts, targeting
important
consumer hotspots and trade zones, especially those that are
part of our Cities initiative. Strategic partnerships to operate
controlled space remain an important thrust of this expansion.
Cities and trade zones
In 2017, we saw continued success in New York City, Los
Angeles, Paris, London, Shanghai and Tokyo. The combined
revenue growth for our six key cities outpaced the company's
overall top-line development. In addition, our Net Promoter
Score (NPS)
SEE GLOSSARY relatively outperformed in most of
these key cities. To further drive momentum, we will continue
to prioritize consumer
insights, retail executions and
wholesale partnerships across those cities. We have also
started to focus on those cities by looking at them on a trade
zone level, rather than on a key account and key doors
perspective. Our intention is to create one holistic premium
shopping experience for our consumers within these key
commercial areas across all identified distribution points of
this
wholesale and own retail. The
transformation program provide a further boost to our Cities
strategic choice and enable us to scale this opportunity up, by
rolling it out to a much greater number of cities where we will
apply a focus of investments in areas where our focus
consumers live, play and shop.
learnings
from
Specialty Sales
In 2017, we established the Specialty Sales organization. The
objective of this organization is to drive brand heat and desire
in boutiques and sneaker stores, thereby directly catering to
our most influential consumers. The team provides superior
service levels, customized range access across selected
categories, such as running and Originals, as well as
exceptional campaign roll-outs across the globe and has a
clear alignment with our key cities and trade zones. Following
initial success in 2017, with strong growth generated in
boutiques and sneaker stores, we will continue to focus on
growing our Specialty Sales initiatives in 2018 and beyond.
Productivity and efficiency of sales platform
We are committed to further driving productivity improvements
across our sales platform through a multi-faceted approach:
— Premium presentation: Our physical selling spaces are
an important factor in driving Net Promoter Score (NPS)
and full-price sell-through. We further evolved the brand
experience through the launch and expansion of premium
store concepts such as Stadium
SEE GLOSSARY and
Neighbourhood
SEE GLOSSARY for the adidas brand as well as
FitHub
SEE GLOSSARY for the Reebok brand. Our own-retail
concepts are designed for scalability. Consequently, we
will continue to roll them out across our store base, which
yields benefits across channels, considering the positive
spillover impact on our wholesale and franchise partners.
— Consumer service excellence: In 2017, we established the
Sales Academy. The program helps us to transform the
culture and effectiveness of our sales teams. As a result,
consumers enjoy significantly elevated service levels
which have proven commercially rewarding through higher
conversion rates
SEE GLOSSARY and increased average
selling prices.
— Personalized interaction: Our commitment to deliver
a premium shopping experience is reflected online
through our digital brand flagship stores, adidas.com and
reebok.com, as well as our newly created adidas shopping
App. E-commerce and digital communication are powerful
tools for our brands to engage with consumers.
— Insight-driven decision-making: We continue to invest
in our analytical capabilities and technical infrastructure
to become faster and more insight-driven in decision-
making. Leveraging data such as cross-channel product
sell-through and consumer purchasing behaviors delivers
actionable insights in areas such as assortment planning
and product life cycle management.
— Distribution channel mix: Based on a thorough analysis of
the profitability of our distribution channels in each of our
markets, in 2017 we started an optimization program to
shift focus and resources to our most profitable channels.
By doing so, we aim at further improving the distribution
mix of our company and consequently the efficiency of our
Global Sales organization.
We are confident that our sales strategy will help us realize
significant improvements in brand desirability, as measured
by our NPS, net sales, market share and profitability.
SEE INTERNAL MANAGEMENT SYSTEM, P. 102
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GLOBAL OPERATIONS
Global Operations manages the development, production
planning, sourcing and distribution of the vast majority of
our products. The function strives to increase efficiency
throughout the company’s supply chain and ensures the
highest standards in product quality, availability and delivery
for our customers as well as our own-retail and e-commerce
activities at competitive costs.
CLEARLY DEFINED PRIORITIES
FOR GLOBAL OPERATIONS
Global Operations delivers upon its mission to create the best
product by focusing on innovative materials and manufacturing
capabilities as well as to provide the best service by enabling
product availability as the consumer chooses through the
company’s omni-channel approach to supply chain agility.
The strategy of Global Operations is an extension of the overall
adidas strategy – thus the consumer is at the center of
everything we do. The function strengthens brand desirability
by providing the right product to consumers – in the right
quality, size, color and style, in the right place, at the right
time, across the entire range of the company’s channels and
brands. Additionally, Global Operations builds capabilities
that further improve supply chain efficiencies, while mitigating
costs, thereby ensuring a continuously competitive supply chain.
Within our strategic business plan ‘Creating the New’, Global
Operations focuses on delivering against three strategic
priorities driven by several initiatives:
— Become the first fast sports company.
— Create a seamless consumer experience.
— Transform the way we create and manufacture.
By delivering on these priorities, Global Operations leverages
efficiencies across infrastructure and processes and ensures
a competitive digital ecosystem and supply chain. This
continues to be underlined by our ‘On-Time In-Full’ (OTIF)
metric, a non-financial KPI for our company, measuring the
adidas delivery performance toward our customers and our
SEE INTERNAL MANAGEMENT SYSTEM, P. 102 In
own-retail stores.
2017, adidas delivered 78% of its adidas and Reebok brand
products ‘on time’ and ‘in full’ (2016: 77%), which is broadly in
line with the overall target of around 80%. For 2018, Global
Operations strives to increase OTIF further towards the
targeted 80% level. OTIF was measured for 74% of net sales of
all adidas and Reebok brand products in 2017. It is also
planned to further roll out OTIF to those markets that are
currently not in scope, thereby increasing the overall share of
adidas and Reebok brand products measured against ‘on
time’ and ‘in full’.
BECOME THE FIRST FAST SPORTS COMPANY
‘Speed’ is a strategic priority for the company. Our ambition is
to be the first fast sports company in the sporting goods
industry.
SEE CORPORATE STRATEGY, P. 62 Global Operations is a
key enabler for this by leveraging market and sell-through
data in new ways as well as by responding quickly to deliver
concepts that are fresh and desirable and made available
when and where they are wanted by the consumer across our
wholesale, retail and e-commerce channels. Bringing
products to market faster allows our customers and direct-
to-consumer channel to place orders closer to the actual time
of sale, facilitating buying decisions that are based on better
market knowledge. Consequently, we will move away from
predominantly developing products in advance of seasonal
merchandising calendars and toward creation and production
capabilities that respond to consumer demands with in-
season development and rapid replenishment manufacturing.
Fresher and more desirable products will increase the
company’s full-price share of sales and reduce the risk of
overbuying. In 2017, we made further progress around our
Speed strategic priority and we are well on track to achieve
our target of at least 50% of the company’s net sales through
speed-enabled articles by 2020. For this part of our business,
we expect to achieve a 20% higher share of full-price sales
compared to the regular range which, driven by higher brand
and product desirability, will also see significant increases in
the full-price sell-through.
In 2017, Global Operations continued to expand its efforts to
‘enable later ordering’ and further reduced production lead
times. The function succeeded in providing 60 days or less
production lead times on approximately 80% of apparel
Global Operations in go-to-market process
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lead
volumes throughout the year. The vast majority of footwear
(around 85%) and hardware (around 95%) volumes are already
on 60 days or less production lead times. In addition to
shortening our overall production
times, Global
Operations has scaled its fast replenishment capabilities of
best-selling articles, creating more articles within seasons
based on actual sell-through data and ensuring constant
availability of long lifecycle products. Across all product
categories, replenishment capabilities have been established
on 30 days production lead times. Even faster production lead
times of on average less than 10 days have been established
for customized footwear products, which are available via our
own e-commerce website.
adidas is leveraging its strengths in sourcing and partnering
with industrial and academic experts to develop smart
manufacturing solutions that can react quickly to consumer
trends. In this context, Speedfactory
SEE GLOSSARY is one
initiative, aimed at moving production closer to key markets
while developing high-quality performance products faster
than ever before. Powered by end-to-end automated
manufacturing
innovative materials,
Speedfactory allows us to support the growing demand for
product personalization in a socially and environmentally
responsible way. In addition, it helps us to provide faster
reaction times to consumer needs and to enhance the
consumer experience, by enabling consumers to co-create in
an interactive production process. Insights gained from our
Speedfactories will enable us to drive digital manufacturing
also into our existing supply chain.
SEE CORPORATE STRATEGY, P. 62
processes
and
CREATE A SEAMLESS CONSUMER EXPERIENCE
Global Operations has a strong track record for establishing
state-of-the-art infrastructure, processes and systems that
are required to support the company’s growth ambition. It has
been successfully consolidating and
legacy
structures, thereby reducing complexity and costs for the
improving
company. The function is focused on innovative distribution
capabilities, with the goal of providing the best service by
enabling product availability as the consumer chooses
through the omni-channel approach to supply chain agility.
increased speed-to-market capabilities. At the same time,
the function also plays a critical role in driving operational
efficiency for the company. In particular, through material and
packaging consolidation, Global Operations aims at mitigating
material and labor costs.
By creating a higher commonality of our products across the
various channels, Global Operations ensures higher flexibility
at each consumer touchpoint. This, in turn, enables a broader
range of products to be available at the point of sale, including
online orders able to be picked up in our own-retail stores or
shipped from a store and own-retail stores able to sell
inventory available in other own-retail stores.
SEE SALES AND
DISTRIBUTION STRATEGY, P. 72
In 2017, Global Operations focused on further optimizing its
distribution center network, while at the same time preparing
it for future consumer demand and supporting the company’s
overall growth ambition. In this context, in 2017 we continued
to build two new distribution centers in Rieste/Germany and
Suzhou/China - both of which are expected to go live in 2018.
In addition, we started with the construction of a new
distribution center in Pennsylvania/USA and began to expand
our existing West Coast facility, aimed at supporting our future
growth expectations for North America, in particular around
the company’s e-commerce and own-retail businesses.
Lastly, to improve our consumer service in the UK, 2018 will
see the addition of a new e-commerce facility to our existing
distri bution network in the market.
TRANSFORM THE WAY WE CREATE AND
MANUFACTURE
Global Operations is driving innovation in new materials, new
product constructions and new ways of manufacturing that
deliver consumer value and enable competitive advantage. By
investing in tools that more directly connect design and
factory production, Global Operations is changing traditional
models of development to deliver constant freshness and
We constantly look for the next generation of materials by
focusing, amongst others, on knitted footwear, direct-to-
textile digital printing and sustainable materials. Building on
our successful partnership with Parley for the Oceans
GLOSSARY, 2017 saw the introduction of new footwear and
apparel products using sustainable materials. In 2018, we will
continue to roll out Parley Ocean Plastic
SEE GLOSSARY across
our key categories, with running footwear and football apparel
playing a major role. To facilitate the growing demand for
Parley Ocean Plastic we are in the process of establishing an
operations set-up dedicated to sustainable material sourcing.
SEE
SEE SUSTAINABILITY, P. 88
Through its focus on ‘Digital Creation’, Global Operations has
already started to improve the product creation process from
concept to shelf. Based on 3D software tools, we are today
able to look at product solutions the way the consumer sees
them at an early stage during the creation process. This
iterate faster, take product
enables creation teams to
decisions quicker and reduce drop rates
SEE GLOSSARY. In
addition, 3D technology allows for more frequent and rapid
virtual product iterations without increasing the need for
physical samples. After testing 3D software tools across all
major business units in 2016, many of our business units have
started to leverage 3D technology as a new way of working in
the product creation process during 2017.
In addition to focusing on managing a more concentrated
portfolio of key footwear franchises, Global Operations also
continues to implement its modular approach to our apparel
business. Transitioning to a set pre-season selection of
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standard product features and driving consistent executions
across categories for core products has been underway for
several seasons in apparel. Meanwhile Global Operations has
fully embedded the modular approach to creation, enabling
us to ensure a consistent brand footprint, capture cost savings
through factory efficiencies and reduce production lead times.
In 2017, Global Operations further incorporated our new
digital creation tools into the modular approach, which further
increases speed in the creation process and allows us to
leverage automation opportunities. Going forward, we will
continue to gradually roll out our digitized capabilities and
tools to progress on our vision of an end-to-end digital value
chain
to product creation,
production and sales. In this context, in 2018 we will set the
foundation for the exciting endeavor of ‘end-to-end Digital
Creation’ and will focus our efforts toward developing the new
holistic digital creation framework.
from pre-season planning
Driving the level of automation in our supply chain remains of
overriding importance for Global Operations. In this context,
auto cutting and auto stitching are important focus areas, as
they allow us to reduce our dependency on manual labor
while at the same time ensuring consistent and highest
quality standards. To
improve our production
efficiency, we will accelerate the level of automation in our
supply chain in the years to come.
further
MAJORITY OF PRODUCTION THROUGH
INDEPENDENT SUPPLIERS
To keep our production costs competitive, we outsource
independent third-party
almost 100% of production to
suppliers, primarily located in Asia. While we provide them with
detailed specifications for production and delivery, these
suppliers possess excellent expertise in cost-efficient, high-
volume production of footwear, apparel and hardware
GLOSSARY. Working closely with key strategic partners, the vast
majority of our products are produced in 109 manufacturing
SEE
facilities worldwide. We value long-term relationships: Around
half of our strategic suppliers have worked with adidas for
more than ten years and, of these, close to 15% have a tenure
of more than 20 years.
SEE DIAGRAM 16 The length of our
supplier relationship is determined by specific performance
criteria which is regularly measured and reviewed by Global
Operations. The latest list of our suppliers can be found on our
website. ↗ ADIDAS-GROUP.COM/SUSTAINABILITY adidas also operates a
limited number of own production and assembly sites in the
USA (2), Canada (1) and Germany (1). In order to ensure the
high quality that consumers expect from our products, we
enforce strict control and inspection procedures at our
suppliers and in our own factories. Effective ness of product-
related standards is constantly measured through quality and
material claim procedures. In addition, we track social and
environmental performance criteria of our suppliers through
the C- and E-KPI tracking system. Adherence to social and
environ mental standards is promoted throughout our supply
chain.
SEE SUSTAINABILITY, P. 88
Strategic supplier relationships
16
WORKING WITH 296 INDEPENDENT
MANUFACTURING PARTNERS
In 2017, Global Operations worked with 296 independent
manufacturing partners (2016: 297). Of our independent
manufacturing partners, 79% were located in Asia (2016:
80%), 11% in the Americas (2016: 12%), 9% in Europe (2016:
7%) and 1% in Africa (2016: 1%).
SEE DIAGRAM 17
VIETNAM SHARE OF FOOTWEAR PRODUCTION
INCREASES SLIGHTLY
97% of our total 2017 footwear volume was produced in Asia
(2016: 97%). Production in Europe and the Americas combined
accounted for 3% of the sourcing volume (2016: 3%).
DIAGRAM 18 Vietnam represents our largest sourcing country
with 44% of the total volume (2016: 42%), followed by
Indonesia with 25% (2016: 24%) and China with 19% (2016:
22%). In 2017, our footwear suppliers produced approximately
403 million pairs of shoes (2016: 360 million pairs).
DIAGRAM 19 Our largest footwear factory produced approximately
11% of the footwear sourcing volume (2016: 10%).
SEE
SEE
Total Hardware
Apparel
Footwear
Number of strategic suppliers
109
Average years as
strategic supplier
% of all production volume
11.4
83%
15
12
60
10
34
13
50%
85%
90%
Suppliers by region 1
Strategic relationships
< 5 years
Strategic relationships
< 10 years
Strategic relationships
< 15 years
Strategic relationships
< 20 years
Strategic relationships
< 25 years
Strategic relationships
> 25 years
16%
27%
15%
12%
37%
20%
45%
29%
20%
20%
17%
26%
13%
0%
17%
12%
8%
6%
20%
13%
3%
3%
12%
9%
9%
Europe
11%
Americas
1 Figures include the adidas and Reebok brands, adidas Golf and Ashworth, but exclude local sourcing
partners, sourcing agents, subcontractors, second-tier suppliers and licensee factories.
17
1%
Africa
79%
Asia
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CHINA REMAINS LARGEST SOURCE COUNTRY
FOR APPAREL
In 2017, we sourced 93% of the total apparel volume from Asia
(2016: 93%). The Americas represented 4% of the volume,
Europe 3% and Africa 1% (2016: the Americas 3%, Europe 4%
and Africa less than 1%).
SEE DIAGRAM 20 China is the largest
source country, representing 23% of the produced volume
(2016: 27%), followed by Cambodia with 22% (2016: 22%) and
Vietnam with 18% (2016: 17%). In total, our suppliers produced
approximately 404 million units of apparel in 2017 (2016:
382 million units).
SEE DIAGRAM 21 The largest apparel factory
produced approximately 10% of this apparel volume in 2017
(2016: 11%).
CHINA SHARE OF HARDWARE PRODUCTION
INCREASES
In 2017, 82% of our hardware products, such as balls and
bags, was produced in Asia (2016: 79%). European countries
(2016: 18%), while the Americas
accounted
SEE DIAGRAM 22
represented 2% of the total volume (2016: 3%).
for 16%
China remained our largest source country, accounting for
40% of the sourced volume (2016: 36%), followed by Pakistan
and Turkey with 18% and 15%, respectively (2016: 17% and
16%, respectively). The total hardware sourcing volume was
approximately 110 million units (2016: 109 million units), with
the largest factory accounting for 15% of production (2016:
12%).
SEE DIAGRAM 23
Footwear production by region 1
18
Apparel production by region 1
20
Hardware production by region 1
2%
Americas
3%
1%
Europe
Europe
4%
Americas
97%
Asia
1%
Africa
93%
Asia
16%
Europe
1 Figures include the adidas and Reebok brands, adidas Golf and Ashworth.
1 Figures include the adidas and Reebok brands, adidas Golf and Ashworth.
1 Figures include the adidas and Reebok brands, adidas Golf and Ashworth.
Footwear production1 in million pairs
19
Apparel production 1, 2 in million units
21
Hardware production 1, 2 in million units
2017
2016
2015
2014
2013
403
360
301
258
256
2017
2016
2015
2014
2013
404
382
364
309
292
2017
2016
2015
2014
2013
22
2%
Americas
82%
Asia
23
110
109
113
99
94
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1 Figures include the adidas and Reebok brands, adidas Golf and Ashworth.
1 Figures include the adidas and Reebok brands, adidas Golf and Ashworth.
2 2013 restated due to a reclassification of certain apparel accessories from apparel to hardware.
1 Figures include the adidas and Reebok brands, adidas Golf and Ashworth.
2 2013 restated due to a reclassification of certain apparel accessories from apparel to hardware.
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INNOVATION
innovative products to meet the needs of
Creating
professional and everyday athletes as well as consumers is
a prerequisite to strengthening our market position in the
sporting goods industry and a premise to being the best
sports company in the world. We therefore remain highly
committed to maintaining a full and innovative product
pipeline, bringing new groundbreaking technologies and
processes to life,
into forward-looking and
sustainable ways of production and exploring the many
possibilities of digitalization across our entire value chain.
True to the vision of creative collaboration, our innovation
approach is widely based on our Open Source mindset which
is clearly visible in our numerous collaborations with
athletes and consumers, universities,
industry-leading
companies as well as national and international governments
and research organizations.
investing
MEETING THE NEEDS AND EXPECTATIONS OF
OUR CONSUMER
Innovation within the company follows a decentralized
approach. In line with their respective strategic and long-term
visions and distinctive positioning, each brand runs its own
innovation activities. However, fundamental research as well
as expertise and competencies in sustainable product creation
are shared across the company.
For the adidas brand, innovation is focused on meeting the
needs and expectations of our consumer. The modern
landscape extends beyond product and
innovation
increasingly requires innovation teams to consider the
development of experiences and services and to provide
greater levels of transparency and direct integration of our
consumer through co-creation. In partnership with our
consumer insight teams, foresight and trend analysis efforts
are shared on an ongoing basis, documenting shifts in society
and culture. This provides the starting point to build concepts
of relevance.
The FUTURE team at adidas is tasked to develop a strong
portfolio of innovation capabilities such as new materials,
production processes and consumer-centric scientific
research to provide a platform for meaningful concept
development. Projects are incubated within the company and
aligned to the broader sourcing, marketing, creative and
strategic functions across the organization, ensuring a robust
and impactful innovation pipeline.
To further strengthen long-term research capabilities, adidas
implemented a centralized project team in 2017 in order to
drive the process for the application and management of
publicly funded research projects. Located within the FUTURE
team, the team is responsible to collaborate with governmental
organizations on local, national and European level to develop
key projects with strong consortia partners, tackling major
societal challenges that will impact our consumer and
industry.
This approach also reflects our commitment to the Open
Source mindset, where we seek to build value together with
athletes and consumers, universities,
industry-leading
companies as well as national and international governments
and research organizations. In addition to opening up our
doors to valuable feedback, we also get inspired by and
receive input from knowledgeable and valued partners.
Whether we work with Parley for the Oceans on products
partially created from upcycled plastic waste ('Parley Ocean
Plastic'
SEE GLOSSARY), intercepted before it reaches the ocean
from beaches and coastal communities, with BASF, the
world’s leading chemical company, on Boost, an industry-first
cushioning technology designed to deliver maximum energy
return, responsiveness and comfort
to athletes, or
Speedfactory, a revolutionary automated production concept
in cooperation with Oechsler AG, Manz AG, BASF and Kurtz
Ersa – we will continue to unlock further potential through
collaborations. In addition to these already established
partnerships, we announced a new collaboration with
Siemens, a global leader in the fields of industry, energy and
healthcare, as well as for infrastructure solutions, to drive the
digitalization of Speedfactory. In addition, we commenced a
partnership with Carbon, a Silicon Valley-based tech company
working to revolutionize product creation through hardware,
software and molecular science, to enable mass production of
additively manufactured components, coming to life in the
Futurecraft 4D, the first performance footwear crafted with
light and oxygen.
FIVE PILLARS OF INNOVATION
Within our innovation principles, we identified five strategic
pillars, which enable us to develop the best products and
experiences for athletes and consumers, while at the same
in the fields of
innovations
time drive game-changing
manufacturing, digital and sustainability.
Athlete innovation
Our clear focus is to produce the best and most innovative
products for athletes to enable them to perform at their very
best. To achieve this, we work closely together with athletes
and teams as well as numerous universities and industry-
leading companies, to deliver against the needs of our target
consumer.
Manufacturing innovation
To simplify manufacturing, enable product innovation and
increase speed-to-market capabilities by bringing
the
production of apparel and footwear closer to the consumer,
the company’s innovation activities are also focused on new
manufacturing technologies. Our goal is to combine state-of-
the-art information technology with new manufacturing
processes and innovative products. For this reason, we
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commit ourselves to long-term cooperation with industry-
leading companies and organizations to take a leading role in
manufacturing innovation.
building of insights and foresights that keep us at the forefront
of product innovation.
Digital and experience innovation
The adidas brand was amongst the first in the industry to
comprehensively bring data analytics to the athlete. With
decades of continuous investment in sports science, sensor
technology and digital communication platforms, adidas has
already taken a leading role in terms of changing the sporting
goods industry through technology. With the increasing speed
of digitalization, this field will remain one of our core areas.
Sustainability innovation
Our commitment to manage our business in a responsible
way has long been one of the company’s principles. To stay at
the forefront of sustainable innovation, adidas is pursuing a
proactive approach to establish internationally recognized
best practices and achieve scalable improvements. As part of
our sustainability roadmap we have set ourselves the target
for 2020 to invest in materials, processes and innovative
machinery which will allow us to upcycle materials into
products and reduce waste.
SEE SUSTAINABILITY, P. 88
Female athlete innovation
Our long-term commitment to the female athlete continues to
be a focus for the company. To fuel the growth of our women’s
business, we have taken a holistic approach to understanding
the female athlete’s performance and non-performance
needs throughout her active life by looking at this target group
as an integrated part of our business but from a separate and
unique angle. With a focus on the female athlete, it is crucial
to fully understand the particular anatomy and specific
product needs of the female consumer to help unlock her full
potential. To enable this, we are working to establish a robust
network of industry leaders and academic experts with our
‘Path to Expert’ approach, which will help to accelerate the
SUCCESSFUL COMMERCIALIZATION OF
INNOVATIONS
We believe developing industry-leading technologies and user
experiences is only one aspect of being an innovation leader.
Equally important is the successful commercialization of
those technological innovations:
Futurecraft 4D: High-performance footwear featuring midsoles
crafted with light and oxygen using Digital Light Synthesis, a
technology led by Carbon. The Futurecraft 4D’s midsole
pioneers a digital footwear component creation process that
eliminates the necessity of traditional prototyping or molding.
With the new technology, adidas now operates on a completely
different manufacturing scale and sport performance quality,
officially departing from 3D printing and bringing additive
manufacturing in the sports industry into a new dimension.
Ultimately, adidas aims to create more than 100,000 pairs of
this high-performance footwear by the end of 2018.
adizero Sub2: A high-performance marathon shoe created to
take athletes below the two-hour barrier. It explores the
performance of a range of state-of-the-art materials in
different temperatures and environments and on different
surfaces. The shoe delivers the best of adidas running
technology in an extremely fast, lightweight form and marks
the debut of adidas’ new Boost Light innovation. Engineered
specifically for elite athletes on race day, Boost Light is the
brand’s lightest-ever foam and retains the industry-leading
energy return.
analysis into the movement of the body, was used to allow
adidas’ innovation teams to see exact points where female
runners need the most support and where their foot needs
room for natural expansion. This process led to the unique
design of the UltraBOOST X shoe.
AM4 Series: The first major project to be created at the adidas
Speedfactory facility in Ansbach, Germany and in 2018 also in
Atlanta, USA. The adidas Made For London (AM4LDN) and the
adidas Made for Paris (AM4PAR) shoes are the first in a series
of individually designed and manufactured running shoes
adidas will release in six key cities around the world. In the
coming months, Los Angeles, New York, Tokyo and Shanghai
will also have bespoke product created tailored to the unique
demands and using local market insight of each respective city.
Prime SP Parley: The first 3D knitted sprint spike, created
with plastic taken from beaches and coastal communities
before reaching the oceans. The silhouette focuses both on
the needs of sprinters, by incorporating a Primeknit upper for
support and a laser-welded frame for reduced weight, and on
the needs of the world, by integrating Parley Ocean Plastic
and protecting our oceans from marine plastic pollution.
adidas Alphaskin: A new base-layer technology constructed
to match the body’s movements in sport. Alphaskin was
developed using the ARAMIS motion-capture system instead
of a traditional static mannequin for testing, in order to find
out where fabric constrains an athlete’s performance. The
new design eliminates seams to help athletes focus on their
performance in competition and training. Alphaskin offers
kinetic wrapping in a range of compression levels that suit
each athlete’s personal preference.
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UltraBOOST X: A lightweight running shoe for the female
runner, featuring a Boost midsole, an adaptive arch as well as
a Primeknit upper for perfect fit and flexibility. The ARAMIS
system, a motion tracking technology that enables a detailed
Reebok Floatride Run: The first shoe featuring Reebok’s new
Floatride Foam technology. The unique and consistent cell
structure of Floatride Foam delivers soft, responsive
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cushioning without compromising weight, so runners can
‘float’ through their run. The one-piece Ultraknit upper is
engineered in zones to offer support and breathable flexibility.
Seamless construction and a 3D heel cradle limit irritation
while locking in a comfortable fit.
Reebok Cotton + Corn: The initiative is intended to bring
plant-based footwear to the market in 2018. The first shoe
‘made from things that grow’ will have an upper comprised of
organic cotton and a base originating from industrial grown
corn, which is a non-food source. For the Cotton + Corn
initiative, Reebok partnered with DuPont Tate & Lyle Bio
Products, a leading manufacturer of high-performance bio-
based solutions.
The awards the company has attained for its innovations
confirm our continuous efforts to become the innovation
leader in the sporting goods industry. In 2017, for example,
the Futurecraft 4D was awarded with the ‘Fast Company’s
Innovation by Design Award 2017’ and named one of the
25 best innovations 2017 by Time Magazine. Also, we were
named ‘Game Changer 2017’ in the category ‘Operations of
the Future’ by Manager Magazin and Bain & Company for
executing
innovative solutions such as Futurecraft 4D,
Speedfactory and Parley. In addition, the Reebok Floatride
Run was named ‘Best Debut’ in the 2017 Runner’s World
Summer Shoe Guide.
NEW PRODUCT LAUNCHES GENERATE THE
MAJORITY OF SALES
As in prior years, the majority of sales were generated with
products newly introduced in the course of 2017. New products
tend to have a higher gross margin compared to products
which have been in the market for more than one season. As
a result, newly launched products contributed overpro por-
tionately to net income in 2017. We expect this development to
continue in 2018 as we will present a wide range of new,
innovative products.
SEE SUBSEQUENT EVENTS AND OUTLOOK, P. 128
In 2017, brand adidas and Reebok sales were again driven by
the latest product offerings. At brand adidas, products
launched during the course of the year accounted for 79% of
brand sales (2016: 77%), while only 2% of sales were generated
with products introduced three or more years ago (2016: 1%).
At Reebok, 69% of footwear sales were generated by products
launched in 2017 (2016: 73%). Only 12% of footwear product
sales relate to products introduced three or more years ago
(2016: 11%).
R&D EXPENSES INCREASE 25%
Expenses for research and development (R&D) include
expenses for personnel and administration, but exclude other
costs, for example those associated with the design aspect of
the product creation process. In 2017, as in prior years, all
R&D costs were expensed as incurred. The company’s R&D
expenses increased 25% to € 187 million from € 149 million in
the prior year.
As our R&D departments comprise experienced and multi-
skilled people from different areas of technical expertise and
from diverse cultural backgrounds, personnel expenses
represent the largest portion of R&D expenses, accounting for
64% of total R&D expenditure.
The number of people employed in R&D activities at December
31, 2017, was 1,062, compared to 1,021 employees in the prior
year. This represents 2% of total employees.
In 2017, R&D expenses represented 2.1% of other operating
expenses (2016: 1.9%). R&D expenses as a percentage of
sales increased to 0.9% (2016: 0.8%).
SEE TABLE 24
Key R&D metrics 1, 2
R&D expenses (€ in millions)
R&D expenses (in % of net sales)
R&D expenses (in % of other operating expenses)
R&D employees
2017
187
0.9
2.1
1,062
2016
149
0.8
1.9
1,021
2015
139
0.8
1.9
993
2014
126
0.9
2.0
985
1 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
2 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the Rockport business.
24
2013
124
0.9
2.0
992
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PEOPLE AND CULTURE
At adidas, we believe that our people are the key to the
company’s success. Their performance, well-being and
knowledge have a significant impact on brand desire,
consumer satisfaction and, ultimately, our
financial
performance. Through the delivery of our People Strategy,
we focus our efforts on four fundamentals: the attraction
and retention of the right talents, role model leadership,
diversity and inclusion, as well as the creation of a unique
corporate culture.
PEOPLE STRATEGY ENABLES A CULTURE FOR
DELIVERING ‘CREATING THE NEW’
As an integral part of our corporate strategy ‘Creating the
New’, the People Strategy is a testament to thinking that our
2020 strategy can only be executed if we speak to our people
on all levels and win both their hearts and minds. The People
Strategy consists of four pillars that serve as a basis for
creating the culture and environment for our people in order
to successfully support Creating the New.
These four pillars also serve as a tool for prioritization, sense-
checking and measuring our HR actions and initiatives. The
People Strategy is implemented through a portfolio of projects
which will directly deliver into each of the four pillars. In 2017,
we made good progress by delivering the following initiatives.
SEE DIAGRAM 25
Meaningful reasons to join and stay
Kicked off in 2015, our internal career development program
Talent Carousel entered its third year, with the first generation
graduating in 2017. The program encourages employees from
all over the world to apply and become one of 20 finalists to
take a cross-functional and international career step by
starting a new role in a new location. Candidates remain in the
The four pillars of our People Strategy
25
People Strategy
Defines and inspires the right organizational culture for Creating the New
Role model leadership
Diversity & inclusion
Culture
Role models who inspire us
Bring forward fresh and
diverse perspectives
A creative climate to make
a difference
program for 24 months with the right to return to their home
location while being developed with the goal of them assuming
Senior Management positions in the future.
In 2017, we continued our central onboarding process at our
headquarters in Herzogenaurach, Germany, which ensures
new starters enjoy a high-quality, consistent experience upon
joining the company. In addition, we piloted a digital pre-
onboarding app available initially to new joiners in our Digital
Brand Commerce teams across Herzogenaurach, Portland,
Amsterdam and Zaragoza. The app allows us to engage with
new hires immediately upon their signing of an employment
contract. Through research into other organizations, we
learned that connecting with new joiners and providing them
with a cultural onboarding before their first day on the job
shortens their ramp-up time as it reduces complexity in the
initial stages, ensuring they are highly engaged from day one.
Both our pre-onboarding platform and in-person experience
provide important learnings for a global onboarding initiative
which aims at introducing standard onboarding tools in the
next two years.
to
learning
Our Learning Campus provides access
opportunities for employees globally. Through this digital
platform, our people are able to develop skills to support their
current performance and future career development. In 2017,
we saw additional functional learning opportunities become
accessible under the Learning Campus umbrella.
Attraction & retention
of the right talents
Meaningful reasons to join
and stay
Attract and retain great talent
by offering personal
experiences, choices and
individual careers.
Nurture and inspire role
model leadership.
Represent and live the
diversity of our consumers
in our people.
Choice & Agility & Speed
It is our goal to develop a
culture that cherishes
collaboration, creativity and
confidence – three behaviors
we deem crucial to the
successful delivery of our
corporate strategy.
Introduced in 2016 in Germany, the US, the Netherlands and
Hong Kong, our employee Stock Purchase Plan was rolled out
to Greater China, Taiwan and the Hong Kong market organization
in 2017. By the end of the year, 45% of our total employee
population were eligible to take part in the program, and
around 3,600 decided to participate. It is planned to extend
this program to further countries in the coming years.
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Our offices in the Netherlands, Spain and China received
awards from the Top Employer Institute for their efforts to
provide an exceptional work environment for our people. With
its certification, the Top Employer Institute recognized
adidas’ People Strategy, its organization-wide Learning &
Develop ment framework which encourages different kinds of
learning and its career management model. adidas promotes
and encourages employee mobility across the organization
and holds line managers accountable for developing the
succession pipeline.
In the neighboring forest at our headquarters, we opened
the company’s first-ever outdoor kindergarten group with
20 children, extending our child-care offer in a unique way.
Also, we laid the foundation stone for our second day-care
center on campus. It will open in October 2018, providing
spots for a total of another 138 children: 75 for kindergarten
children, 48 for nursery children, and 15 spots for short-term
or emergency day care.
Role models who inspire us
In 2017, we made significant progress with this People
Strategy pillar. Two new leadership groups were created, with
a third one in the making:
— The Core Leadership Group (CLG) is the most senior
group, made up of around 20 members from our Executive
Leadership population. Members of this group jointly
represent top positions and roles across our company.
These functional and geographical experts partner with
the Executive Board in teaching and overseeing the cross-
functional execution of the Creating the New strategy,
accelerating its delivery, as well as mentoring and
sponsoring the next generation of leaders. The CLG also
serves as the succession pool for the Board.
— The Extended Leadership Group (ELG) currently has
around 100 members. This new community of leaders
collaborates across functions to lead the implementation
of the strategic initiatives that form the Creating the New
portfolio as well as the functional and market project
portfolios. They drive continuous improvement across
the organization and also mentor and sponsor younger
leaders. The ELG serves as a succession pool for the CLG.
— A third group – the Global High Potential Group (GHIPO) –
will be formed in the first quarter of 2018. Within this group,
which will consist of 50 members, we are striving for a 50:50
gender balance. With the GHIPO group we want to identify
and develop high potentials who have the ability to take on
more complex, demanding and higher-level responsibilities
at a global executive level. The GHIPO program will develop
participants’ capability against a consistent future Senior
Management profile.
In an effort to drive clarity and accountability, the CLG has
created the company’s first global Leadership Framework. It
is based on the three company behaviors creativity,
collaboration, confidence (the ‘3Cs’) and articulates the
particular behaviors that are expected of leaders at adidas.
The framework was developed
jointly with employees
worldwide who provided feedback on what great leadership
within adidas looks like to them. It now provides a global and
universal language that is inclusive, reduces the need for
local interpretations and outlines concrete behaviors that
serve as a measure of leadership effectiveness. It will also be
built into the way we hire and promote as well as rate
performance. The framework was activated and cascaded to
employees globally through the CLG and ELG groups.
Employees’ awareness of the framework as well as its overall
effectiveness are measured via our monthly employee
experience survey ‘People Pulse’.
with basic knowledge on how to become a good people
manager, manage their business and continue to develop
themselves throughout their career. The course can also
be booked by managers who would like to refresh their
people management skills. Since 2016, this curriculum is
complemented by the ’Fit2Lead Experienced Manager’ training
that is geared towards managers who bring more than five
years of manage ment experience and/or lead or influence
larger teams.
Bring forward fresh and diverse perspectives
We delivered our 'BIG Deal' gender intelligence training to the
Board and their direct reports, covering 387 executives across
nearly all our market subsidiaries within the course of a year.
‘BIG’ stands for Balanced, Inclusive, Gender Intelligent. BIG
Deal is a one-day workshop designed to give participants new
insights and practical tools that support them in building an
inclusive company culture. Participants are challenged to re-
visit and think critically about some of their key thoughts and
beliefs around diversity, stereotyping and gender in the
workplace.
Functional and local market teams continued to develop
dedicated plans to invest in a stronger female talent pipeline,
data analysis on gender balance and action plans to establish
a more balanced organization in terms of gender, age and origin.
Our employee resource groups across the organization with
an employee base of more than 700 members per group
regularly hold awareness events and activations garnering
corporate support for topics such as women’s, LGBTQ, age and
origin as well as giving employees from all walks of life a voice.
We continued to deliver our people manager training
‘Fit2Lead’ across the US, Asia and EMEA (Europe, Middle East
and Africa). This training is specially designed for all first-time
people managers who lead up to five people. It provides them
A creative climate to make a difference
In a continued effort to provide our employees with the best
work environment possible, further construction work has
started on our headquarters campus in Herzogenaurach. A
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new building called ‘Arena’ will become the company’s new
main office in the first half of 2019, offering over 2,000
employees a new home, centralizing most of the employees in
Herzogenaurach on the World of Sports campus. 2017 also
saw the construction of a third future workplace space, ’Base’,
following the successes of ‘Pitch 1’ and ‘Pitch 2’. Employees
based in these buildings work according to the activity-based
working concept. They no longer have assigned desks but can
choose from a multitude of different types of rooms and
spaces based on the tasks they have on hand. Change
management in these new buildings is supported through a
dedicated mobile app as well as employee-led feedback
groups and regular feedback surveys.
Our ‘MakerLabs’ at our headquarters in Herzogenaurach and
in Portland, USA, serve as dedicated spaces providing tools
such as laser cutters and 3D printers and know-how to help
employees realize their ideas and create prototypes. The
‘MakerLab’ idea has its roots in the ‘hacker space’ concept,
where all employees are given free rein to create and bring
their ideas to life.
HR FOUNDATIONS FOR OUR PEOPLE STRATEGY
In 2017, the adidas HR function further evolved People
OneView – a self-service online portal that allows employees,
leaders and HR Partners to both access and manage the most
important personal and work data such as salary, career and
team information as well as HR applications. By providing
direct access to People OneView, users are empowered to
manage their most important personal data without having to
go via their HR Partner. HR Partners in turn regain valuable
time to counsel and support employees. In 2017, two new
modules were added to the platform: Dashboarding gives HR
Partners and senior leaders access to certain HR-specific
metrics and standard reports, Org Viewing provides all
employees with full transparency over the organizational
structure of the company.
The year was also focused on further stabilizing and enhancing
the HR Shared Service Center function for Germany. All
employee queries relating to compensation, benefits, time
management and HR systems are being centrally channeled
and managed through this department. HR Partners are thus
enabled to focus fully on supporting line managers and
employees on topics such as career counseling, people
management and coaching. In the first half of 2018, a new HR
Shared Service Center will be going operational in Portland.
MEASURING THE SUCCESS OF OUR
HR INITIATIVES
Our HR function measures the success and the effectiveness
of the company’s efforts with regard to its people initiatives
through a set of chosen KPIs. We use two people KPIs:
employee experience as an internal measure and employer
rankings as an external measure.
Employee engagement
We have set ourselves important goals of becoming the best
sports company in the world by becoming a truly consumer-
centric organization and putting our people at the heart of
everything we do. When it comes to measuring whether we
are living up to these ambitions, our consumers and people
are the best data sources.
We are convinced that our employees’ feedback will play a
crucial role in our pursuit of creating a world-class employee
experience so we can continue to attract and retain top talent.
We can only tell if we are successful by asking our people and
hence empower them to share their feedback on a regular
basis. In support of this thinking, the adidas Executive Board
approved the launch of ‘People Pulse’ for all office employees
with an email account. Kicked off in June 2017, People Pulse
is adidas’ new approach and system platform for measuring
the level of employee satisfaction with the experience adidas
provides as an employer.
SEE INTERNAL MANAGEMENT SYSTEM, P. 102
People Pulse allows for the monthly measurement of
employeeNPS (eNPS).
The calculation logic of the eNPS score is identical with brand
NPS: Based on the main question ‘On a scale of 0-10, how
likely are you to recommend adidas as a place to work?’, the
total share of detractors (responses below 7) is deducted from
the total share of promoters (responses scoring 9 and 10),
producing the eNPS score. This new approach as well as a
new focus on collecting open-comment feedback from
employees on a regular basis allowed the reduction of the
questionnaire to a short pulse check of seven questions
maximum, with the eNPS question at the center.
The People Pulse cadence is made up of two components:
— The eNPS question which is asked every month to allow
for tracking over time
— A focus topic which changes monthly and is directly derived
from the company’s strategic agenda as well as the new
Leadership Framework and the 3Cs. The cycle repeats
itself every six months
2017 marked the creation of the baseline eNPS score which
was needed to establish the measurement of KPI improvement
over time, as well as to produce internal benchmarks.
Research shows that external benchmarks for eNPS are not
meaningful to compare the level of positive employee
experience between companies as People Pulse is specifically
tailored to adidas’ needs as well as its Creating the New
strategy and People Strategy. A direct like-for-like comparison
of the adidas eNPS score to that of other companies is
therefore not feasible. In line with the NPS industry standard
approach, the focus lies on incremental improvement of the
baseline score vs. the score for each pulse. For external
benchmarking, we continue to use top employer rankings such
as Glassdoor and Universum, where adidas’ attractiveness as
an employer is compared to that of other companies in similar
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and other industries. Tracking of these external rating scores
is managed by the HR Talent Acquisition team on a regular basis.
Given the above, targets that were agreed with the Executive
Board for the baseline year were mainly qualitative in nature
with the exception of the participation rate:
Target
Result 2017
Reporting of People Pulse
results
Minimum participation
rate per month of 50% and
accumulated participation
rate of 80% at least once
every six months
Results recipients to,
among others,
– actively show leadership
commitment and
ownership by openly
discussing People Pulse
results
– drive action on identified
areas of improvement
– Reports with scores and anonymized
comments are provided to the Executive
Board as well as leaders on both Board-1
and Board-2 level.
– Employees have access to the overall
company results via a SharePoint
workspace and our global intranet a-LIVE.
– Since its launch in June, monthly
participation rates have been increasing,
from 45% to around 55% in November and
December.
- By October, approximately 85% of eligible
employees had participated in at least one
monthly pulse.
– Leaders partner with HR and other
relevant functions to review, cascade and
communicate monthly results.
– Discussion with network of ‘People
Pulse Champions’ to share best-practice
examples.
– One example for successful implemen-
tation of feedback is the introduction of
new work-life balance measures in Greater
China which resulted in significant score
improvements.
Expansion of People
Pulse to own retail stores
and Distribution Centers
before the end of 2017
– Pilot of People Pulse for ten retail stores
in Germany and the Central Distribution
Center in Rieste, Germany.
– Lessons-learned meetings to define
roadmap for 2018 regarding the roll-out
to retail stores and Distribution Centers
globally.
In addition, we measured the effectiveness of People Pulse as
a tool, using the November Pulse to get employees’ feedback
on People Pulse itself. Positive feedback revolved around the
fact that People Pulse gives employees a voice and the chance
to contribute and provide feedback quickly and on a regular
basis. An area for improvement is the communication of
results and the definition of actions addressing the results.
The insights-to-action process will therefore become a focus
area for 2018.
Employer rankings
Our ‘employer of choice’ status continues to garner worldwide
recognition and enables us to attract, retain and engage
industry-leading talent to sustain the company’s success and
growth. In 2017, adidas locations around the world leveraged
our employer brand attributes for attraction, retention and
engagement strategies. This work contributed to several Top
Ten rankings worldwide, including the Glassdoor and the
Focus Best Employer rankings, as well as the Candidate
Experience Award EMEA/APAC (Asia Pacific). This has also
helped us to attract some of the industry’s top talent.
PERFORMANCE MANAGEMENT
To drive high performance within the company, we use a
performance management approach called ‘The Score’. It
brings target setting and performance appraisal under one
common process. Each employee is evaluated at least once a
year, optionally twice, and receives performance feedback
accordingly. In 2018, The Score will be replaced by ‘#MyBest’
which is a new and holistic performance development
approach combining monthly high-quality conversations
between the employee and the line manager, regular upward
and peer feedback options with quarterly target setting and
performance evaluation. In 2017, we focused on training
employees on the new approach as well as piloting #MyBest.
Wages and benefits
We are committed to rewarding our employees with
compensation and benefit programs that are competitive in
the marketplace. Remuneration throughout the company
comprises fixed and variable monetary compensation, non-
monetary rewards as well as other intangible benefits. The
cornerstone of our rewards program is our Global Salary
Management System, which is used as a basis for establishing
and evaluating the value of employees’ positions and salaries
in a market-driven and performance-oriented way. The various
variable compensation and benefits components we offer our
employees include:
— Bonus program – Short Term Incentive (STI) program
— Profit participation program – ‘Champions Bonus’ (Germany)
— Long-Term Incentive (LTI) Plan for leaders and Executive
Board members
— 401-K Retirement Plan (USA) and adidas Pension Plan
(Germany)
— adidas Stock Purchase Plan.
We are continuously improving our remuneration approach
and are therefore investing in a number of projects and
initiatives to increase significance of our remuneration
programs, as well as to ensure we are investing in the right
people at the right level. One of the improvements we
conducted was the initiation of a new salary adjustment
approach. It was applied in Germany and the US in 2017 to
minimize salary differences and, more importantly, inequity of
employees on the same positions and grades. It is based on a
higher level of detail for external market data and addresses
internal pay gaps – also helping ensure that we pay equally at
the same level for female and male employees.
In addition, we improved transparency and governance for
management remuneration. Analytics
for our global
management population provided higher transparency about
internal and external
actual remuneration as well as
positioning of compensation and benefits packages. The aim
was to ensure objective decision making for management
remuneration, and to continue standardizing our pay
structures. In 2017, we also rolled out a new, global Long
Term Incentive Program for Senior Management. This
program provides Restricted Stock Units (RSU), linked to our
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Earnings per Share (EPS) targets and to our share price
performance. It closely links the goals of our Senior
Management with those of our shareholders – sustainable
success and long-term growth – and fosters company
ownership mentality. We will introduce a similar plan for the
Executive Board in 2018.
SEE NOTE 27, P. 186
Our subsidiaries also grant a variety of benefits to employees,
depending upon locally defined practices and country-specific
regulations and norms.
DEVELOPMENT AND TRAINING
Talent and succession management
The quality of current and future talent and leadership is key
to our success. With specifically designed talent management
tools, we identify talents at all levels of our company who have
the potential to become future leaders or key players within
the organization. In order to prepare them for more complex
in targeted development
future roles, they participate
programs and have tailored individual development plans.
Apprenticeships and internships: Our development programs
internship
are complemented by apprenticeship and
programs. The adidas apprenticeship offers young people
who want to join our company directly out of school the
opportunity to gain business experience in a two- to three-
year rotation program. It includes vocational training in retail,
shoe technology and IT, as well as integrated study programs
in fields such as digital commerce, finance or international
business. At the end of 2017, we employed 65 apprentices in
Germany (2016: 63) and 37 integrated study program students
(2016: 35). Our global internship program offers students
three to six months of work experience within adidas. In 2017,
we employed 765 interns in Germany (2016: 623).
Trainee program: The Functional Trainee Program (FTP) is an
18-month program providing graduates with an international
the
background and excellent educational credentials
opportunity to start a functional career within adidas. The
program comprises six three-month assignments in various
departments. At least one of these assignments takes place
abroad. At year-end 2017, we employed 63 participants in our
global FTP (2016: 49).
Succession management: Our succession management
approach aims to ensure stability and certainty in business
continuity. We achieve this through a globally consistent
succession plan which covers successors for director-level
positions and above. We conduct regular reviews to ensure
in place to prepare
individual development plans are
successors for their potential next steps.
fostering
Employee collaboration and learning
internal
We believe that a robust and state-of-the-art
communication platform is essential for driving employee
engagement and
learning as well as open
collaboration within our organization. We use an enterprise
collaboration platform called ‘a-LIVE’, which encourages
employees to share knowledge, collaborate and discuss
current topics. In addition, we have established an ‘Ask the
Management’ platform on our intranet, enabling employees
to openly address questions to our senior leaders.
In 2017, 23,113 employees accessed our Learning Campus
digitally, while 4,295 employees participated in in-person
learning activities, ranging from two hours to two days in
duration. In 2018, adidas core learning programs will be
created to support strategic business
initiatives, build
capabilities connected to our 3Cs and support development of
future cross-functional organizational capabilities. Input into
the program offer is managed through a business needs
assessment supported by our HR organization.
WORK-LIFE INTEGRATION
We aim to harmonize the commercial interests of the
company with the professional, private and family needs of
our employees. Our Work-Life Integration initiatives and
programs include flexible work time and place, people
development and leadership competence related to work-life
integration, as well as family-oriented services. In addition to
providing flexible working opportunities such as teleworking,
sabbaticals and parent/child offices, we have a day-care
center at our headquarters in Herzogenaurach, for example.
Our office in Panama also offers financial support for day
care, and our office in Amsterdam provides a contingent of
day-care places.
Via a-LIVE we also offer all employees access to the Learning
Campus, a state-of-the-art learning platform launched in
2014 that provides opportunities for both e-learning and
knowledge sharing. Employees are able to access content
24/7 in a virtual environment. Under the Learning Campus
brand we also offer in-person learning activities. Through a
global implementation of our Learning Management System
that continued through 2017, we have increased accessibility
of employee training and development activities across the
globe with a future goal of the majority of in-person and digital
learning activities contributing to an employee’s individual
People OneView profile.
In order to plan parental leave and re-entry in the best
possible way, we have dedicated and tailored programs in
place providing employees with advice at an early stage and
options for their return to work, also taking into consideration
flexible working hours and work locations. In Germany, for
instance, we guarantee our employees on parental leave their
positions, which are only filled temporarily. In the US, we give
parents a special option: In addition to regular parental leave,
which allows new parents to stay home for up to ten weeks
with 70% of their salary, adidas offers an extra two weeks’
paid parental leave for parents. Furthermore, adidas’ special
parental bonding leave provides parents with the possibility to
stay home for up to six months within the first twelve months
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after the child’s birth or placement. While unpaid, it offers
parents the opportunity to stay home longer and take care of
their new arrival and new life together.
Starting with our company’s headquarters in Germany, we
introduced a new off-campus working approach in 2017. Every
employee with an adidas AG contract whose working tasks
can be carried out independently of campus facilities, campus
equipment or personal interaction onsite is eligible to work
20% of their total working time off-campus. This new Works
Council agreement is based on our belief that results can be
achieved in the same quality and quantity, regardless of
people’s location. With this regulation we are supporting our
people in working more flexibly and choosing the best work
environment for the task they have at hand.
DIVERSITY AND INCLUSION
We believe it is crucial for the success of our company to
have a very diverse workforce and individuals with different
ideas, strengths, interests and cultural backgrounds. We see
a great benefit in the diversity of our employees as this helps
us to better fulfil the wishes and multi-faceted demands of
our consumers around the world. All our employees are
appreciated – regardless of gender, nationality, ethnic origin,
religion, world view, disability, age, sexual orientation or identity.
At our company’s headquarter, we have employees from more
than 100 nations. As part of our global diversity approach we
proactively pursue a portfolio of internal and external activities
as well as memberships:
Internal activities
— We have regular events highlighting diversity as a key
topic, such as our global Diversity Day. We support the
760-member strong global Women’s Networking group.
Additionally, we continue our support of the international
LGBTQ community, which is also driven by our employees
at our major locations. 2017 also saw the creation of a
new Experienced Generation network which represents the
interests and needs of our more experienced employees.
— We provide quarterly diversity reports to management to
support decision making and target setting, and provide
diversity training to our employees and gender intelligence
training to our leaders.
External activities and memberships
— Our active membership in ‘Charta der Vielfalt’ (‘Diversity
Charter’), Prout at Work and the Diversity and Inclusion in
Asia Network (DIAN) allows us to promote communication
and the sharing of best practices and insights.
— We have been participating in international diversity career
fairs and events such as Women in Tech, Opportunities for
Women Conference and the British LGBT awards.
— adidas is listed in the genderdax
SEE GLOSSARY and regularly
takes part in benchmark studies in order to review our
activities in the fields of diversity and inclusion.
MIXED LEADERSHIP TEAMS
At adidas, we believe in mixed leadership teams as a
competitive advantage and driver of success. A prerequisite
for increasing the number of women at the highest levels of
management is the general promotion of women within the
company worldwide at all levels of management. We have
various initiatives in place, e. g. with members of the Executive
Board agreeing to mentor female talents as well as an equal
gender split in our GHIPO program to guarantee that our
succession pipeline is balanced. In addition, our women’s
network is also working on mentoring circles to foster the
professional development of junior colleagues. Already in
2011, adidas proactively set itself the goal of increasing the
number of women in management positions in the coming
years. ↗ ADIDAS-GROUP.COM/S/EMPLOYEES
Mixed leadership targets
26
adidas AG
Target set in 2015 for 2017
Evaluation June 30, 2017
Target set in 2017 for 2019/2022
Supervisory Board to appoint one woman
to the adidas AG Executive Board
Karen Parkin appointed as the first woman
to the adidas AG Executive Board in May 2017
Percentage share of women on the
Executive Board by 2022: 14.29% (1/7)
Percentage share of women in
management positions (Board-1 level) to
be increased from 11% (July 2015) to 18%
Percentage share of women in
management positions (Board-2 level) to
be increased from 26% (July 2015) to 30%
Percentage share of women in
management positions (Board-1 level): 18%
Percentage share of women in
management positions (Board-2 level): 29%
Percentage share of women in
management positions (Board-1 level) to be
increased to 24% by 2019
Percentage share of women in
management positions (Board-2 level) to be
increased to 30% by 2019
Global
Target set in March 2011 for 2017
Evaluation 2017
Target set in 2017 for 2020
Percentage share of women in
management positions to be increased
from 30% (March 2011) to 32%
Percentage share of women in
management positions: 31%
Percentage share of women in
management positions to be increased to
32%
0
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FINANCIAL REVIEW
STATEMENTS
PEOPLE AND CULTURE
Pursuant to the German ‘Law on Equal Participation of
Women and Men in Leadership Positions in the Private and
Public Sector’ the Supervisory Board and Executive Board
of adidas AG have set specific targets to be achieved by
June 30, 2017, and new targets to be achieved by
December 31, 2019.
THE DECLARATION ON CORPORATE GOVERNANCE, P. 33
SEE CORPORATE GOVERNANCE REPORT INCLUDING
SEE TABLE 26
GLOBAL EMPLOYEE POPULATION
On December 31, 2017, the company had 56,888 employees
(thereof 7,581 adidas AG), which represents a decrease of 3%
versus 58,902 in the previous year. This is a result of the
divestiture of our TaylorMade and CCM Hockey businesses.
On a full-time equivalent basis, our company had 48,775
employees (thereof 6,927 adidas AG) on December 31, 2017
(2016: 50,319).
SEE TABLE 27
Personnel expenses increased to € 2.549 billion in 2017
(2016: € 2.373 billion), representing 12% of sales (2016: 13%).
SEE NOTE 33, P. 201 An overview of the development of our
employee base in the past ten years can be found in our ten-
year overview.
SEE TEN-YEAR OVERVIEW, P. 229
Employee statistics 1
27
Employees by region 1
Total number of employees 2
Total employees
Male
Female
Management positions
Male
Female
Average age of employees (in years)
Average length of service (in years)
2017
56,888
2016
58,902
50%
50%
69%
31%
30
4
50%
50%
70%
30%
30
5
1 At year-end. Figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
2 Number of employees on a headcount basis.
20%
Group functions
11%
MEAA
3%
Japan
8%
Latin America
1 At year-end.
Number of employees by function 1
28
Employees by function 1
Own retail
Sales
Logistics
Marketing
Central functions
and
administration
Production
Research &
development
IT
Total
Employees 2
Full-time equivalents 3
2017
2016
2017
32,698
35,109
25,640
3,795
5,890
5,964
5,157
1,132
1,062
1,190
56,888
4,018
5,999
5,379
5,044
1,164
1,021
1,168
58,902
3,680
5,617
5,742
4,835
1,105
1,002
1,154
48,775
2016
27,552
3,910
5,721
5,166
4,749
1,135
955
1,131
50,319
2%
IT
2%
Production
7%
Sales
9%
Central functions &
administration
10%
Marketing
1 At year end. Figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
2 Number of employees on a headcount basis.
3 Number of employees on a full-time equivalent basis.
1 At year-end.
29
12%
Western Europe
20%
North America
10%
Greater China
16%
Russia/CIS
30
2%
Research &
development
57%
Own retail
10%
Logistics
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FINANCIAL REVIEW
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SUSTAINABILITY
Being a sustainable business is about striking the balance
between shareholder expectations and the needs and
concerns of our employees and consumers, the workers in
our supply chain and the environment. We believe that
acting as a responsible business will contribute to lasting
economic success.
OUR APPROACH
Our commitment to sustainable practices rests on the
company’s mission: To be the best sports company in the
world. Best means that we design, build and sell the best
sports products in the world, with the best service and
experience and in a sustainable way. This mission is supported
by the adidas sustainability roadmap toward 2020 and beyond,
which is a direct outcome of our business strategy ‘Creating
the New’. We believe that, through sport, we have the power to
change lives. But sport needs a space to exist. These spaces
are
issues,
including human rights violations, pollution, growing energy
consumption and waste. Our holistic approach to sustainability
responds to the challenges that endanger the spaces of sport
and simultaneously our planet and people. Building on
existing programs, it tackles these subjects that are most
material to our business and our stakeholders, and translates
our overall sustainability efforts into tangible goals for 2020
that have a direct impact on the world of sport we operate in.
increasingly endangered due to man-made
↗ ADIDAS-GROUP.COM/SUSTAINABILITY
MATERIAL TOPICS
We seek to ensure that we address the topics that are most
salient to our business, our key stakeholders as well as the
challenges ahead. To identify these topics we openly engage
with our stakeholders and involve their views and opinions in
decisions that shape our day-to-day-operations. 2017 saw a
refreshment of this materiality exercise. Building on the
insights gained from past assessments we categorized
potential relevant topics in a first step. We then validated
these topics through in-depth discussions with experts across
all relevant functions. In doing so, our focus centered on the
importance a topic has for our business performance and
stakeholders but also considered the impact adidas has on
these topics. As a result we were able to confirm our strategic
ambitions and embedded goals that we aim to reach by 2020.
SEE NON-FINANCIAL STATEMENT, P. 100
of
the
forms
details
different
STAKEHOLDER DIALOGUE AND TRANSPARENCY
Engaging openly with stakeholders and establishing ways to
increase transparency and disclosure has long been central
to our approach. Our stakeholders are those people or
organizations who affect or are affected by our operations,
including our employees, consumers, suppliers and their
workers, customers, investors, media, governments and
NGOs. The adidas ‘Stakeholder Relations Guideline’ specifies
key principles for the development of stakeholder relations
and
stakeholder
engagement. Through active participation in, for example, the
Better Cotton
Initiative (BCI), the Sustainable Apparel
Coalition (SAC), the Leather Working Group (LWG) and the
Apparel and Footwear
International RSL Management
(AFIRM) Working Group, we work closely with leading
companies from a variety of sectors to develop sustainable
business approaches and to debate social and environmental
topics on a global level. This is also supported by our
membership in organizations such as the World Federation of
the Sporting Goods Industry (WFSGI), the Fair Factories
Clearinghouse (FFC), the Fair Labor Association (FLA) and
the German government-led Partnership on Sustainable
Textiles (‘Textilbündnis’). In addition, we build awareness,
capacity and knowledge of laws and rights among factory
management and workers by partnering with leading
providers such as the EHS+ Centre in China and the
International Labour Organi za tion’s (ILO) Better Work program.
↗ ADIDAS-GROUP.COM/S/PARTNERSHIPS
We believe transparent communication to our stakeholders is
critical. For that reason we regularly disclose important
sustainability updates from our work throughout the year on
our corporate channels including our corporate website. A
key element is the publication of our global supplier factory
lists, showing factories we source from. The lists were first
disclosed in 2007 and are updated twice a year. In addition, we
publish lists of the factories that manufacture products for
major sports events such as the FIFA World Cup or Olympic
Games, and disclose the names of factories of suppliers who
process materials for our primary suppliers or subcontractors,
where the majority of wet processes
SEE GLOSSARY are carried
out.
↗ ADIDAS-GROUP.COM/S/SUPPLY-CHAIN-STRUCTURE
GOVERNANCE STRUCTURE
A cross-functional governance structure ensures timely and
direct execution of these programs that drive achievement of
our voluntarily set goals for 2020. A Sponsor Board composed
of functional heads from Social and Environmental Affairs
(SEA), Global Operations (GOPS), Global Brands, Human
Resources, Global Workplaces, Retail Concept, Sales, Finance
and Communication oversees the progress made toward our
goals in bi-monthly meetings and gives direction for further
development of the sustainability roadmap. The Sponsor
Board works in close alignment with the strategic working
group that is tasked with the monitoring of ongoing relevant
developments within the company and the reporting of
progress to the Sponsor Board. Ultimately, the program
owners ensure operational execution of the programs.
Important updates and requests for decision making are
shared with the Executive Board and designated sustainability
champions on a regular basis.
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SEE OUR SHARE, P. 57
investment analysts
EXTERNAL RECOGNITION
We have continuously received positive recognition from
international institutions, rating agencies, NGOs and socially
responsible
for our sustainability
initiatives. In 2017, adidas AG was again represented in a
variety of high-profile sustainability indices and subject to
corporate sustainability assessments.
For example, for the 18th consecutive time, adidas AG was
selected to join the Dow Jones Sustainability Indices (DJSI),
the world’s first global sustainability index family tracking the
performance of the leading sustainability-driven companies
worldwide. As one of the top-scoring companies in our
industry ‘Textiles, Apparel & Luxury Goods’, we earned the
Gold Class distinction for excellent corporate sustainability
performance for the second year in a row and were rated
industry best in the criteria Human Rights, Supply Chain
Management, Impact Measurement and Valuation, Materiality,
Environmental Policy and Management Systems, Risk and
Crisis Management, Brand Management, Corporate Citizenship
and Philanthropy, and Customer Relationship Management.
As a result of our response to assessments conducted by the
Carbon Disclosure Project (CDP), adidas was awarded with a
B score in the Climate Change submission and with an A–
score in the Water submission in 2017. Furthermore, adidas
received recognition in the annual CITI (Corporate Information
Transparency Index) 4.0 evaluation for the environmental
performance of our supply chain in China for the fourth year in
a row. In 2017, we ranked first in the leather industry, and fifth
out of more than 200 global brands. adidas further ranked
second in its industry in the Corporate Human Rights
Benchmark evaluation and, for an unprecedented third time,
received accreditation for its social supply chain program by
the FLA. To provide information for the third accreditation,
nine years of social compliance work was evaluated. Our
program was first accredited by the FLA in 2005, then
reaccredited in 2008.
↗ ADIDAS-GROUP.COM/S/RECOGNITION
OUR PROGRESS
For years, adidas has regularly reported about its sustain-
ability performance by measuring and disclosing the progress
made toward our targets.
PRODUCT SAFETY
Product safety is an imperative. As a company we have to
manage the risk of selling defective products that may result
in injury to consumers or impair our image. To mitigate this
risk, we have company-wide product safety policies in place
that ensure we consistently apply physical and chemical
product safety and conformity standards. Since pioneering the
Restricted Substances Policy (‘A-01’ Policy) in 1998, we
continue to develop policies which ban or restrict chemicals in
our products. ↗ ADIDAS-GROUP.COM/S/PRODUCT-SAFETY
The A-01 Policy for product materials covers the strictest
applicable local requirements and includes best-practice
standards as recommended by consumer organizations. It
prohibits, for example, the use of chemicals considered
harmful or toxic, the sourcing or processing of raw materials
from any endangered or threatened species and the use of
leathers, hides or skins from animals that have been
inhumanely treated, whether these animals are wild or
farmed. The policy is updated at least once a year based on
findings in our ongoing dialogue with scientific organizations
and is mandatory for all business partners who have to
confirm receipt and acknowledgement of the latest policy
update each year in a written format.
Both our own quality assurance laboratories and external
testing institutes are used to constantly monitor material
samples
these
requirements. Materials that do not meet our standards and
specifications are rejected. To ensure successful application
of the policy, we promote internal business understanding,
to ensure supplier compliance with
offer global support by developing guidelines and systems,
and monitor and influence standards and regulations through
external observation and interaction. Senior Management
from SEA and GOPS reviews and signs off policy updates and
is informed about proper execution and monitoring.
We publish our A-01 Policy annually on our corporate website
and communicate it to all relevant stakeholders internally and
externally. The efficiency of our product safety approach is
evaluated by the absence of any product recalls as well as by
benchmarking standards and executional procedures against
the guidance as developed by the AFIRM Group.
Progress toward targets
In 2017, we published an updated version of our A-01 Policy on
our corporate website. In addition, we created a dedicated
‘Product safety and compliance’ workspace on our global
intranet a-LIVE that serves as a platform for all employees
involved in product creation by providing them with the
information required to ensure we conceptualize, develop,
produce and distribute products that are in compliance with
national and
international regulations and best-practice
standards as well as in accordance with the laws of intellectual
property. The workspace offers policies, manuals and
standards, as well as contact details for internal global support
and best-practice sharing guidelines and training material.
We have further strengthened our collaborative approach with
industry peers within the AFIRM Group. We continued to mature
our programs on a global scale with enhanced supplier training
tools and outreach, and contributed to a consolidated AFIRM
Restricted Substances List that harmonizes a Restricted
Substances Lists across the industry. We further participated in
several public stakeholder consultation processes initiated by
the European Commission (ECHA), and also several US state
legislative initiatives to inform governmental entities on
implications and opportunities of drafted legislation.
0
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In 2017, we recorded quality issues for one accessory product
(model adidas Hockey Pro Glove) with around 3,000 produced
items, out of 321 million units of hardware produced during the
years of manufacture. One product item identified during a spot
check by Dutch authorities at a point of sale was found to be not
compliant with the REACH regulation of the European Union.
This subsequently led to immediate action from our end. All
products that were delivered to markets were recalled by
asking consumers who purchased this article to return it to the
store where it was bought. We have not been notified about any
consumer complaints related to this product quality deficit.
ENVIRONMENTAL IMPACTS
adidas is proactively addressing the impacts of climate
change through a number of initiatives in its own operations,
its supply chain and through various partnerships. As an
example, the company joined the ‘UN Climate Neutral Now’
initiative in 2015 to promote a wider understanding of the
need and the opportunities for society to become climate
neutral as well as to showcase that many organizations are
already taking concrete action in this direction. As such,
adidas is committed to action steps as a champion of the
initiative such as the continued estimation and reduction of its
emissions.
ORGANIZATIONAL FOOTPRINT
In 2016, for the first time, we conducted a fact-based pilot
analysis to assess our organizational environmental footprint.
The aim was to better understand where our main
environmental impacts occur along our value chain, and to
translate them into monetary terms. Using the baseline of
2015, we focused on five main environmental impacts:
Greenhouse Gas (GHG) emissions, water consumption, land
use as well as air and water pollution. Results show that
only 4% of our impact relates to our core operations
(operations related to all of our administration offices,
distribution centers and own production sites globally, as well
as own retail stores globally). The biggest impact however occurs
in the upstream supply chain in factories beyond the Tier 1
suppliers we have a direct relationship with.
SEE DIAGRAM 31
OWN SITES
Since 2008, our ‘Green Company’ program strives to achieve
ambitious savings in water, waste and energy at adidas own
sites globally. Including administrative offices, production
facilities and distribution centers, the program covers more
than 85% of our global employee base (excluding own retail).
In 2015, we presented a new set of targets to be achieved by
2020, including targets for carbon reduction that were
calculated considering a science-based methodology and
context-based targets for water reduction.
↗ADIDAS-GROUP.COM/S/ENVIRONMENTAL-APPROACH
Progress is tracked annually through an environmental data
reporting system that allows for follow-up toward the set
targets and is disclosed in detail in our annual Green Company
Report that will be available as of April 2018 on our corporate
website. ↗ ADIDAS-GROUP.COM/S/GREEN-COMPANY-REPORTS
In 2016, we established an Integrated Management System
(IMS) which combines three existing management systems:
ISO 50001 (Energy), ISO 14001 (Environment) and OHSAS
18001 (Health and Safety). IMS is helping us to drive further
business integration and impact relevant decisions for our
operations globally. A dedicated IMS policy helps to promote
wider understanding and ensures application among all
adidas entities affected. In addition, our global intranet
a-LIVE supports best-practice sharing among all adidas
employees globally.
Organizational footprint 1
VALUE CHAIN
GREENHOUSE
GAS
AIR
POLLUTION
WATER
CONSUMPTION
WATER
POLLUTION
LAND USE
3
R
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I
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1 Greenhouse gas: carbon dioxide, methane and nitrous oxide. Air pollution: sulphur oxides, nitrogen oxides, particulate matter, toxic organic substances. Water consumption: i.a. surface water, ground water.
Water pollution: i.a. nitrogen and phosphorus, toxic organic substances, heavy metals. Land use: arable land, pastures and grassland, industrial land use, unsustainable forest area.
31
T
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0
9
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Progress toward targets
By the end of 2017, our own sites globally managed a 29%
reduction in carbon net emissions (baseline 2015) and a 27%
reduction in water consumption per employee (baseline
2008).
Targets 2020
2017
2016
3% absolute annual reduction in
CO2 Scope 1 and Scope 2 1 net emissions
(baseline 2015)
35% reduction in water consumption per
employee
(baseline 2008)
29%
11%
27%
23%
1 Scope 1: Emissions that arise directly from sources that are owned or controlled by adidas entities,
such as fuels used in our boilers, Scope 2: emissions generated by purchased electricity consumed by
adidas entities.
Three of our facilities received LEED
SEE GLOSSARY Gold
certification. After the office in Santiago, Chile, received
certification in 2016, the new office in Buenos Aires, Argentina
was the second office in South America to be awarded with
in Gurugram
this certification. The India headquarters
became our first LEED Gold certification in Asia and the
relocated headquarters in Dubai also became LEED Gold
certified. In addition, adidas received its first-ever LEED
certification for own retail. The store in Madrid was accredited
for its interior design and construction.
In line with our ambition to reduce the environmental footprint
of our consumer events by 2020, we developed our first
‘Sustainable Events’ guidelines which will serve as orientation
for our markets globally to run events more sustainably and
inspire best-practice sharing opportunities. The guidelines
are available to our internal teams through a-LIVE and to
external agencies, with the aim of, for example, increasing
energy awareness and minimizing the use of single-use
plastic at our own events.
2017 also experienced renewed and visible support for our
ambition to further reduce our environmental footprint from
the adidas Executive Board, who challenged all adidas
facilities worldwide to remove single-use plastic items that
are disposable and generally used only once before they are
thrown away, such as plastic bags, water bottles and cutlery.
The changes will avoid more than 40 tonnes of single-use
plastic per year. The announcement that was made on a-LIVE
was the most successful post to date, showing the high
commitment and engagement of both our Senior Management
and employees worldwide toward responsible business
practices.
SUPPLY CHAIN
As almost all of our production is outsourced, a significant
part of our environmental
impact occurs, at different
intensities, throughout the supply chain. Therefore, for us,
sourcing is not only about ensuring high product quality and
timely delivery, it also means working with our suppliers to
ensure the highest environmental standards and supporting
them to reduce their overall water consumption and waste
volume as well as improve their carbon footprint. Using the
environmental performance of our own sites as best-practice
examples, we provide a set of specific policies and guidelines
to our suppliers: Mandatory for all business partners, the
‘Workplace Standards’ (the supply chain code of conduct) as
well as supportive guidelines such as our ‘Environmental
Guidelines’ and ‘Guide to Best Environmental Practice’ are
updated regularly and build the basis for our engagement
with suppliers. In addition, we have initiated a system of multi-
level and cross-functional training sessions with our global
supplier network and provide regular training. Guidance and
training materials are reviewed by SEA Senior Management
prior to release. ↗ ADIDAS-GROUP.COM/S/SUPPLY-CHAIN-APPROACH
One of the ways we try to minimize our suppliers’ environmental
impacts at their manufacturing plants is by helping them
establish sound environmental management systems. The
majority of our footwear sourcing volume, 95% (2016: 96%), is
produced in factories which are certified in accordance with
the International Environmental Standards ISO 14001 and/or
the Workplace Health and Safety Management Standards
OHSAS 18001. The remaining part of our footwear sourcing
volume is produced in factories that have other management
systems in place. All footwear factories in our monitoring
scope are regularly assessed against our standards on
environment and workplace health and safety, receiving
evaluation by means of our environmental compliance E-KPI
rating.
Environmental compliance (E-KPI)
E-KPI
improve
is our tool designed to measure and
environmental performance of our strategic Tier 1 suppliers
by setting them 20% intensity reduction targets to be achieved
by 2020 in the areas of energy, water and waste (baseline
2014). Using a benchmarking approach, E-KPI allows for a
high level of transparency into suppliers’ actual consumption
intensity, supporting us to define suppliers' specified areas
for improve ment and training needs that match their respective
situation. We follow a similar approach for our apparel material
Tier 2 suppliers, with the aim of them achieving a 35% water
reduction by the end of 2020 (baseline 2014) 1.
Progress toward targets
Compared to the 2016 results, our suppliers enrolled in our
environmental program made good progress 2. 48% of strategic
suppliers are on track to achieve their energy reduction target
for 2020, which represents an increase of 11 percentage
points compared to the results from the previous measure-
ment. More than half of these suppliers (55%) are on track to
0
9
1
1 Apparel material suppliers are specialists in printing and dyeing operations. Based on results from previous years and a change in our tracking methodology, the target for our apparel material suppliers was adjusted to a 35% reduction by 2020.
2 E-KPI 2017 refers to environmental data covering full year 2016, using a baseline of 2014. Strategic suppliers enrolled in our environmental program cover more than 80% of our total sourcing volume.
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achieve their waste reduction target, also marking a significant
improvement of 16 percentage points compared to the
previous results. 54% of this group of suppliers are on their
way to achieving the water reduction targets, showing a stable
performance and no change in percentage points compared to
the previous ratings. In addition, 46% of our apparel material
suppliers made good progress and are well on their way to
achieve the 2020 target.
If facilities’ performance achievement is at risk, we take
several steps to support and ensure their performance gets
back on track. For example, in 2017, we launched various
energy efficiency projects targeting underperforming facilities
in Vietnam, Cambodia and Indonesia with the help of external
expertise that identified and outlined short- and medium-
term action for the facilities with a positive impact either
immediately or within the next three years. Similarly with
waste, we did a pilot assessment in Vietnam to identify waste
reduction and recycling opportunities. The global guidelines
developed will support all facilities to manage their waste and
identify opportunities to recycle. Low-performing facilities are
further asked to develop improvement plans and provide
regular progress updates. adidas also hosts joint discussions
with the factories.
In 2017, we tracked again the environmental impact related to
the transport of our goods and recorded a small reduction in
air freight and a slight increase in sea freight throughout
all categories, while truck freight remained stable. All in all,
the vast majority of our shipments take place via sea freight.
Freight types used to ship adidas and Reebok
products 1 in % of product shipped
32
SEE DIAGRAM 32
Apparel
Truck
Sea freight
Air freight
Accessories and gear
Truck
Sea freight
Air freight
Footwear
Truck
Sea freight
Air freight
2017
2016
2017
2016
7
89
4
7
87
6
2017
2016
17
81
2
17
78
5
2017
2016
1
96
3
1
95
4
SUSTAINABLE MATERIALS AND PROCESSES
Following our ambition to create the best for the athlete
while optimizing our environmental impact, we innovate
materials and processes. We are committed to steadily
increasing the use of more sustainable materials in our
production, products and stores and are driving toward
closed-loop solutions. Our approach to sustainable materials
is influenced by new technological trends and developments,
scientific
stakeholders
engagement with
organizations as well as market availability. Any major
changes in the material selection that impact product costs
are subject to review and approval by Senior Management.
Execution and progress is tracked and managed by the
respective materials development and sourcing departments.
including
1 Figures are expressed as a percentage of the total number of products transported. Data covers
products sourced through Global Operations, excluding local sourcing.
As a founding member of the Better Cotton Initiative (BCI),
adidas is working on reducing the use of conventional cotton
and has committed to increasing the sourcing volumes of
Better Cotton, with the aim of achieving 100% sustainable
cotton
SEE GLOSSARY by 2018. Not only does the BCI aim to
reduce the use of pesticides, it also promotes efficient water
use, crop rotation and fair working conditions.
SEE
In addition, we aim to reduce the use of virgin plastic and are
increasing the use of recycled polyester in our products. As of
2015, adidas has partnered up with Parley for the Oceans
GLOSSARY. As a founding member, adidas supports Parley for
the Oceans in its education and communication efforts and
commits to the Parley A.I.R. (Avoid, Intercept, Redesign)
strategy. As part of this strategy we are working on turning
what we believe is a problem (marine plastic pollution) into
progress with an eco-innovative replacement for virgin plastic,
Parley Ocean Plastic
SEE GLOSSARY, and have committed to
extend the supply chain for Parley Ocean Plastic.
INNOVATION, P. 78
SEE CORPORATE STRATEGY, P. 62 ↗ ADIDAS-GROUP.COM/S/
SEE
SUSTAINABILITY-INNOVATION
We are further rolling out a global take-back program to all
our key cities and markets, implementing 'Make every thread
count', with the main objective to raise consumers’ awareness
of what happens to products at the end of their life. It helps
consumers to give their old clothes and footwear a second
life. Consumers can drop off old shoes and apparel from any
brand. The collected items are then sent to the adidas
Distribution Center, where they are picked up by a service
provider that sorts products according to different quality
criteria. Products either go into a second-hand market or are
further recycled into secondary raw material, to be used for
new products in various industries. A small portion of products
(less than 10%) cannot be recycled and thus is sent for
disposal. ↗ ADIDAS-GROUP.COM/S/PRODUCT-END-OF-LIFE
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Progress toward targets
In 2017, 93% (2016: 68%) of the cotton we sourced globally
was Better Cotton, exceeding our original target of 80%. This
is a huge step toward our goal of sourcing 100% sustainable
cotton by 2018. Our success is the result of clear target setting –
both with suppliers and with internal teams who support the
sourcing of Better Cotton for our products.
Better Cotton sourced
2015
43%
2016
68%
2017
93%
We already eliminated plastic bags in our own stores globally
in 2016, and have started to integrate Parley Ocean Plastic
into key products, including running, outdoor, Originals
and Stella McCartney shoes, football jerseys and swimwear.
↗ ADIDAS.COM/PARLEY Overall, we managed to create more than
one million pairs of shoes with Parley Ocean Plastic in 2017.
Together with Parley for the Oceans, we have further driven
the conceptualization of the required set-up for a global
collection network at scale. As part of our overall effort to
extend social and environmental monitoring to lower tiers, we
expanded our scope for the Parley supply chain from apparel
suppliers to also
include suppliers for footwear, and
accessories and gear, now covering almost 20 Tier 2 suppliers
in total.
Our ambition to expand the use of waterless dyeing
technologies for our products received renewed support in
2017 as it was chosen as a key accelerator project going
forward. This means that we will look into different technologies,
including DryDye, with the aim to develop a holistic approach
on how to save water overall, including water reduction during
pre-treatment or the creation of a closed-loop water treatment
system in dyeing factories. Furthermore, we also built on and
3 Data covers production in our main sourcing region Asia.
advanced our existing take-back program in Canada and
introduced 'Make every thread count' to four of our strategic
key cities (Los Angeles, New York, London and Paris).
strategic apparel material suppliers will have 80% of
auxiliaries and 90% of dyestuffs bluesign-approved.
CHEMICAL MANAGEMENT
For years, adidas has been running leadership programs in
Chemical Management within its area of direct influence. In a
spirit of continuous improvement of our chemical footprint,
these programs are regularly updated. Our approach has
been developed in consultation with external stakeholders
including chemical experts, environmental organizations and
industry federations and was reviewed by the Sponsor Board
and finally approved by SEA and GOPS Senior Management.
Our targets for 2020 include achieving 100% sustainable input
the Manufacturing Restricted
chemistry by adopting
Substances List (MRSL) of the Zero Discharge of Hazardous
Chemistry (ZDHC) group, phasing out hazardous chemicals
and providing our strategic suppliers with a list of positive
chemistry (the bluesign bluefinder).
↗ ADIDAS-GROUP.COM/S/CHEMICAL-FOOTPRINT
Progress toward targets
In 2017, we collected the ZDHC MRSL acknowledgement
letters from our suppliers, with more than 99% signed letters
received from our strategic suppliers. Carefully reviewing the
feedback from our suppliers will support us to define proper
tracking and monitoring of MRSL compliance in our supply
chain. On our way to phasing out hazardous chemicals, we
successfully delivered against our commitment to be 99%
free of poly- and perfluorinated substances (PFCs) by no later
than the end of 2017: More than 99% of the adidas products
for the spring/summer 2018 season will be PFC-free. Lastly,
our suppliers exceeded the 2017 targets of 50% of auxiliaries
and 80% dyestuffs to be bluesign-approved: By 2020, our
Products free of PFC
2014
90%
2017
> 99%
Volatile Organic Compounds (VOCs), which are typically found
in solvents used in our manufacturing process, can – in high
concentration – cause breathing difficulties and other health
problems for production workers. In 2017, we achieved an all-
time low of 11.6 grams (2016: 14 grams) of VOCs per pair of
shoes 3. By applying innovative as well as environmentally
sound bonding and priming technologies while following
the adidas guidelines on the use of chemicals, our athletic
footwear suppliers have been able to reduce the use of
VOCs from well above 100 grams per pair in 1999 to below
12 grams.
FAIR WORKING CONDITIONS IN OUR
SUPPLY CHAIN
adidas recognizes its responsibility to respect human rights
and the importance of showing that we are taking the
necessary steps to fulfil this social obligation as a business.
We do this by striving to operate responsibly along the entire
value chain, by safeguarding the rights of our own employees
and those of the workers who manufacture our products
through our Workplace Standards, and by applying our
influence to affect change wherever human rights issues are
linked to our business activities. As part of its human rights
efforts, adidas has developed a modern slavery outreach
program that looks beyond strategic Tier 1 suppliers, aiming
to drive greater transparency in its supply chain.
↗ ADIDAS-GROUP.COM/S/HUMAN-RIGHTS
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Ensuring compliance with standards
Since its inception in 1997, our human and labor rights
program for our supply chain has been built on the back of
intense stakeholder outreach and engagement, seeking to
understand and define the most salient issues to address as a
company. Our Workplace Standards, the supply chain code of
conduct established in 1997, are a contractual obligation
under the manufacturing agreements the company signs with
its main business partners to ensure workers’ health and
safety and provide provisions to ensure environmentally
sound factory operations. These standards follow International
Labour Organization (ILO) and United Nations (UN) conventions
relating to human rights and employment practices, as well
as the model code of conduct of the World Federation of the
Sporting Goods Industry (WFSGI). Specific reference to the
code provisions of the ILO conventions is provided in the
adidas ‘Guidelines on Employment Standards’. The SEA
Senior Management reviews and approves all policies and
implementation processes of the labor rights program.
To enforce compliance with these standards and rate suppliers
on their ability to deliver fair, healthy and environmentally
sound workplace conditions, adidas regularly conducts
announced and unannounced, internal and external audits
using a rating system with C- (social compliance) and E-
(environmental compliance) KPIs and attached scores
between 1C/1E and 5C/5E (with 1 being the worst and 5 being
the best). According to the results, our sourcing teams decide
the course of action, ranging from training needs at the
factories to reinforcement mechanisms such as sending
warning letters or even termination of contracts. Potential
new suppliers are assessed in a similar way and orders can
only be placed if approval by the SEA team has been granted.
Worker empowerment
We offer any stakeholder the opportunity to anonymously
raise complaints and have found efficient ways to specifically
empower workers in our supply chain by providing them with
innovative tools to raise their voice. ↗ ADIDAS-GROUP.COM/S/
SUSTAINABILITY-CONTACT Since 2012,
in parallel to existing
grievance systems, the ‘Worker Hotline’ enables factory
workers to anonymously ask questions or raise concerns by
writing a text message. Additional ways to measure worker
satisfaction and get their view are worker satisfaction surveys
that we started to conduct in Indonesia in 2016.
Our ambitions for 2020 include achieving 100% of strategic
suppliers 4 covered by innovative grievance mechanisms and
supporting our suppliers and licensees in further improving
their social and environmental compliance performance as
measured by our C- and E-KPI rating tools.
Progress toward targets
Throughout 2017, we deepened our stakeholder engagement
on the topic of human rights, extending our outreach to
representatives of special-interest groups, migrant workers,
and other vulnerable communities. We continued our
involvement with a UN-backed multi-stakeholder committee,
examining the adverse human rights impacts of mega
sporting events and supported the UN’s Standards of Conduct
for Business on LGBTI rights. Our engagement with the newly
formed Business Network for Civic Freedoms and Human
Rights Defenders included, for example, responding to calls
from labor rights advocates for direct engagement with the
Cambodian government over freedom of expression and
association. We further contributed to the UN Special
Rapporteur’s fourth annual report on the situation of human
rights defenders and spoke at the United Nations in Geneva
on this very topic. In addition, together with other stakeholders,
4 Strategic suppliers are responsible for around 80% of our global production volumes.
we have maintained a seat on FIFA’s Independent Advisor
Board on Human Rights.
Efforts within our modern slavery outreach program have
ranged from providing targeted training to almost 100 Tier 2
suppliers across Asia to gaining deeper insights into prevailing
labor conditions at the Tier 3 raw material source for leather
and cotton. We were recognized as a leading brand in the
KnowTheChain ranking that examined forced labor risks in
the leather supply chain in 2016 and were awarded the
Thomson Reuters Foundation Stop Slavery Award 2017, which
celebrates businesses that excel
identify,
investigate and root out forced labor from their supply chains.
in efforts to
We were able to expand the Worker Hotline service: 63% of
our strategic suppliers with more than 250,000 factory
workers across four of our major sourcing countries
(Cambodia, China, Indonesia and Vietnam) were covered by
the end of 2017. Our focus was to improve this service to
develop into a digital worker grievance platform, including a
new app-based version which was piloted in some factories.
We also further rolled out the worker satisfaction survey to a
total of 47 factories across nine countries with around 8,000
factory workers participating in the survey. The results will
help our suppliers to identify areas for improvement that need
to be addressed, with progress to be communicated back to
the workers. Lastly, we saw more than two thirds of our
strategic supply chain evaluated with a 3C rating and good
performance. More details are provided below.
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OUR PERFORMANCE (SUPPLY CHAIN)
Supplier factories by region 1
33
At the end of 2017, we worked with 782 (2016: 1,038)
independent factories which manufacture products for our
company in 56 countries (2016: 63).
SEE DIAGRAM 33 The main
reason for the decline in the number of suppliers is the
divestiture of the TaylorMade and CCM Hockey businesses as
well as further consolidation at factories producing for
our Sports Licensed business in 2017. We worked with
62 licensees whose suppliers manufactured products in
360 factories across 44 countries (2016: 61 licensees in
377 factories across 48 countries). 68% of the factories are
located in the Asia Pacific region, 20% in the Americas, and
12% in Europe, Middle East and Africa (EMEA) 5.
AUDITS
In 2017, adidas conducted 1,015 social compliance and
environmental audits (2016: 989), using in-house technical
staff as well as external third-party monitors commissioned
SEE TABLE 34
by adidas business entities and licensees.
SEE TABLE 35
In addition, 114 self-governance audits and collaboration
audits were conducted. When a factory reaches a compliance
maturity level of 4C and above, we empower the supplier to
conduct their own audit and develop appropriate remediation
plans (‘self-governance’ audit) while we carefully track this
process. Collaboration audits are conducted in partnership
with other brands, or as part of joint remediation exercises.
1,000
800
600
400
200
0
2016
2017
Asia
661
64%
532
68%
Americas
EMEA
273
26%
160
20%
104
10%
90
12%
Total
1,038
100%
782
100%
1 Excluding own factories and licensee factories.
Number of audits in supplier factories 2015 – 2017
34
adidas
External monitor
Total
2017
409
606
1,015
2016
372
617
989
2015
524
611
1,135
Initial assessments, performance audits and environmental audits
In 2017, we conducted a total of 209 initial assessments (2016:
213), 81% of which were undertaken in Asia (2016: 84%), with
China accounting for 42% of these assessments (2016: 46%).
Overall, 29% (2016: 39%) of all candidate factories either were
rejected outright or were rejected for failure to remediate
threshold issues in a timely manner. The total number of
initial assessments, the first approval stage for new entry
factories, decreased marginally by 2% compared to 2016.
Performance audits at our current suppliers showed a slight
increase of 3%. As part of our divestiture strategy, we increased
the number of audits carried out at the factories making for the
brands that we divested in 2017. We did so to ensure workers
received their full benefits and entitlements during the
transition of the owner relationship. The total number of
environmental audits increased by 8% compared to the previous
year, mainly due to the increase in SAC HIGG environmental
assessments.
SEE TABLE 35
The number of audits in factories manufacturing goods for
licensees remained the same, in line with the stable number
of licensees.
SEE TABLE 36 The number of self-governance and
collaboration audits at licensee factories totaled 26 at the end
of 2017.
AUDIT COVERAGE
A total of 48% (2016: 40%) of all active suppliers were
audited in 2017. ‘High-risk’ locations in Asia 6, the major
sourcing region of adidas, received extensive monitoring in
2017 with an audit coverage that was close to 70% (2016:
65%). As a general principle, factories located in low-risk
countries (i.e. with strong government enforcement and
inspectorate systems) are considered out of scope for our
audit coverage.
0
9
5
5 Factories in scope: Individual facilities of direct supply chain including subcontractors and factories of agencies (indirect supply chain). Supplier factories: Excluding own factories and licensee factories. Licensee factories: This may include factories that produce both for adidas directly and for licensees/agents.
6 High-risk locations in Asia include China, Hong Kong, Macao, Vietnam, Bangladesh, Cambodia, India, Indonesia, Laos, Malaysia, Myanmar, Pakistan, Philippines, Singapore, Sri Lanka and Thailand.
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AUDIT RESULTS
We audit our suppliers regularly against our Workplace
Standards and rate them according to their social and
environmental compliance performance with a C- and E-KPI
rating tool. An evaluation of E-KPI is contained in the description
of the environmental performance of our supply chain.
Social compliance (C-KPI)
In 2017, more than two thirds (69%) of our direct suppliers
completely fulfilled our basic expectations and received
ratings of 3C or better. Out of these, 19% were given a rating
of 4C or better, which reflects an increase of 3 percentage
points compared to the previous year. Suppliers rated with a
4C are classified as ‘self-governance’, indicating that these
factories have reached a high level of complaince maturity
with the existence of effective social and health and safety
management systems and the ability to conduct their own
audits and develop remediation plans on their own.
SEE DIAGRAM 37
Since 2013, there has been a focused effort to improve the 2C
factories and move them up a level, which has led to a 14%
reduction of suppliers in this category. The number of 1C
category suppliers, which represent the lowest-performing
factories with serious issues and very weak commitment to
compliance, decreased from seven to six factories in 2017.
Such factories are given a one-year grace period to move up a
grade or have their services terminated.
The number of factories that are subject to C-KPI ratings has
remained relatively stable at around 47% of the global supply
chain for the last three years (2016: 45%). These factories
represent our long-term strategic partners.
Number of audits by region and type
Region
Asia
Americas
EMEA
Total4
Initial assessment 1
Performance audit 2
Environmental audit 3
Total
2017
170
9
30
209
2016
178
23
12
213
2017
544
70
37
651
2016
524
75
34
633
2017
138
12
5
155
2016
137
0
6
143
2017
852
91
72
1,015
35
2016
839
98
52
989
1 Every new supplier factory has to pass an initial assessment to prove compliance with the Workplace Standards before an order is placed. The data includes both ‘initial assessments’ and ‘initial assessment follow-ups’.
2 Audits conducted in approved supplier factories.
3 Includes SAC HIGG as well as environmental and chemical management audits.
4 Includes audits done in licensee factories.
Number of audits conducted in licensee factories 1
Region
Asia
Americas
EMEA
Total
Initial assessment 2
Performance audit 3
Environmental audit
Total
2017
2016
49
1
3
53
54
6
2
62
2017
187
18
16
221
2016
182
20
12
214
2017
2016
11
1
1
13
12
0
2
14
2017
247
20
20
287
1 This may include factories that produce both for adidas directly and for licensees/agents.
2 Every new factory has to pass an initial assessment to prove compliance with the Workplace Standards before an order is placed.
3 Audits conducted in approved factories.
Percentage of KPI assessed factories by C rating
36
2016
248
26
16
290
37
1C
2C
3C
49
50
4C
5C
29
32
19
16
2
2
1
1
50
40
30
20
10
0
0
9
6
2017
2016
1 The calculation method reflects actual supplier performance by calcuating numbers using the latest KPI assessment rating of each active supplier.
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NON-COMPLIANCE IN ACTIVE FACTORIES
Our suppliers are evaluated against a number of critical
compliance issues. While threshold issues are serious but
correctable non-compliances that can be addressed in a
specified timeframe through remedial action, zero tolerance
issues – such as forced labor, child labor practices and critical
life-threatening health, safety and environment conditions –
immediately trigger a warning and potential disqualification
of a supplier. The diagrams
illustrate the non-compliance findings that were identified
through performance audits, collaboration audits and self-
governance assessments 7.
SEE DIAGRAM 39
SEE DIAGRAM 40
Labor non-compliance findings
DIAGRAM 39 presents the most frequent labor-related non-
compliances identified during audits of our existing supplier
factories. More than two thirds of these findings fall into the
top three categories: ‘Basic wage’, ‘Management systems for
working hours’ and ‘No standardized filing systems’. Besides
identifying non-compliances with our Workplace Standards,
adidas’ compliance team focuses on the use and effectiveness
of the factories’ HR management systems, and identifies any
gaps in policies and procedures related to specific risk areas,
such as forced labor, child labor, freedom of association or
discrimination. As a result, the percentages shown indicate the
systemic shortcomings of active suppliers, rather than the
confirmed presence of a specific case of non-compliance.
SEE DIAGRAM 39
VISITS AND TRAINING
During 2017, 1,241 factory visits (2016: 1,226) were
undertaken. These visits involved various types of audit,
Strategic Compliance Plan discussions, project work and
project meetings with factory management on high-priority
issues at different levels in our supply chain. Additionally, we
conducted 132 training sessions and workshops for suppliers,
licensees, workers and adidas employees (2016: 169).
TABLE 38 The 22% decrease in the number of training sessions
is a result of our advisory staff spending more time on
engagement processes, including the development of worker
satisfaction surveys and digital grievance systems for
workers. In total, 1,907 people (2016: 3,349) attended the
training sessions, which covered basic as well as long-term
strategic topics.
SEE
Number of training sessions by region and type 1
Region
Asia
Americas
EMEA
Total
in %
Type and number of training sessions
Fundamental 2
Performance 3
Sustainability 4
Total
2017
2016
2017
2016
2017
2016
42
24
7
73
55
42
24
11
77
45
4
0
2
6
5
40
0
5
45
27
49
1
3
53
40
45
0
2
47
28
2017
95
25
12
132
100
2016
127
24
18
169
100
3%
Recruitment
5%
Social and medical
insurance
5%
Excessive hours
5%
Communication systems
1 Training sessions conducted for suppliers, workers, licensees, agents and adidas employees.
2 Fundamental training covers Workplace Standards and SEA introduction, FFC training as well as SEA policies and standard operating procedures (SOPs).
3 Performance training covers specific labor, health, safety and environmental issues.
4 Sustainability training covers sustainable compliance guideline and KPI improvement as well as factory self-audits.
7 Data refers to the period May to December 2017 and includes self-governance and collaboration audits.
1 ‘Other’ includes freedom of association issues, discrimination, lack of training, etc.
2 ‘No standardized filing system’ indicates a factory does not keep relevant information/documents and
records which demonstrate compliance with laws and regulations.
Top 10 labor non-compliance findings
identified during audits in 2017
3%
Management systems
of disciplinary
practices
38
39
23%
Other 1
23%
Basic wage
14%
Management systems
for working hours
8%
No standardized filing
system 2
6%
Company policy/staff handbook
Annual leave/public holidays
5%
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Top 10 health and safety non-compliance findings
identified during audits in 2017
40
3%
First aid
4%
Personal protective
equipment
4%
Electricity and
electrical hazards
5%
Chemical storage
6%
Sanitation and hygiene
22%
Other 1
22%
Fire safety
12%
Architectural
considerations
9%
Machine safety
7%
Hazardous chemicals
in production
6%
Management systems
for health and safety
INDEPENDENT FLA AUDITS
In 2017, the FLA conducted four factory assessments or
remediation verification exercises in Guatemala, Indonesia,
Cambodia and Vietnam using the methodology from the
Sustainable Compliance
(SCI). The number of
Initiative
conventional independent monitoring visits conducted by FLA
accredited monitors has declined over the years for companies’
programs accredited by the FLA. This shifts companies’ activities
from conventional monitoring activities to engagement in value-
added FLA projects that focus on reducing and eliminating
improving monitoring
chronic non-compliance
methodologies. During 2017, adidas’ so-called twelve redirect
activities
included project activities for migrant worker
protection, compliance beyond Tier 1 suppliers, civil society
engagement in the Americas region, and responsible sourcing
practices. We continued active support of the implementation of
the FLA Fair Compensation Strategy with wage data gathering
exercises in Honduras, Ukraine and Cambodia.
issues or
ENFORCEMENT
Warning letters are an essential part of our enforcement
efforts and are triggered when we find ongoing serious non-
compliance issues that need to be addressed by our suppliers.
We work closely with our suppliers to help them improve their
performance. However, where we face situations of severe
or repeated non-compliance, we do terminate business
relationships with suppliers.
Warning letters
In 2017, we issued a total of 42 (2016: 31) warning letters
across 15 countries. The largest number of warning letters
continues to be issued in Asia, where more than 60% of all
supplier factories are located. Compared to the previous year,
the overall number of first warning letters doubled, mainly
due to the fact that factories were not able to fully remediate
their threshold issues identified in 2016, or had new threshold
issues in 2017.
1 ‘Other’ refers, for example, to occupational hazard risks, personal protective equipment, ergonomics
and housekeeping.
Health and safety non-compliance findings
DIAGRAM 40 shows the health and safety non-compliances
identified during audits in supplier factories. Fire and electrical
safety are critical areas for existing suppliers and together
accounted for 26% of the non-compliances identified in 2017.
The way chemicals were stored and used, including the
presence of banned chemicals, accounted for 12% of non-
compliance findings reported. A further 6% of the findings
related to management systems, policies and procedures, and
specifically a lack of compliance with our Workplace Standards
and expectation for effective health and safety systems,
including the recruitment and retention of qualified safety staff.
SEE DIAGRAM 40
In 2017, the FLA accredited the adidas program for the third
time. To provide information for the accreditation, nine years
of social compliance work was evaluated, reviewed and
verified, including factory assessments, annual reports, third-
party complaints, participation in strategic projects for forced
labor, migrant workers’ protection,
fair compensation,
remediation, workplace standards alignment, responsible
sourcing practices, and collaboration with civil society and
brands. The accreditation recognized adidas’ leadership to
coordinate brand efforts which address labor violations, and
included commendation for the application of mobile technology
to implement the text message- and application-based
platform for workers to submit grievances, for the pioneering
and piloting of various methods to address fair compensation
for workers as well as for the programmatic implementation of
social compliance standards, assessments and risk mapping
beyond the Tier 1 supply chain. ↗ FAIRLABOR.ORG
The total number of second warnings decreased in 2017, with
three letters being issued (2016: 7). Suppliers who receive
second warning letters are only one step away from being
the manufacturing
termination of
notified of possible
agreement and receive focused moni toring by the SEA team.
The number of third warning letters issued to business partners
(which result in factory terminations) decreased to one in 2017
(2016: 5).
SEE TABLE 41
It is difficult to generalize about the grounds for a warning
letter as it may be issued for a single unresolved non-
conformance or for multiple breaches of our standards. The
range of issues that resulted in warning letters in 2017 included
non-compliances in regard to fire safety practices, receipt of
wages, social and medical insurance, hazardous chemicals
management, overtime, deductions, transparency and safety
controls in high-risk areas.
0
9
8
ADIDAS ANNUAL REPORT 2017
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
SUSTAINABILITY
FINANCIAL REVIEW
STATEMENTS
Terminations
In 2017, we terminated agreements with four suppliers for
compliance reasons (2016: 10), mainly due to non-remediated
threshold issues in consecutive audits, although in one of the
cases it was triggered by the supplier refusing to grant the
SEA team access to audit the factory.
SEE TABLE 43 While
terminations happen at our existing factories, we pre-screen
all new factories and if our initial assessments uncover zero
tolerance or threshold issues suppliers are rejected.
In 2017, initial assessments were conducted in 209 factories
(2016: 213 factories), and 50 factories (2016: 71 factories) were
either rejected directly after the initial assessment identified
zero tolerance issues, or were ‘rejected with a second visit’ due
to identification of one or more threshold issues, which means
they were rejected but given the chance to remediate the non-
compliance issues within a specific timeframe.
SEE TABLE 42
Overall, at the end of 2017, the ‘first-time rejection rate’ of 29%
of all new factories visited was lower than the previous year
(2016: 39%) and the ‘final rejection rate’ was at 2% (2016: 4%).
SEE TABLE 42 This shows the importance and impact of pre-
approval screening, as well as the efforts undertaken by the
suppliers to resolve issues and come into conformance with
Number of warning letters issued to adidas suppliers by region 1
41
Region
Asia
Americas
EMEA
Total
1st warning
2nd warning
3rd and final warning
Total warning letters
2017
2016
2017
2016
2017
2016
2017
2016
35
2
1
38
18
1
0
19
1
1
1
3
5
1
1
7
0
0
1
1
4
1
0
5
36
3
3
42
27
3
1
31
1 Including warning letters issued by licensees and agents, but excluding warnings to main suppliers for the non-disclosure of subcontractors, which are either issued directly through business entities, or by the
adidas Legal department where there is a breach of contract obligations under a manufacturing agreement. A third and final warning results in a recommended termination.
Worldwide rejections after initial
assessment due to compliance problems
42
Number of business relationship terminations
due to compliance problems
43
Total number of first-time
rejections 1
First-time rejection rate
Total number of final rejections 2
Final rejection rate
2017
50
29%
4
2%
2016
Region
2017
2016
Asia
Americas
EMEA
Global
71
39%
8
4%
4
0
0
4
7
2
1
10
1 Factories that were directly rejected after first visit, i.e. with no chance of being visited a second time,
and factories that were rejected after initial assessments but which were given a chance for a
second visit.
2 Factories that were directly rejected after first visit, i.e. with no chance of being visited a second time,
and factories that were rejected after being visited a second time.
our Workplace Standards. The remediation of factory issues is
beneficial for workers as it raises the bar in terms of better and
timelier pay, improved benefits, reduced hours, and the legal
protection of formal employment contracts as well as significant
improvements in basic health and safety within the workplace.
Suppliers who have threshold issues are normally given three
months to remediate those issues before being re-audited for
final SEA acceptance.
0
9
9
ADIDAS ANNUAL REPORT 2017
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
NON-FINANCIAL STATEMENT
NON-FINANCIAL STATEMENT
In accordance with §§ 315b, 315c HGB in combination with §§ 289b to 289e HGB, adidas publishes a combined non-financial statement for adidas AG and the Group in this combined Management
Report. The content of the non-financial state ment can be found throughout the entire combined Management Report, with relevant parts being indicated by this symbol
. These parts are not
covered by the Audit of the Consolidated Financial Statements and of the Group Management Report, as they were subject to a separate limited assurance engagement of KPMG AG Wirtschafts-
prüfungs gesellschaft.
SEE INDEPENDENT AUDITOR’S ASSURANCE REPORT, P. 226 Links and references are not part of the non-financial statement and have therefore not been assessed.
adidas applied the Global Reporting Initiative (GRI) guidelines as an external reporting framework. The content of the non-financial statement combined with further information in this report
and on our corporate website fulfills the GRI G4 ‘Core’ option. The GRI content index can be found online. ↗ ADIDAS-GROUP.COM/S/REPORTING-APPROACH
Description of business model
SEE SALES AND DISTRIBUTION STRATEGY, P. 72
SEE GLOBAL OPERATIONS, P. 74
Environmental approach
— Sustainable materials and processes
SEE SUSTAINABILITY, P. 88
People and Culture
— Wages and benefits
SEE PEOPLE AND CULTURE, P. 81
Human Rights
— Fair labor conditions
SEE SUSTAINABILITY, P. 88
— Water consumption (supply chain)
SEE SUSTAINABILITY, P. 88
— Development and training
SEE PEOPLE AND CULTURE, P. 81
— Fair labor conditions (supply chain)
SEE SUSTAINABILITY, P. 88
— Carbon footprint (supply chain)
SEE SUSTAINABILITY, P. 88
— Waste volume (supply chain)
SEE SUSTAINABILITY, P. 88
Product responsibility
— Product safety and transparency
— Employee engagement
SEE PEOPLE AND CULTURE, P. 81
SEE INTERNAL MANAGEMENT SYSTEM, P. 102
Consumer matters
— Consumer satisfaction
SEE INTERNAL MANAGEMENT SYSTEM, P. 102
SEE MANAGEMENT ASSESSMENT OF PERFORMANCE, RISKS AND
— Supplier relationships
SEE GLOBAL OPERATIONS, P. 74
Anti-bribery and corruption
— Ethical business practices
SEE RISK AND OPPORTUNITY REPORT, P. 131
SEE SUSTAINABILITY, P. 88
OPPORTUNITIES, AND OUTLOOK, P. 146
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ADIDAS ANNUAL REPORT 2017
G R O U P
M A N A G E M E N T
R E P O R T
F I N A N C I A L R E V I E W
7
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
S
A
D
D
A
I
Internal Management System
Business Performance
Economic and Sector Development
Income Statement
Statement of Financial Position and
Statement of Cash Flows
Treasury
Financial Statements and Management Report
of adidas AG
Disclosures pursuant to § 315a Section 1 and
§ 289a Section 1 of the German Commercial Code
102
105
105
107
111
115
118
120
Business Performance by Segment
Western Europe
North America
Greater China
Russia/CIS
Latin America
Japan
MEAA
124
124
124
125
125
126
126
126
Subsequent Events and Outlook
Subsequent Events
Outlook
Risk and Opportunity Report
Illustration of Material Risks
Illustration of Opportunities
Management Assessment of Performance,
Risks and Opportunities, and Outlook
128
128
128
131
136
144
146
1
0
1
Group Management Report: This report contains the Group Management Report of the adidas Group,
comprising adidas AG and its consolidated subsidiaries, and the Management Report of adidas AG.
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
INTERNAL MANAGEMENT SYSTEM
INTERNAL MANAGEMENT
SYSTEM
We are committed to increasing shareholder value. We strive
to create value by converting sales and operating profit
growth into strong operating cash flow, while at the same
time managing our asset base proactively. Our company’s
planning and controlling system is therefore designed to
provide a variety of tools to assess our current performance
and to align future strategic and investment decisions to
best utilize commercial and organizational opportunities in
the interest of our shareholders.
INTERNAL MANAGEMENT SYSTEM DESIGNED
TO DRIVE SHAREHOLDER VALUE
In order to drive and steer creation of shareholder value, the
company’s Management focuses on a set of major financial
Key Performance Indicators (KPIs).
SEE DIAGRAM 44 Sales and
operating profit growth, paired with a focus on management
of operating working capital, are the main contributors to
operating cash flow
SEE GLOSSARY improvements. At the same
time, value-enhancing capital expenditure benefits future
operating profit and cash flow development. In addition, the
development of the company’s net income position, as well as
earnings per share (EPS), is of high importance as it directly
drives returns in the interest of our shareholders.
DIAGRAM 44 Our strong focus on shareholder value creation is
reflected in the fact that our Management’s variable com-
pensation is closely linked to the company’s growth in sales,
profitability and net income.
SEE COMPENSATION REPORT, P. 39
SEE
OPERATING MARGIN AS MAJOR KPI FOR
OPERATIONAL PROGRESS
Operating margin (defined as operating profit as a percentage
of net sales) is one of our company’s major KPIs to drive and
improve our operational performance. It highlights the quality
of our top line and operational efficiency. The primary drivers
to enhance operating margin are as follows:
— Sales and gross margin development: Management
focuses on identifying and exploiting growth opportunities
that not only provide for future top-line improvements, but
also have potential to increase our gross margin. Major
levers for enhancing our sales and gross margin include:
— Minimizing clearance activities, while at the same time
increasing the full-price share of sales.
— Optimizing our product mix.
— Improving the quality of distribution, with a particular
SEE GLOSSARY.
focus on e-commerce and controlled space
— Realizing supply chain efficiency initiatives.
— Operating expense control: Management puts high
emphasis on tightly controlling operating expenses to
leverage sales growth through to the bottom line. This
requires a particular focus on ensuring flexibility in the
company’s cost base. Marketing expenditure
SEE GLOSSARY
is one of our largest operating expenses and at the same
time one of the most important mechanisms for driving
brand desirability and top-line growth sustainably.
Therefore, we are committed to improving the efficiency
of our marketing investments. This includes concentrating
our communication efforts on key global brand initiatives
and focusing our promotion spend on well-selected
partnerships with top events, leagues, clubs, federations,
athletes and artists. We also aim to increase operational
efficiency by tightly managing operating overhead expenses
SEE GLOSSARY. In this respect, we regularly review our
operational structure – harmonizing business processes,
standardizing systems, eliminating redundancies and
leveraging the scale of our organization.
TIGHT OPERATING WORKING CAPITAL
MANAGEMENT
Due to a comparatively low level of fixed assets required in our
business, the efficiency of the balance sheet depends to a
large degree on our operating working capital management.
In this context, our key metric is average operating working
capital as a percentage of net sales. Monitoring the
development of this metric facilitates the measurement of our
progress in improving the efficiency of our business cycle.
1
0
2
Major Key Performance Indicators (KPIs)44Net salesOperating cash flowShareholdervalueOperating profitOperating working capitalCapital expenditure Net income / EPSShareholder returnADIDAS ANNUAL REPORT 2017
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STATEMENTS
INTERNAL MANAGEMENT SYSTEM
We strive to proactively manage our inventory levels to meet
market demand and ensure fast replenishment. Inventory
aging is controlled carefully to reduce inventory obsolescence
and to minimize clearance activities. As a result, Inventory
Days Lasting (IDL) is monitored and assessed regularly as it
measures the average number of days goods remain in
inventory before being sold, highlighting the efficiency of
capital locked up in products. To optimize capital tied up in
accounts receivable, we strive to improve collection efforts in
order to reduce the Days of Sales Outstanding (DSO) and
improve the aging of accounts receivable. Likewise, we strive
to optimize payment terms with our suppliers to best manage
our accounts payable.
SEE GLOSSARY
CAPITAL EXPENDITURE TARGETED TO
MAXIMIZE FUTURE RETURNS
Improving the effectiveness of capital expenditure
is another major lever to maximize our operating cash flow.
We control capital expenditure with a top-down, bottom-up
approach.
SEE GLOSSARY In a first step, Management defines
focus areas within the framework of our strategic business
plan ‘Creating the New’ and an overall investment budget
based on investment requests from various functions within
the organization. Then, in a second step, our operating
segments align their initiatives within the scope of assigned
priorities and available budget. We evaluate potential return
on planned investments utilizing the net present value
method. Risk is accounted for, adding a risk premium to the
cost of capital and thus reducing our estimated future
earnings streams where appropriate. By means of scenario
planning, the sensitivity of investment returns is tested
against changes in initial assumptions. For large investment
projects,
timelines and deviations versus budget are
monitored on a monthly basis throughout the course of the
project.
In addition to optimizing return on investments, we evaluate
larger projects upon completion and document learnings for
future capital expenditure decisions.
NET INCOME AND EARNINGS PER SHARE TO
FOCUS ON SHAREHOLDER INTERESTS
Beyond our ambition to maximize operating cash flow, we
are committed to a continuous improvement in the company’s
bottom line. We are convinced that, by doing so, we place an
even stronger focus on the interests of our shareholders.
Consequently, Management closely monitors the develop-
ment of both net income and earnings per share (EPS) and
executes against these two major financial KPIs.
DIAGRAM 44 Our strong focus on driving sustainable expansion
to the company’s bottom line is also reflected in the fact
that, as part of the new Long-Term Incentive Plan 2018/2020,
the variable compensation for our Management is directly
linked to the company’s net income growth.
SEE
SEE COMPENSATION REPORT, P. 39
NON-FINANCIAL KEY PERFORMANCE
INDICATORS
In addition to the major financial KPIs to assess the
performance and operational success of our company, as
outlined above, we have identified a set of non-financial KPIs
that help us track our progress in areas that are critical for
our long-term success but are not directly reflected in the
financial statements. These non-financial KPIs are assessed
on a regular basis and managed by the respective busi ness
functions. Non-financial KPIs which we are closely moni-
toring include, amongst others, Net Promoter Score (NPS)
SEE GLOSSARY, market share, backlogs and sell-through data
as well as our customer delivery performance (On-Time In-
Full), employee engagement and a set of KPIs in the area of
our sustainability performance.
Maintaining and enhancing
Net Promoter Score (NPS):
brand desirability through the creation of strong brand
identities is crucial for sustaining and driving profitable
growth. Therefore, mainly on a market and category level, we
invest in primary qualitative and quantitative research such as
trend scouting and consumer surveys to determine brand
loyalty and brand strength. Measures that are tracked include
brand awareness, likeability and purchase intent.
Furthermore, within the framework of Creating the New, we
implemented an NPS system, which strengthens our
capabilities to more carefully review brand advocacy as NPS
tells us how likely it is that consumers will recommend our
brands. NPS is a key pillar in transforming our company into
a consumer-centric organization. It represents a holistic and
transparent measure of brand performance and has been
successfully applied in other industries and organizations.
NPS comes from the following question asked to a surveyed
group of people: ‘How likely is it that you would recommend
this brand to a friend?’ The answer has a scale from 0 to 10
with 10 being the most likely. NPS is calculated using
Promoters (consumers that answered 9 or 10) minus
Detractors (consumers that answered 0 to 6). Consumers
answering 7 or 8 are called Neutrals or Passives and are not
taken into consideration for the calculation of the NPS.
Our efforts around NPS (both our own NPS as well as the NPS
of our major competitors) are driven by an independent
agency and monitored by our internal global consumer insight
teams on a regular basis. In addition, NPS is measured across
many of our own-retail stores as well as our own e-commerce
platform. We firmly believe that advocacy will create sustained
growth for our brands, underpinned by the fact that brand
advocates on average buy more than non-advocates. In
addition, a large part of our consumers rely on referrals by
friends or family when making purchase decisions.
1
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ADIDAS ANNUAL REPORT 2017
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2 GROUP MANAGEMENT REPORT –
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4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
INTERNAL MANAGEMENT SYSTEM
Market share: To measure the operational performance of
our brands relative to our major competitors, we continuously
collect, on a market and category level, market share data.
SEE CORPORATE STRATEGY, P. 62 The findings provide detailed
insights for our senior management team into which markets
and categories we have been able to gain market share
relative to our peers, enabling us to leverage those insights
across
PERFORMANCE, RISKS AND OPPORTUNITIES, AND OUTLOOK, P. 146 In addition,
the results help us to define clear roles and responsibilities
for each of our markets and categories within our long-term
strategic aspirations, based on their overall positioning within
the sporting goods industry.
SEE MANAGEMENT ASSESSMENT OF
the organization.
Backlogs and sell-through data: To manage demand planning
and better anticipate our future performance, backlogs
SEE GLOSSARY comprising orders received up to nine months in
advance of the actual sale are monitored closely. However, due
to the growing share of own retail (including our own
e-commerce channel) in our business mix, fluctuating order
patterns among our customers as well as an increasing part of
our business being realized under significantly shortened lead
times, orders received from our retail partners are less
indicative of anticipated revenues for adidas compared to the
past. Therefore, qualitative feedback from our retail partners
on the sell-through success of our products at the point of sale
as well as such data received from our own-retail activities is
becoming increasingly important.
On-Time In-Full (OTIF): OTIF measures the company’s
delivery performance towards customers and our own-retail
stores. Managed by our Global Operations function, OTIF
assesses to what degree customers received what they
ordered and if they received it on time.
74 It helps us to investigate improvement potential in the
area of order book management and logistics processes. It
SEE GLOBAL OPERATIONS, P.
therefore also helps us to improve our delivery performance,
which is a major aspect when it comes to customer
satisfaction. The OTIF assessment covers both the adidas
and Reebok brands in most of our key markets.
SEE
MANAGEMENT ASSESSMENT OF PERFORMANCE, RISKS AND OPPORTUNITIES, AND
OUTLOOK, P. 146
Employee engagement: To measure the level of engagement
and motivation of our employees, adidas carries out employee
engagement surveys. These surveys aim to provide key insights
into how well we, as an employer, are doing in engaging our
employees. They thus enable us to develop the right focus and
future people strategies across our organization, helping us to
create a world-class employee experience and continue to
attract and retain top talent. Against the background of
organizational and management changes within the company,
a new approach and system platform for measuring the level of
employee engagement was implemented in 2017.
SEE PEOPLE AND CULTURE, P. 81
Sustainability performance: We have a strong commitment
to enhance the social and environmental performance of our
company. By doing so, we firmly believe we will not only
improve the company’s overall reputation, but also increase
its economic value. We therefore follow a comprehensive
roadmap with clear targets and regularly track our
progress toward these targets.
PERFORMANCE, RISKS AND OPPORTUNITIES, AND OUTLOOK, P. 146 A major
focus lies on measuring the environmental footprint of our
own sites globally as well as monitoring and rating our supplier
factories with regard to social and environmental compli-
ance with our Workplace Standards.
SEE SUSTAINABILITY, P. 88
We have a strong track record in sustainability disclosure,
providing
sustainability
performance in the company’s Annual Report as well as on our
corporate website. ↗ ADIDAS-GROUP.COM/S/SUSTAINABILITY-REPORTS
regular updates about our
SEE MANAGEMENT ASSESSMENT OF
STRUCTURED PERFORMANCE
MEASUREMENT SYSTEM
We have developed an extensive performance measurement
system, which utilizes a variety of tools to measure the
company’s performance. Key performance indicators as well
as other important financial metrics are monitored and
compared against initial targets as well as rolling forecasts
SEE GLOSSARY on a monthly basis. When negative deviations
exist between actual and target numbers, we perform a
detailed analysis to identify and address the cause. If
necessary, action plans are implemented to optimize the
development of our operating performance. To assess current
sales and profitability development, Management continuously
analyzes the performance of our operating segments. We also
benchmark our financial results with those of our major
competitors on a regular basis.
Taking into account year-to-date performance as well as
opportunities and risks, the company’s full year financial
performance is assessed on a monthly basis. In this respect,
also backlogs, sell-through data, feedback from customers
and own-retail stores are assessed as available. Finally, as a
further early indicator for future performance, the results of
any relevant recent market and consumer research are
assessed as available.
1
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ADIDAS ANNUAL REPORT 2017
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Economic and Sector Development
BUSINESS PERFORMANCE
In 2017, adidas recorded strong operational and financial
improvements. Revenues increased 16% on a currency-
neutral basis, driven by strong double-digit growth at the
adidas brand and a mid-single-digit sales increase at Reebok.
All market segments recorded double-digit currency- neutral
sales increases, with the exception of Russia/CIS, where
revenues declined. The gross margin increased 1.2 percentage
points to 50.4%, mainly reflecting an improved pricing and
product mix. Other operating expenses as a percentage of
sales were down 0.8 percentage points to 41.9%. Despite the
non-recurrence of a one-time gain related to the early
termination of the Chelsea F.C. sponsorship that was included
in the prior year, the company’s operating margin increased
1.2 percentage points to 9.8%. As a result of a revaluation of
the company’s US deferred tax assets, which became
necessary following the implementation of the US tax reform,
the company recorded a negative one-time tax impact in the
amount of € 76 million in 2017. Excluding this negative one-
time tax impact, net income from continuing operations
increased 32% to € 1.430 billion. This translates into basic
EPS from continuing operations of € 7.05, representing an
increase of 31% versus the prior year period.
ECONOMIC AND SECTOR
DEVELOPMENT
GLOBAL ECONOMY ACCELERATES IN 2017 1
The global economy gained pace during 2017, with global
gross domestic product (GDP) expanding 3.0%. The upswing
was driven by a rise in consumer confidence, a pick-up in
manufacturing activity, a stabilization of commodity prices
1 Source: World Bank Global Economic Prospects.
and benign financing conditions. Moreover, a simultaneous
recovery in major developed economies as well as developing
economies provided a major boost to global trade. Despite
domestic policy uncertainty in major economies, developed
economies grew 2.3% in 2017, supported by improving labor
market conditions as well as accommodative monetary
policies. In particular, topics around international relations,
such as the ongoing Brexit negotiations, remained a political
Regional GDP development 1 in %
45
Global 2
Euro area 2
Eastern Europe 2, 3
USA 2
Asia 2, 4
Latin America 2
6.5
6.3
6.4
3.0
2.8
2.4
2.4
2.1
1.8
3.8
1.7
1.0
2.9
2.3
1.5
0.9
(0.6)
(1.5)
7
6
5
4
3
2
1
0
– 1
– 2
2015
2016
2017
1 Real change in percent versus prior year; 2015 and 2016 figures restated compared to prior year.
2 Source: World Bank.
3 Includes Emerging Europe and Central Asia.
4 Includes East Asia and Pacific.
Quarterly unemployment rate by region 1
in % of total active population
46
Quarterly development of consumer price index 1
by region
47
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
USA 2
Euro area 3
Japan 4
China 5
Russia 6
Brazil 7
4.7
9.6
3.1
4.0
5.3
4.5
9.4
2.8
4.0
5.4
4.3
9.1
2.8
4.0
5.1
4.2
8.9
2.8
4.0
5.1
4.1
8.7
2.7
4.0
5.1
11.9
13.7
13.0
12.4
12.0
USA 2
Euro area 3
Japan 4
China 5
Russia 6
Brazil 7
2.1
1.1
0.3
2.1
5.4
6.3
2.4
1.5
0.2
0.9
4.3
4.6
1.6
1.3
0.4
1.5
4.4
3.0
2.2
1.5
0.7
1.6
3.0
2.5
2.2
1.4
0.6
1.8
2.5
3.0
1
0
5
1 Quarter-end figures except for Q4 figures (refer to November data).
2 Source: US Bureau of Labor Statistics.
3 Source: Eurostat.
4 Source: Japan Ministry of Internal Affairs and Communications.
5 Source: China Ministry of Human Resources and Social Security.
6 Source: Russia Federal Service of State Statistics.
7 Source: Brazil Institute of Geography and Statistics.
1 Quarter-end figures except for Q4 figures (refer to November data).
2 Source: US Bureau of Labor Statistics.
3 Source: Eurostat.
4 Source: Japan Ministry of Internal Affairs and Communications.
5 Source: China National Bureau of Statistics.
6 Source: Russia Federal Service of State Statistics.
7 Source: Brazil Institute of Geography and Statistics.
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Economic and Sector Development
expansion, as retailers are
leveraging both mobile
technologies and social media tools. From a category
perspective, athletic footwear continued to drive the sector in
2017, supported by ongoing high demand for various casual
and running styles. Basketball footwear, on the other hand,
remained challenged throughout the year. Growth in the
overall athletic apparel category was more muted in the
absence of major global sports events during 2017.
Nevertheless, underlying demand for activewear apparel
remained robust, as consumers continued to reallocate wallet
share away from traditional apparel. The equipment category
recorded another mixed year in 2017, albeit with signs of
stabilization in some areas.
Exchange rate development 1 € 1 equals
49
Average
rate
2016
1.1069
0.8188
120.40
74.278
7.3515
Q1
2017
Q2
2017
Q3
2017
Q4
2017
1.0691
0.8555
119.55
60.274
7.3760
1.1412
0.8793
127.75
67.428
7.8664
1.1806
0.8818
132.82
68.495
7.8355
1.1993
0.8872
135.01
69.080
7.8365
Average
rate
2017
1.1266
0.8754
126.24
65.560
7.6116
USD
GBP
JPY
RUB
CNY
1 Spot rates at quarter-end.
overhang but were less of a drag on economic activity than
previously expected. At 4.3%, growth in developing economies
accelerated, as obstacles to economic activity diminished
in commodity-exporting countries and commodity prices
experienced a further stabilization.
ROBUST GROWTH IN THE SPORTING GOODS
INDUSTRY CONTINUES
The global sporting goods industry continued to grow at
robust rates in 2017, despite a moderate deceleration of
momentum in individual regions. In particular, sector growth
in North America was slower than in previous years as the
marketplace was negatively
further
consolidation in US retail and by supply-demand mismatches
in certain categories. Most other markets expanded, driven by
global trends such as increasing penetration of sportswear
(‘athleisure’)
SEE GLOSSARY, rising sports participation rates
and
increasing health awareness. Moreover, digital
developments continued to reshape the sports industry
around the world. Social fitness remained an overriding
theme and the e-commerce channel continued to see rapid
impacted by a
Quarterly consumer confidence development 1
by region
48
USA 2
Euro area 3
Japan 4
China 5
Russia 6
Brazil 7
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
113.3
124.9
117.3
120.6
123.1
(5.1)
42.3
108.4
(18.0)
100.3
(5.1)
43.9
111.0
(15.0)
102.0
(1.3)
43.3
113.3
(14.0)
100.5
(1.2)
43.9
118.6
(11.0)
98.5
0.5
44.7
122.6
(11.0)
100.5
1 Quarter-end figures.
2 Source: Conference Board.
3 Source: European Commission.
4 Source: Economic and Social Research Institute, Government of Japan.
5 Source: China National Bureau of Statistics.
6 Source: Russia Federal Service of State Statistics.
7 Source: Brazil National Confederation of Industry.
1
0
6
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Income Statement
BUSINESS PERFORMANCE
INCOME STATEMENT
Net sales by region 1 in % of net sales
52
ADIDAS DELIVERS STRONG FINANCIAL
PERFORMANCE IN 2017
In 2017, revenues increased 16% on a currency-neutral basis.
In euro terms, revenues grew 15% to € 21.218 billion from
SEE DIAGRAM 50 From a market segment
€ 18.483 billion in 2016.
perspective, currency-neutral sales grew at double-digit rates
in all regions in 2017, except for Russia/CIS, where revenues
declined.
SEE BUSINESS PERFORMANCE BY SEGMENT, P. 124
14%
MEAA
5%
Japan
9%
Latin America
3%
Russia/CIS
18%
Greater China
29%
Western Europe
21%
North America
Net sales 1, 2 € in millions
2017
2016
2015
2014
2013
50
21,218
18,483
16,915
14,534
14,203
1 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
2 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
Net sales by segment € in millions
51
Western Europe
North America
Greater China
Russia/CIS
Latin America
Japan
MEAA
Other Businesses 1
2017
5,883
4,275
3,789
660
1,907
1,056
2,907
739
2016
5,291
3,412
3,010
679
1,731
1,007
2,685
667
Total
21,218
18,483
Change
(currency-
neutral)
Change
11%
25%
26%
(3%)
10%
5%
8%
11%
15%
13%
27%
29%
(13%)
12%
10%
10%
12%
16%
1 Figures reflect all operating activities of the operating segments, including Other Businesses.
ADIDAS BRAND REVENUES GROW AT STRONG
DOUBLE-DIGIT RATE
Currency-neutral revenues for the adidas brand increased
18%, driven by double-digit sales increases in the running and
outdoor categories as well as at adidas Originals and adidas
neo. In addition, high-single-digit sales increases in the
training category also contributed to this development. In
euro terms, adidas brand revenues grew 16% to € 18.993
billion compared to € 16.334 billion in 2016. Currency-neutral
Reebok brand sales were up 4% versus the prior year, driven
by double-digit sales increases in Classics as well as low-
single-digit growth in the running category. While Reebok’s
international revenues grew at a double-digit rate in 2017,
sales in the US declined, reflecting the significant amount of
store closures in the market. In euro terms, Reebok sales
increased 4% to € 1.843 billion (2016: € 1.770 billion).
SALES GROW IN FOOTWEAR AND APPAREL
Currency-neutral footwear sales grew 24% in 2017, driven by
double-digit growth in the running category as well as at adidas
Originals and adidas neo.
In addition, high-single-digit
increases in the football and training categories also contributed
to this development. Apparel revenues grew 7% on a currency-
neutral basis, due to double-digit increases in the outdoor
category as well as at adidas Originals. In addition, high-single-
digit growth in the training category also contributed to this
development. Currency-neutral accessory and hardware sales
were up 6%, driven by double-digit growth at adidas Originals
and adidas neo.
SEE DIAGRAM 53
Net sales by product category 1 € in millions
53
2017
2016
Change
12,427
7,747
1,044
21,218
10,132
7,352
999
18,483
23%
5%
5%
15%
Change
(currency-
neutral)
24%
7%
6%
16%
Footwear
Apparel
Hardware
Total
1 Figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade,
Adams Golf, Ashworth and CCM Hockey businesses.
Net sales by product category 1 in % of net sales
54
5%
Hardware
37%
Apparel
1
0
7
59%
Footwear
1 Figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade,
Adams Golf, Ashworth and CCM Hockey businesses.
1 Figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade,
Adams Golf, Ashworth and CCM Hockey businesses.
ADIDAS ANNUAL REPORT 2017
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Income Statement
COST OF SALES INCREASES
Cost of sales is defined as the amount we pay to third parties
for expenses associated with producing and delivering our
products. In addition, own-production expenses are also
included in the cost of sales. However, these expenses
represent only a very small portion of total cost of sales. In
2017, cost of sales was € 10.514 billion, representing an
increase of 12% compared to the prior year level of € 9.383 billion.
This development reflects the strong growth of our business as
well as less favorable hedging rates and higher input costs
mainly due to an increase in material and labor costs.
GROSS MARGIN IMPROVES
1.2 PERCENTAGE POINTS
In 2017, the gross profit increased 18% to € 10.703 billion
from € 9.100 billion in 2016, representing a gross margin
increase of 1.2 percentage points to 50.4% (2016: 49.2%).
SEE DIAGRAM 55 This development was due to the positive effects
from a better pricing and product mix, which more than offset
negative currency effects as well as higher input costs.
Gross margin 1, 2, 3 in %
2017
2016
2015
2014
2013
55
50.4
49.2
48.3
47.6
49.3
1 Gross margin = (gross profit / net sales) × 100.
2 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
3 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
ROYALTY AND COMMISSION INCOME
INCREASES
Royalty and commission income increased 11% on a currency-
neutral basis and 10% in euro terms to € 115 million (2016:
€ 105 million).
OTHER OPERATING INCOME DECLINES
In 2017, other operating income declined 49% to € 133 million
from € 262 million in 2016. This development mainly reflects
the non-recurrence of two one-time gains in 2016, which were
related to the early termination of the Chelsea F.C. contract as
well as the divestiture of the Mitchell & Ness business.
OTHER OPERATING EXPENSES AS A
PERCENTAGE OF SALES DOWN
0.8 PERCENTAGE POINTS
Other operating expenses,
including depreciation and
amortization, consist of marketing expenditure as well as
operating overhead costs. In 2017, other operating expenses
were up 13% to € 8.882 billion (2016: € 7.885 billion), reflecting
an increase in marketing expenditure as well as higher operating
overhead expenditure.
SEE NOTE 32, P. 201 As a percentage of
sales, other operating expenses decreased 0.8 percentage
points to 41.9% from 42.7% in 2016.
SEE DIAGRAM 56 Marketing
expenditure amounted to € 2.732 billion in 2017 compared to
€ 2.410 billion in the prior year, representing an increase of
13% compared to the 2016 level. As a percentage of sales,
marketing expenditure declined 0.2 percentage points to
12.9% (2016: 13.0%), reflecting the company’s strong top-line
development.
SEE DIAGRAM 57 Operating overhead expenses
increased 12% to € 6.150 billion in 2017 from € 5.475 billion
in the prior year. As a percentage of sales, operating overhead
expenses declined 0.6 percentage points to 29.0% from 29.6%
in the prior year, reflecting the company’s focus on executing
the strategic business plan ‘Creating the New’ as well as the
strong operational performance in 2017.
Other operating expenses 1, 2 in % of net sales
56
2017
2016
2015
2014
2013
41.9
42.7
43.1
42.7
42.3
1 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
2 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
Marketing expenses 1, 2 in % of net sales
2017
2016
2015
2014
2013
57
12.9
13.0
13.9
13.2
12.6
1 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
2 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
1
0
8
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Income Statement
Operating profit 1, 2, 3, 4, 5 € in millions
2017
2016
2015
2014
2013
59
2,070
1,582
1,094
961
1,233
1 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
2 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
3 2015 excluding goodwill impairment of € 34 million.
4 2014 excluding goodwill impairment of € 78 million.
5 2013 excluding goodwill impairment of € 52 million.
Operating margin 1, 2, 3, 4, 5, 6 in %
2017
2016
2015
2014
2013
60
9.8
8.6
6.5
6.6
8.7
1 Operating margin = (operating profit / net sales) × 100.
2 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
3 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
4 2015 excluding goodwill impairment of € 34 million.
5 2014 excluding goodwill impairment of € 78 million.
6 2013 excluding goodwill impairment of € 52 million.
Net financial expenses € in millions
EBITDA INCREASES 29%
Earnings before interest, taxes, depreciation and amortization
as well as impairment losses/reversal of impairment losses
on property, plant and equipment and intangible assets
(EBITDA) increased 29% to € 2.511 billion in 2017 versus
€ 1.953 billion in 2016.
SEE DIAGRAM 58 Depreciation and
amortization expense for tangible and intangible assets
(excluding impairment losses/reversal of impairment losses)
increased 23% to € 452 million in 2017 (2016: € 368 million).
This development is mainly due to an increase in property,
plant and equipment. In accordance with IFRS, intangible
assets with indefinite useful lives (goodwill
SEE GLOSSARY and
trademarks) are tested annually and additionally when there
are indications of potential impairment. In this connection, an
impairment of intangible assets with unlimited useful lives
was incurred in 2017.
EBITDA 1, 2, 3 € in millions
2017
2016
2015
2014
2013
58
2,511
1,953
1,475
1,283
1,496
1 EBITDA = Income before taxes (IBT) + net interest expenses + depreciation and amortization.
2 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
3 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
OPERATING MARGIN INCREASES
1.2 PERCENTAGE POINTS
Operating profit grew 31% to € 2.070 billion in 2017 versus
€ 1.582 billion in 2016.
SEE DIAGRAM 59 This represents an
operating margin increase of 1.2 percentage points to 9.8%
compared to the prior year level of 8.6%.
SEE DIAGRAM 60 This
development was due to the gross margin increase as well as
2017
2016
2015
2014
2013
the positive effect from lower other operating expenses as a
percentage of sales, partly offset by the decline in other
operating income.
NET FINANCIAL EXPENSES INCREASE
Financial income increased 68% to € 46 million in 2017 (2016:
€ 28 million), mainly due to positive exchange rate effects.
Financial expenses were up 26% to € 93 million compared to
€ 74 million in 2016. This development was due to an increase
in other financial expenses as a result of impairment losses
on other financial assets. As a result, the company recorded
net financial expenses of € 47 million, an increase of 1%
compared to the prior year level of € 46 million.
SEE DIAGRAM 61
TAX RATE INCREASES 3.5 PERCENTAGE
POINTS TO 33.0%
The company’s tax rate in 2017 reached a level of 33.0%,
representing an increase of 3.5 percentage points compared
to the prior year level of 29.6%. This development was solely
driven by a negative one-time tax impact in the amount of € 76
million, reflecting a revaluation of the company’s US deferred
tax assets, which became necessary
the
implementation of the US tax reform. Excluding this negative,
non-cash-relevant tax
impact, the company’s tax rate
decreased 0.3 percentage points to 29.3%.
following
NET INCOME FROM CONTINUING OPERATIONS
EXCLUDING ONE-TIME TAX IMPACT UP 32%
TO € 1.430 BILLION
Excluding the negative one-time tax impact, net income from
continuing operations increased 32% to € 1.430 billion versus
€ 1.082 billion
SEE DIAGRAM 62 Basic EPS from
continuing operations increased 31% to € 7.05 from € 5.39 in
2016.
SEE DIAGRAM 63 Diluted EPS from continuing operations
was up 32% to € 7.00 in 2017 (2016: € 5.29).
in 2016.
1
0
9
61
47
46
21
48
68
ADIDAS ANNUAL REPORT 2017
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Income Statement
Including the one-time tax impact, net income from continuing
operations rose 25% to € 1.354 billion (2016: € 1.082 billion).
Basic EPS from continuing operations increased 24% from
€ 5.39 in 2016 to € 6.68 in 2017. Diluted EPS from continuing
operations was up 25% to € 6.63 in 2017 (2016: € 5.29).
Including the negative one-time tax impact, the company’s net
income attributable to shareholders
increased 8% to
€ 1.097 billion (2016: € 1.017 billion). Basic EPS from
continuing and discontinued operations increased 7% to
€ 5.42 (2016: € 5.08) and diluted EPS from continuing and
discontinued operations grew 8% to € 5.38 (2016: € 4.99).
The total number of shares outstanding increased by 2,371,924
shares in 2017 to 203,861,234 as a result of share conversions
in relation to the company’s outstanding convertible bond
which were partly offset by shares repurchased as part of the
SEE FINANCIAL HIGHLIGHTS, P. 4
company’s share buyback program.
Consequently, the average number of shares used in the
calculation of basic earnings per share (EPS) was 202,391,673
(2016: 200,188,276).
LOSSES FROM DISCONTINUED OPERATIONS
AMOUNT TO € 254 MILLION
In 2017, adidas incurred losses from discontinued operations
of € 254 million, net of tax, mainly related to the TaylorMade
and CCM Hockey businesses (2016: losses of € 62 million).
These losses from discontinued operations were due to a loss
recognized on the measurement to fair value less costs to
sell, net of tax, in the amount of € 256 million, partly offset by
income from discontinued operating activities of € 1 million.
NET INCOME ATTRIBUTABLE TO
SHAREHOLDERS EXCLUDING ONE-TIME TAX
IMPACT INCREASES 15% TO € 1.173 BILLION
The company’s net income attributable to shareholders,
which in addition to net income from continuing operations
includes the losses from discontinued operations, grew 15%
to € 1.173 billion (2016: € 1.017 billion) excluding the negative
one-time tax impact. As a result, basic EPS from continuing
and discontinued operations increased 14% to € 5.79 versus
€ 5.08 in 2016, while diluted EPS from continuing and
discontinued operations grew 15% to € 5.75 (2016: € 4.99).
Net income from continuing operations 1, 2, 3, 4
€ in millions
2017
2016
2015
2014
2013
1 2017 excluding negative one-time tax impact of € 76 million.
2 2015 excluding goodwill impairment of € 34 million.
3 2014 excluding goodwill impairment of € 78 million.
4 2013 excluding goodwill impairment of € 52 million.
Basic earnings per share 1, 2, 3, 4, 5 in €
2017
2016
2015
2014
2013
1 Figures reflect continuing operations.
2 2017 excluding negative one-time tax impact of € 76 million.
3 2015 excluding goodwill impairment of € 34 million.
4 2014 excluding goodwill impairment of € 78 million.
5 2013 excluding goodwill impairment of € 52 million.
62
1,430
1,082
720
642
825
63
7.05
5.39
3.54
3.05
3.93
1
1
0
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Statement of Financial Position and
Statement of Cash Flows
a decrease in the fair value of financial instruments as well as
a decrease in other financial assets, which was mainly related
to the non-recurrence of the extraordinary receivable related
to the early termination of the Chelsea F.C. contract. Other
current assets were down 14% to € 498 million at the end of
December 2017 (2016: € 580 million), mainly due to a
decrease in prepaid promotion contracts as well as tax
SEE NOTE 10, P. 170 Assets
receivables other than income taxes.
STATEMENT OF FINANCIAL POSITION
AND STATEMENT OF CASH FLOWS
DIVESTITURE OF THE TAYLORMADE AND CCM
HOCKEY BUSINESSES
On September 1, 2017, we formally completed the divestiture
of the CCM Hockey business. In addition, as of October 2,
2017, the TaylorMade business (including the TaylorMade,
Adams Golf and Ashworth brands) was divested. As a result,
all relevant assets and liabilities were derecognized from the
consolidated statement of financial position as of these dates.
However, a restatement of the 2016 balance sheet items is not
permitted under IFRS.
SEE NOTE 04, P. 169
ASSETS
At the end of December 2017, total assets were down 4% to
€ 14.522 billion versus € 15.176 billion in the prior year, as a
result of a decrease in both current assets as well as non-
current assets.
SEE DIAGRAM 64
Total current assets decreased 3% to € 8.645 billion at the
end of December 2017 compared to € 8.886 billion in 2016.
Cash and cash equivalents were up 6% to € 1.598 billion at
the end of December 2017 from € 1.510 billion in the prior
year, as net cash generated from operating activities was only
partly offset by net cash used in investing and financing
activities. Currency effects had a negative impact on cash and
cash equivalents in an amount of € 111 million. Inventories
decreased 2% to € 3.692 billion at the end of December 2017
from € 3.763 billion in 2016.
SEE DIAGRAM 66
On a currency-neutral basis, inventories grew 4%. Inventories
from continuing operations increased 2% (+8% currency-
neutral), reflecting higher stock levels to support the
company’s
receivable
top-line momentum. Accounts
increased 5% to € 2.315 billion at the end of December 2017
(2016: € 2.200 billion).
SEE DIAGRAM 67 On a
currency-neutral basis, receivables were up 13%. Receivables
from continuing operations increased 15% (+ 23% currency-
neutral), mainly reflecting the company’s top-line development
in 2017. Other current financial assets declined 46% to
€ 393 million at the end of December 2017 from € 729 million
SEE NOTE 08, P. 170 This development was mainly due to
in 2016.
SEE NOTE 07, P. 169
SEE NOTE 09, P. 170
Inventories € in millions
2017
2016
2015
2014
2013
Accounts receivable € in millions
Structure of statement of financial position 1
in % of total assets
64
Structure of statement of financial position 1
in % of total liabilities and equity
2017
2016
2015
2014
2013
65
Assets (€ in millions)
Cash and cash equivalents
Accounts receivable
Inventories
Fixed assets 2
Other assets
2017
2016
2017
14,522
2016
15,176
11.0
15.9
25.4
33.9
13.7
9.9
14.5
24.8
35.4
15.4
Liabilities and equity (€ in millions)
Short-term borrowings
Accounts payable
Long-term borrowings
Other liabilities
Total equity
2017
14,522
2016
15,176
0.9
13.6
6.8
34.4
44.3
4.2
16.4
6.5
30.4
42.5
1 For absolute figures see adidas AG Consolidated Statement of Financial Position, p. 119.
2 Fixed assets = property, plant and equipment + goodwill + trademarks + other intangible assets +
2017
2016
long-term financial assets.
1 For absolute figures see adidas AG Consolidated Statement of Financial Position, p. 119.
Accounts payable € in millions
2017
2016
2015
2014
2013
66
3,692
3,763
3,113
2,526
2,634
67
2,315
2,200
2,049
1,946
1,809
68
1,975
2,496
2,024
1,652
1,825
1
1
1
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
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BUSINESS PERFORMANCE
Statement of Financial Position and
Statement of Cash Flows
classified as held for sale amounted to € 72 million in 2017
due to the concrete plan to sell the Reebok headquarters in
Canton.
SEE NOTE 11, P. 170
Total non-current assets declined 7% to € 5.877 billion at the
end of December 2017 from € 6.290 billion in 2016. Fixed
assets decreased 8% to € 4.920 billion at the end of December
2017 versus € 5.367 billion in 2016. Additions of € 861 million,
primarily related to own-retail activities, investments into the
company’s logistics and IT infrastructure as well as the
further development of the company’s headquarters in
Herzogenaurach, were more than offset by the pre-divestiture
reclassification of the net book value of fixed assets of the
TaylorMade and CCM Hockey businesses to assets held for
sale in an amount of € 392 million. In addition, negative
currency effects of € 380 million as well as depreciation and
amortization of € 498 million contributed to this develop-
ment. Other non-current financial assets more than
doubled to € 219 million from € 96 million at the end of 2016.
SEE NOTE 16, P. 174 This development was mainly due to the
recognition of seller and contingent notes related to the
divestiture of the TaylorMade and CCM Hockey businesses.
Deferred tax assets decreased 14% to € 630 million from €
732 million in 2016 as a result of a revaluation of the company’s
US deferred tax assets, which became necessary following
the implementation of the US tax reform.
continuing operations decreased 17% (–15% currency-
neutral), reflecting the company´s focus on
inventory
management as well as improved terms with our suppliers
and phasing of sourcing activities. Other current financial
liabilities were up 81% to € 362 million from € 201 million in
2016, mainly as a result of an increase in the negative fair
SEE NOTE 19, P. 176 Other current
value of financial instruments.
provisions increased 29% to € 741 million at the end of
December 2017 versus € 573 million in 2016, driven by an
increase in operational provisions. Current accrued liabilities
grew 8% to € 2.180 billion at the end of December 2017 from
€ 2.023 billion in 2016, mainly as a result of an increase in
invoices not yet received as well as higher accruals for
customer discounts. Other current liabilities were up 9% to
€ 473 million at the end of December 2017 from € 434 million
in 2016, primarily due to an increase in miscellaneous taxes
payable.
SEE NOTE 22, P. 177
Total non-current liabilities decreased 8% to € 1.796 billion at
the end of December 2017 from € 1.957 billion in the prior
year. Long-term borrowings remained relatively unchanged
at € 983 million at the end of December 2017 from
SEE NOTE 18, P. 175 Deferred tax
€ 982 million in the prior year.
liabilities decreased 29% to € 275 million from € 387 million
in 2016, partly due to the pre-divestiture reclassification of the
TaylorMade and CCM Hockey businesses to liabilities held for
to
sale. Other non-current provisions
increased 82%
€ 80 million at the end of December 2017 from € 44 million in
the prior year, mainly as a result of an increase in provisions
for personnel. Non-current accrued liabilities decreased 29%
to € 85 million from € 120 million in 2016 due to a decrease in
accruals for personnel as well as invoices not yet received.
SEE NOTE 21, P. 177
Shareholders’ equity decreased to € 6.450 billion at the end of
December 2017 versus € 6.472 billion in 2016, driven by
negative currency effects of € 525 million as well as the
dividend of € 405 million paid to shareholders for the 2016
financial year. In addition, a decrease of hedging reserves of
€ 375 million as well as the repurchase of treasury shares in
an amount of € 89 million, including incidental purchasing
costs, also contributed to the decline. These developments
more than offset the net income generated during the last
twelve months and the reissuance of treasury shares in an
amount of € 248 million. The company’s equity ratio increased
SEE NOTE 26, P. 182
to 44.4% compared to 42.6% in the prior year.
SEE DIAGRAM 69
OPERATING WORKING CAPITAL
Operating working capital
SEE GLOSSARY increased 16% to
€ 4.033 billion at the end of December 2017 compared to
Average operating working capital 1, 2, 3 in % of net sales
70
LIABILITIES AND EQUITY
Total current liabilities decreased 7% to € 6.291 billion at the
end of December 2017 from € 6.765 billion in 2016. Short-
term borrowings declined 79% to € 137 million at the end of
December 2017 (2016: € 636 million), reflecting conversions
of the company’s convertible bond into adidas AG shares as
well as a decrease in bank loans. Accounts payable were down
21% to € 1.975 billion at the end of December 2017 versus
€ 2.496 billion in 2016.
SEE DIAGRAM 68 On a currency-neutral
basis, accounts payable declined 19%. Accounts payable from
Equity ratio in %
2017
2016
2015
2014
2013
69
44.4
42.6
42.5
45.3
47.3
2017
2016
2015
2014
2013
20.4
21.1
20.5
22.4
21.3
1
1
2
1 Average operating working capital = sum of operating working capital at quarter-end / 4.
Operating working capital = accounts receivable + inventories – accounts payable.
2 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
3 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
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BUSINESS PERFORMANCE
Statement of Financial Position and
Statement of Cash Flows
The majority of the company’s capital expenditure was related
to our controlled space initiatives. Investments in new or
remodeled own-retail and franchise stores as well as in shop-
in-shop presentations of our brands and products in our
customers’ stores accounted for 48% of total capital
expenditure (2016: 55%). Expenditure for IT and logistics
represented 13% and 9%, respectively (2016: 10% and 8%,
respectively). In addition, expenditure for administration
represented 7% (2016: 9%), while 22% of total capital
expenditure was recorded for other initiatives (2016: 18%).
SEE DIAGRAM 71 From a regional perspective, the majority of the
capital expenditure was recorded at
the company’s
headquarters in Herzogenaurach, Germany, accounting for
47% (2016: 32%). In addition, capital expenditure in Greater
China accounted for 16% (2016: 15%) of the total capital
expenditure, followed by Western Europe with 10% (2016:
12%), North America with 8% (2016: 13%), MEAA and Russia/
CIS with 5% each (2016: 9% and 7%, respectively), Latin
America with 4% (2016: 7%) as well as Japan with 3% (2016:
2%).
SEE DIAGRAM 72
Capital expenditure by region in % of total CAPEX
€ 3.468 billion in 2016. On a currency-neutral basis, operating
working capital grew 27%. Operating working capital from
continuing operations rose 25% (+36% currency-neutral).
Average operating working capital as a percentage of sales
from continuing operations decreased 0.7 percentage points
to 20.4% (2016: 21.1%), reflecting the strong top-line
development during the last twelve months as well as the
company’s continued
tight working capital
focus on
management.
SEE DIAGRAM 70
INVESTMENT ANALYSIS
Capital expenditure is defined as the total cash expenditure
for the purchase of tangible and intangible assets (excluding
acquisitions). Capital expenditure increased 16% to € 755
million in 2017 (2016: € 651 million). Capital expenditure from
continuing operations increased 17% to € 752 million from
€ 642 million in 2016. Capital expenditure for property, plant
and equipment was up 16% to € 681 million compared to
invested
€ 586 million
€ 74 million in intangible assets, representing a 14% increase
compared to the prior year (2016: € 65 million). Depreciation
and amortization excluding impairment losses/reversal of
impairment losses of tangible and intangible assets increased
13% to € 421 million in 2017 (2016: € 373 million).
in the prior year. The company
Capital expenditure by type in % of total CAPEX
71
7%
Administration
9%
Logistics
13%
IT
22%
Other
47%
HQ/Consolidation
48%
Controlled space
2%
Other Businesses
5%
MEAA
SEE
to € 1.648 billion
(2016: € 1.348 billion).
LIQUIDITY ANALYSIS
In 2017, net cash generated from operating activities
increased
FINANCIAL HIGHLIGHTS, P. 4 Net cash generated from continuing
operating activities rose to € 1.641 billion (2016: € 1.309 billion),
driven by an increase in income before taxes which was partly
offset by higher operating working capital requirements as well
as an increase in income taxes paid. Net cash used in investing
activities rose to € 680 million (2016: € 614 million). Net cash
used in continuing investing activities increased to € 676 million
(2016: € 605 million). The majority of continuing investing
activities in 2017 related to spending for property, plant and
equipment, such as investments in the furnishing and fitting of
our own-retail stores and investments in IT systems as well as
the purchase of investments and other long-term assets. Net
cash used in financing activities and net cash used in continuing
financing activities grew to € 769 million each (2016:
€ 553 million and € 545 million, respectively), mainly due to the
dividend paid to shareholders, the repayment of short-term
borrowings as well as the repurchase of treasury shares.
Exchange rate effects negatively impacted the company’s cash
position by € 111 million. As a result of all these developments,
to
cash and cash equivalents
€ 1.598 billion at the end of December 2017 compared to
€ 1.510 billion at the end of December 2016.
increased € 88 million
SEE DIAGRAM 74
Net borrowings/EBITDA 1, 2 € in millions
2017
2016
2015
2014
2013
73
(0.2)
0.1
0.3
0.1
(0.2)
1
1
3
3%
Japan
1 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport,
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
2 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
72
10%
Western Europe
8%
North America
16%
Greater China
5%
Russia/CIS
4%
Latin America
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Statement of Financial Position and
Statement of Cash Flows
Net cash at December 31, 2017 amounted to € 484 million,
compared to net borrowings of € 103 million
in 2016,
representing an improvement of € 587 million compared to
the prior year. This development was driven by the increase in
cash generated from operating activities as well as proceeds
arising from the disposal of the TaylorMade and CCM Hockey
businesses, partly offset by the utilization of cash for the
purchase of fixed assets as well as the dividend paid to
shareholders and the repurchase of adidas AG shares. In
addition, the conversion of convertible bonds into adidas AG
SEE TREASURY, P. 115
shares also contributed to this improvement.
The company’s ratio of net borrowings over EBITDA amounted
to –0.2 at the end of December 2017 (2016: 0.1), which is within
the company’s mid-term target corridor of below two times.
SEE DIAGRAM 73
Operating cash flow, as described in the Internal Management
System, increased 24% to € 1.202 billion in 2017 from € 969
million in 2016, mainly due to the higher operating profit.
SEE INTERNAL MANAGEMENT SYSTEM, P. 102
OFF-BALANCE SHEET ITEMS
The company’s most significant off-balance sheet items are
commitments for promotion and advertising as well as
operating leases, which are related to own-retail stores,
offices, warehouses and equipment. The company has entered
into various operating leases as opposed to property
acquisitions in order to reduce exposure to property value
fluctuations. Minimum future lease payments for operating
leases were € 2.649 billion at December 31, 2017, compared
to € 2.501 billion at the end of December 2016, representing
an increase of 6%.
SEE NOTE 29, P. 189 At the end of December
2017, financial commitments for promotion and advertising
decreased 7% to € 5.255 billion in 2017 (2016: € 5.643 billion).
SEE NOTE 39, P. 210
Change in cash and cash equivalents € in millions
74
Cash and cash
equivalents
at the end of
2016
Net cash generated
from operating
activities
Net cash used in
investing activities
Net cash used in
financing activities
Effect of exchange
rates
Cash and cash
equivalents
at the end of
2017
1,648
1,510
(680)
(769)
(111)
1,598
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Treasury
TREASURY
CORPORATE FINANCING POLICY
In order to be able to meet the company’s payment commitments
at all times, the major goal of our financing policy is to ensure
sufficient liquidity reserves, while at the same time minimizing
our financial expenses. The operating activities of our segments
and the resulting cash inflows represent the company’s main
source of liquidity. Liquidity is planned on a rolling monthly
basis under a multi-year financial and liquidity plan. This
comprises all consolidated companies. Our in-house bank
concept takes advantage of any surplus funds of individual
companies to cover the financial requirements of others, thus
reducing external financing needs and optimizing our net
interest expenses. Furthermore, by settling intercompany
transactions via intercompany financial accounts, we are able
to reduce external bank account transactions and thus bank
charges. Effective management of our currency exposure and
interest rate risks are additional goals and responsibilities of
our centrally managed Treasury department.
TREASURY POLICY AND RESPONSIBILITIES
Our Treasury Policy governs all treasury-related issues,
including banking policy and approval of bank relationships,
financing arrangements and liquidity/asset management,
currency and interest risk management as well as the
management of intercompany cash flows. Responsibilities
are arranged in a three-tiered approach:
— The Treasury Committee consists of members of the
Executive Board and other senior executives who decide
on the Treasury Policy and provide strategic guidance for
managing treasury-related topics. Major changes to our
Treasury Policy are subject to the prior approval of the
Treasury Committee.
— The Treasury department is responsible for specific
centralized treasury transactions and for the global
implementation of our Treasury Policy.
— On a subsidiary level, where applicable and economically
reasonable, local managing directors and finance directors
are responsible for managing treasury matters in their
respective subsidiaries. Controlling functions on a corporate
level ensure that the transactions of the individual business
units are in compliance with our Treasury Policy.
CENTRALIZED TREASURY FUNCTION
In accordance with our Treasury Policy, all worldwide credit
lines are directly or indirectly managed by the Treasury
department. Portions of those lines are allocated to our
subsidiaries and backed by adidas AG guarantees. As a result
of this centralized liquidity management, the company is well
positioned to allocate resources efficiently throughout the
organization. The company’s debt is generally unsecured and
may include standard covenants, which are reviewed on a
quarterly basis. We maintain good relations with numerous
partner banks, thereby avoiding a high dependency on any
single financial institution. Banking partners of the company
and our subsidiaries are required to have at least a BBB+
long-term investment grade rating by Standard & Poor’s or an
equivalent rating by another leading rating agency.
AND OPPORTUNITY REPORT, P. 131 Only in exceptional cases are our
companies authorized to work with banks with a lower
rating. To ensure optimal allocation of the company’s liquid
financial resources, subsidiaries transfer excess cash to our
headquarters in all instances where it is legally and economically
feasible. In this regard, the standardization and consolidation
of our global cash management and payment processes,
including automated domestic and cross-border cash pools
SEE GLOSSARY, is a key priority for our Treasury department.
SEE RISK
STANDARD COVENANTS
In the case of our committed credit facilities, we have entered
into various legal covenants. These legal covenants may
include limits on the disposal of fixed assets, the amount of
debt secured by liens, cross default provisions and change of
control. However, our financial arrangements do not contain
any financial covenants. If we failed to meet any covenant and
were unable to obtain a waiver from a majority of partner
banks, borrowings would become due and payable immediately.
As at December 31, 2017, we were in full compliance with all of
our covenants. We are fully confident we will continue to be
compliant with these covenants going forward. We believe
that cash generated from operating activities, together with
access to internal and external sources of funds, will be
sufficient to meet our future operating and capital needs.
FINANCIAL FLEXIBILITY
The company’s financial flexibility is ensured by the availability
of credit facilities, consisting of committed and uncommitted
bilateral credit lines at different banks with a remaining time
to maturity of up to five years. In addition, we have an unused
multi-currency commercial paper program in the amount of
€ 2.0 billion available (2016: € 2.0 billion). At the end of 2017,
committed and uncommitted bilateral credit lines amounted
to € 2.251 billion (2016: € 2.403 billion), of which € 2.145 billion
was unutilized (2016: € 2.024 billion). Committed and uncom-
mitted credit lines represent approximately 47% and 53% of
total short-term bilateral credit lines, respectively (2016: 43%
and 57%, respectively).
SEE DIAGRAM 77 We monitor the ongoing
need for available credit lines based on the current level of
debt as well as future financing requirements.
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BUSINESS PERFORMANCE
Total credit facilities € in millions
75
Bilateral credit lines
Eurobonds
Convertible bond
Total
2017
2016
2017
2016
2,251
2,403
983
31
982
257
3,265
3,642
Remaining time to maturity of available facilities € in millions
76
< 1 year
1 to 3 years
3 to 5 years
> 5 years
Total
2017
2016
2017
2016
1,601
2,160
381
746
537
150
945
387
3,265
3,642
Bilateral credit lines € in millions
77
Committed
Uncommitted
Total
2017
2016
2017
2016
1,055
1,196
1,041
1,362
2,251
2,403
OUTSTANDING BONDS
In 2014, we issued two eurobonds with an overall volume of
€ 1.0 billion, thereby taking the opportunity of a low interest
rate environment in the eurobond market to further strengthen
the company’s financing mix while increasing the overall
duration. The seven-year eurobond of € 600 million matures
on October 8, 2021 and has a coupon of 1.25%. The twelve-
year eurobond of € 400 million matures on October 8, 2026
and has a coupon of 2.25%.
SEE NOTE 18, P. 175 In addition,
adidas AG successfully issued a convertible bond in March
2012, for an aggregate nominal amount of € 500 million, due
on June 14, 2019. The bonds were priced with a 0.25% annual
coupon and a conversion premium of 40% above the reference
price of € 59.61. As at December 31, 2017, 94% of the con-
SEE OUR SHARE, P. 57
vertible bond was converted (2016: 48%).
SEE TABLE 78
GROSS BORROWINGS DECREASE
The company’s gross borrowings are composed of bank
borrowings as well as the outstanding eurobonds and the
convertible bond. Gross borrowings decreased 31% to
€ 1.120 billion at the end of 2017 from € 1.618 billion in the
prior year. This development was mainly due to the conversion
of convertible bonds and a decrease in short-term bank
borrowings. Bank borrowings amounted to € 106 million
compared to € 379 million in the prior year. Convertible bonds
outstanding decreased 88% to € 31 million from € 257 million
in the prior year. This was a result of further conversions into
adidas AG shares that occurred in the course of 2017, partly
offset by an increase in the convertible bond’s debt component.
SEE OUR SHARE, P. 57 The conversions were done on a non-cash
basis using treasury shares. The debt component was fully
accrued to its nominal value by the end of 2017. Including the
company’s eurobonds, the total amount of bonds outstanding
at the end of 2017 was € 1.014 billion (2016: € 1.239 billion).
Issued bonds at a glance € in millions
78
SEE TABLE 79
Convertible bond
Eurobond
Eurobond
Volume
Coupon
Maturity
€ 500
€ 600
€ 400
fixed
fixed
fixed
2019
2021
2026
Financing structure € in millions
Cash and short-term financial assets
Bank borrowings
Eurobonds
Convertible bond
Gross total borrowings
Net cash/(net borrowings)
79
2016
1,515
379
982
257
1,618
(103)
2017
1,604
106
983
31
1,120
484
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EURO DOMINATES CURRENCY MIX
The vast majority of our gross borrowings are denominated in
euros. At the end of 2017, gross borrowings denominated in
euros accounted for 91% of total gross borrowings (2016:
77%).
SEE DIAGRAM 80
Currency split of gross borrowings € in millions
80
NET CASH POSITION OF € 484 MILLION
Net cash at December 31, 2017 amounted to € 484 million,
compared to net borrowings of € 103 million in 2016,
representing an improvement of € 587 million versus the
prior year.
SEE DIAGRAM 82 This development was driven by the
increase in cash generated from operating activities as well
as proceeds arising from the disposal of the TaylorMade and
CCM Hockey businesses, partly offset by the utilization of cash
for the purchase of fixed assets as well as the dividend paid to
shareholders and the repurchase of adidas AG shares. In
addition, the conversion of convertible bonds into adidas AG
shares also contributed to this improvement.
1,120
1,618
Net cash/(net borrowings) 1 € in millions
2017
2016
1,016
1,242
2
102
157
219
2017
2016
2015
2014
2013
EUR
USD
All others
Total
2017
2016
STABLE DEBT MATURITY PROFILE
Over the course of 2017, the company’s financing maturity
profile remained stable. In 2018, assuming unchanged
maturities, debt instruments of € 137 million will mature, of
which € 31 million consists of the anticipated conversions.
This compares to € 606 million which matured during the
course of 2017.
SEE DIAGRAM 81
Remaining time to maturity of gross borrowings € in millions
81
< 1 year
1 to 3 years
3 to 5 years
> 5 years
Total
2017
2016
2017
137
–
596
387
2016
636
–
595
387
1,120
1,618
1 Net cash/Net borrowings = cash and cash equivalents + short-term financial assets – short-term
borrowings – long-term borrowings.
INTEREST RATE INCREASES
The weighted average interest rate on the company’s gross
borrowings increased to 2.7% in 2017 (2016: 2.3%).
DIAGRAM 83 This development was mainly due to conversions of
the convertible bond into adidas AG shares and a reduction
in short-term borrowings. Fixed-rate financing represented
91% of total gross borrowings at the end of 2017 (2016: 77%).
Variable-rate financing accounted for 9% of total gross
borrowings at the end of the year (2016: 23%).
SEE
82
484
(103)
(460)
(185)
295
Interest rate development 1 in %
2017
2016
2015
2014
2013
83
2.7
2.3
2.4
3.1
3.8
1 Weighted average interest rate of gross borrowings.
EFFECTIVE FOREIGN EXCHANGE MANAGEMENT
A KEY PRIORITY
As a globally operating company, adidas is exposed to currency
risks. Therefore, effective currency management is a key
focus of our Treasury department, with the aim of reducing
the impact of currency fluctuations on non-euro-denominated
net future cash flows. In this regard, hedging US dollars is a
central part of our program. This is a direct result of our
Asian-dominated sourcing, which is largely denominated in
US dollars.
SEE GLOBAL OPERATIONS, P. 74 In 2017, our Treasury
department managed a net deficit of around US $ 6.6 billion
related to operational activities (2016: US $ 6.5 billion).
Thereof, around US $ 3.8 billion was against the euro (2016:
US $ 3.5 billion). As governed by our Treasury Policy, we have
established a hedging system on a rolling basis up to 24
months in advance, under which the vast majority of the
anticipated seasonal hedging volume is secured approximately
six months prior to the start of a season. In rare instances,
hedges are contracted beyond the 24-month horizon. We had
largely covered our anticipated hedging needs for 2018 as of
year-end 2017. At the same time, we have already started
hedging our exposure for 2019. The use or combination of
different hedging instruments, such as forward exchange
contracts, currency options and swaps, protects us against
unfavorable currency movements.
SEE RISK AND OPPORTUNITY REPORT, P. 131
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Financial Statements and Management
Report of adidas AG
PREPARATION OF ACCOUNTS
Unlike the consolidated financial statements, which are in
conformity with the International Financial Reporting Standards
(IFRS), as adopted by the European Union as at December 31,
2017, the following financial statements of adidas AG have
been prepared in accordance with the rules set out in the
German Commercial Code (Handelsgesetzbuch – HGB).
INCOME STATEMENT
Statement of income in accordance with
HGB (Condensed) € in millions
Net sales
Total output
Other operating income
Cost of materials
Personnel expenses
Depreciation and amortization
Other operating expenses
Operating profit
Financial result
Taxes
Net income
Retained earnings brought forward
Allocation to other revenue reserves
Utilization for the repurchase of treasury
shares
Retained earnings
84
2016
3,289
3,289
439
2017
3,732
3,732
503
(1,292)
(1,127)
(692)
(91)
(588)
(100)
(2,170)
(1,803)
(10)
655
(96)
549
24
0
0
573
110
600
(93)
617
322
(300)
(11)
629
adidas AG net sales € in millions
Royalty and commission income
adidas Germany
Foreign subsidiaries
Y-3
Other revenues
Total
85
2016
1,580
939
137
89
544
2017
1,809
1,027
175
98
623
3,732
3,289
NET SALES INCREASE 13%
Sales of adidas AG comprise external revenues generated by
adidas Germany with products of the adidas and Reebok
brands, external revenues from Y-3 products as well as
revenues from foreign subsidiaries. Revenues of adidas AG
also include royalty and commission income, mainly from
affiliated companies, and other revenues. In 2017, adidas AG
net sales grew 13% to € 3.732 billion (2016: € 3.289 billion).
This growth was mainly due to an increase in royalty income
from affiliated companies as well as higher sales at adidas
Germany.
SEE TABLE 85
OTHER OPERATING INCOME UP 15%
In 2017, other operating income of adidas AG increased 15%
to € 503 million (2016: € 439 million). This development was
primarily due to positive currency effects.
OTHER OPERATING EXPENSES INCREASE 20%
In 2017, other operating expenses for adidas AG rose 20% to
€ 2.170 billion (2016: € 1.803 billion).
SEE TABLE 84 This was
largely attributable to an increase in expenses for advertising
and promotion, allowances for doubtful accounts, negative
currency effects and higher legal and consultancy expenses.
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FINANCIAL STATEMENTS AND
MANAGEMENT REPORT OF ADIDAS AG
adidas AG is the parent company of the adidas Group. It
includes operating business functions, primarily for the
German market, as well as corporate headquarter functions
such as Marketing, Treasury, Taxes, Legal and Finance.
adidas AG also administers the company’s shareholdings.
OPERATING ACTIVITIES AND CAPITAL
STRUCTURE OF ADIDAS AG
The majority of the operating business of adidas AG consists
of the sale of merchandise to wholesale partners and own-
retail activities.
In addition to its own trading activities, the results of adidas AG
are significantly influenced by its holding function for the
company as a whole. This is reflected primarily in currency
effects, transfer of costs for services provided, interest result
and income from investments in related companies.
The opportunities and risks as well as the future development
of adidas AG largely reflect those of the company as a whole.
SEE SUBSEQUENT EVENTS AND OUTLOOK, P. 128
SEE RISK AND OPPORTUNITY REPORT, P. 131
The asset and capital structure of adidas AG is significantly
impacted by its holding and financing function for the company.
For example, 49% of total assets as at December 31, 2017
related to financial assets (2016: 53%), which primarily consist
of shares in affiliated companies. Inter company accounts,
through which transactions between affiliated companies are
settled, represent another 35% of total assets (2016: 35%) and
48% of total equity and liabilities as at December 31, 2017
(2016: 45%).
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DEPRECIATION AND AMORTIZATION DECLINES 9%
Depreciation and amortization for adidas AG decreased 9% to
€ 91 million in 2017 (2016: € 100 million), mainly as a result of
a decline in depreciation and amortization of software.
BALANCE SHEET
Balance sheet in accordance with HGB
(Condensed) € in millions
OPERATING RESULT DECREASES
SIGNIFICANTLY
In 2017, adidas AG generated an operating loss of € 10 million,
(2016: operating profit of € 110 million).
SEE TABLE 84 This
development was primarily due to an increase in other
operating expenses as well as increases in cost of materials
and personnel expenses, which more than offset higher sales.
FINANCIAL RESULT IMPROVES
The financial result of adidas AG improved 9% to € 655 million
in 2017 (2016: € 600 million). The increase was attributable to
higher profit transfers from affiliated companies under profit
and loss transfer agreements.
NET INCOME DECLINES
Net income, after taxes of € 96 million (2016: € 93 million),
amounted to € 549 million in 2017 and was thus 11% below
the prior year level (2016: € 617 million).
SEE TABLE 84
Assets
Intangible assets
Property, plant and equipment
Financial assets
Fixed assets
Inventories
Receivables and other assets
Cash and cash equivalents, securities
Current assets
Prepaid expenses
Active difference from asset allocation
Total assets
Equity and liabilities
Shareholders’ equity
Provisions
Liabilities and other items
Total equity and liabilities
86
TOTAL ASSETS ABOVE PRIOR YEAR
At the end of December 2017, total assets grew 11% to € 8.863
billion compared to € 8.003 billion in the prior year. This
development was mainly a result of increases in cash and cash
equivalents, receivables and other assets as well as fixed assets.
Dec. 31,
2017
Dec. 31,
2016
SEE TABLE 86
124
610
4,308
5,042
49
3,262
337
3,648
168
5
8,863
2,704
624
5,535
8,863
112
493
4,205
4,810
50
2,968
28
3,046
143
4
8,003
2,395
525
5,083
8,003
SHAREHOLDERS’ EQUITY UP 13%
Shareholders’ equity increased 13% to € 2.704 billion at the
end of December 2017 (2016: € 2.395 billion).
The equity ratio rose slightly to 30.5% (2016: 29.9%).
SEE TABLE 86
PROVISIONS INCREASE 19%
Provisions were up 19% to € 624 million at the end of 2017
SEE TABLE 86 The increase primarily
(2016: € 525 million).
resulted from higher provisions for personnel as well as higher
marketing provisions.
LIABILITIES AND OTHER ITEMS UP 9%
At the end of December 2017, liabilities and other items
increased 9% to € 5.535 billion (2016: € 5.083 billion).
SEE TABLE 86 The increase was mainly a result of higher
payables to affiliated companies, partly offset by the decline
in liabilities related to the convertible bond.
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CASH INFLOW FROM OPERATING ACTIVITIES
REFLECTS CHANGE IN CASH AND CASH
EQUIVALENTS
adidas AG generated a positive cash flow from operating
activities of € 1.109 billion (2016: € 263 million). The change
versus the prior year was mainly a result of higher payables to
affiliated companies, partly offset by an increase in receivables
from affiliated companies. Net cash outflow from investment
activities was € 330 million (2016: € 133 million). This was
primarily attributable to capital expenditure for tangible fixed
assets of € 227 million and capital expenditure for financial
assets in an amount of € 115 million, partly offset by disposals
from financial assets of € 12 million. Financing activities
resulted in a net cash outflow of € 469 million (2016: € 549
million). The net cash outflow from financing activities mainly
relates to the dividend payment in an amount of € 405 million.
As a result of all these developments, cash and cash equivalents
of adidas AG increased to € 337 million at the end of December
2017 compared to € 28 million at the end of the prior year.
adidas AG has bilateral credit lines of € 1.7 billion. In addition,
the company has a multi-currency commercial paper program
in an amount of € 2.0 billion.
SEE TREASURY, P. 115
adidas AG is able to meet its financial commitments at all times.
DISCLOSURES PURSUANT TO § 315A
SECTION 1 AND § 289A SECTION 1 OF
THE GERMAN COMMERCIAL CODE
COMPOSITION OF SUBSCRIBED CAPITAL
The nominal capital of adidas AG amounts to € 209,216,186
(as at December 31, 2017) and is divided into the same number
of registered no-par-value shares with a pro rata amount in
the nominal capital of € 1 each (‘shares’). Pursuant to § 4
section 10 of the Articles of Association, shareholders’ claims
to the issuance of individual share certificates are, in principle,
excluded. Each share grants one vote at the Annual General
Meeting. All shares carry the same rights and obligations. As
at December 31, 2017, adidas AG held 5,354,952 treasury
shares, which however do not confer any rights to the company
in accordance with § 71b German Stock Corporation Act
(Aktiengesetz – AktG).
SEE NOTE 26, P. 182
In the USA, we have issued American Depositary Receipts
(ADRs). ADRs are deposit certificates of non-US shares that
are traded instead of the original shares on US stock
exchanges. Two ADRs equal one share.
SEE OUR SHARE, P. 57
RESTRICTIONS ON VOTING RIGHTS OR
TRANSFER OF SHARES
We are not aware of any contractual agreements with
adidas AG or other agreements restricting voting rights or the
transfer of shares. Based on the Code of Conduct in
conjunction with an internal guideline of adidas AG and based
on Article 19 section 11 of the Market Abuse Regulation,
however, particular lock-up periods do exist for members of
the Executive Board with regard to the purchase and sale of
adidas AG shares. These lock-up periods are connected, in
particular, with the (time of) publication of quarterly and full
year results. Lock-up periods stipulated in the Code of
Conduct and the internal guideline also exist for employees
who have access to yet unpublished financial results.
In addition, restrictions of voting rights may exist pursuant,
inter alia, to § 136 AktG or for treasury shares pursuant to
§ 71b AktG as well as due to capital market regulations, in
particular pursuant to §§ 21 et seq. German Securities Trading
Act (Wertpapierhandelsgesetz – WpHG).
The shares that were issued in the context of the Stock
Purchase Plan to employees of adidas AG and employees of
subsidiaries participating in the Stock Purchase Plan are not
subject to any lock-up periods, unless such a waiting period is
stipulated in locally applicable regulations. Employees who
hold the shares which they purchased themselves (investment
shares) for at least one year will subsequently receive one
share for every six investment shares without having to pay
for such share (so-called matching share) if they are still
adidas employees at that point in time. If employees transfer,
pledge or hypothecate investment shares in any way during
the one-year vesting period, the right to receive matching
shares shall cease.
SHAREHOLDINGS IN SHARE CAPITAL
EXCEEDING 10% OF VOTING RIGHTS
We have not been notified of, and are not aware of, any direct
or indirect shareholdings in the share capital of adidas AG
exceeding 10% of the voting rights.
SHARES WITH SPECIAL RIGHTS
There are no shares bearing special rights. In particular, there
are no shares with rights conferring powers of control.
VOTING RIGHT CONTROL IF EMPLOYEES
HAVE A SHARE IN THE CAPITAL
Like all other shareholders, employees who hold adidas AG
shares exercise their control rights directly in accordance
with statutory provisions and the Articles of Association. The
shares which employees acquire in the context of the Stock
Purchase Plan are held in trust centrally by a service provider
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held in which, however, the Chairman of the Supervisory
Board has two votes.
If the Executive Board does not have the required number of
members, the competent court shall, in urgent cases, make
the necessary appointment upon application by any party
involved (§ 85 section 1 AktG).
AMENDMENTS TO THE ARTICLES OF
ASSOCIATION
Pursuant to § 179 section 1 sentence 1 AktG, the Articles of
Association of adidas AG can, in principle, only be amended by
a resolution passed by the Annual General Meeting. Pursuant
to § 21 section 3 of the Articles of Association in conjunction
with § 179 section 2 sentence 2 AktG, the Annual General
Meeting of adidas AG principally resolves upon amendments
to the Articles of Association with a simple majority of the
votes cast and with a simple majority of the nominal capital
if
represented when passing the resolution. However,
mandatory legal provisions stipulate a larger majority of
voting rights or capital, this is applicable. When it comes to
amendments solely relating to the wording, the Supervisory
Board is authorized to make these modifications in accordance
with § 179 section 1 sentence 2 AktG in conjunction with § 10
section 1 sentence 2 of the Articles of Association.
AUTHORIZATIONS OF THE EXECUTIVE BOARD
The authorizations of the Executive Board are regulated by
§§ 76 et seq. AktG in conjunction with §§ 7 and 8 of the Articles
of Association. The Executive Board
in
particular, for managing the company and represents the
company judicially and extra-judicially.
is responsible,
on behalf of the participating employees. As long as the
shares are held in trust, the trustee shall take reasonable
measures to allow participating employees to directly or
indirectly exercise their voting rights in respect of the shares
held in trust.
EXECUTIVE BOARD APPOINTMENT AND
DISMISSAL
Pursuant to § 6 of the Articles of Association and § 84 AktG,
the Supervisory Board is responsible for determining the
exact number of members of the Executive Board, for their
appointment and dismissal as well as for the appointment of
the Chief Executive Officer (CEO). The adidas AG Executive
Board, which, as a basic principle, comprises at least two
members, currently consists of the CEO as well as five further
members. Executive Board members may be appointed for a
maximum period of five years. Such appointments may be
renewed and the terms of office may be extended, provided
that no term exceeds five years.
SEE EXECUTIVE BOARD, P. 20
The Supervisory Board may revoke the appointment of an
individual as member of the Executive Board or CEO for good
cause, such as gross negligence of duties or a vote of no
confidence by the Annual General Meeting.
As adidas AG is subject to the regulations of the German Co-
Determination Act (Mitbestimmungsgesetz – MitbestG), the
appointment of Executive Board members and also their
dismissal requires a majority of at least two thirds of the
Supervisory Board members (§ 31 MitbestG). If such a majority
is not established in the first vote by the Supervisory Board,
the Mediation Committee has to present a proposal which,
however, does not exclude other proposals. The appointment
or dismissal is then made in a second vote with a simple
majority of the votes cast by the Supervisory Board members.
Should the required majority not be established in this case
either, a third vote, again requiring a simple majority, must be
AUTHORIZATION OF THE EXECUTIVE BOARD TO
ISSUE SHARES
The authorization of the Executive Board to issue shares is
regulated by § 4 of the Articles of Association and by statutory
provisions:
Authorized Capital
— Until June 7, 2020, the Executive Board is authorized to
increase the nominal capital, subject to Supervisory Board
approval, by issuing new shares against contributions in
kind once or several times by no more than € 16,000,000
altogether (Authorized Capital 2017/II).
— Until June 14, 2021, the Executive Board is authorized to
increase the nominal capital, subject to Supervisory Board
approval, by issuing new shares against contributions in
cash once or several times by no more than € 4,000,000
altogether (Authorized Capital 2016).
— Until June 7, 2022, the Executive Board is authorized to
increase the nominal capital, subject to Supervisory Board
approval, by issuing new shares against contributions in
cash once or several times by no more than € 50,000,000
altogether (Authorized Capital 2017/I).
— Until June 7, 2022, the Executive Board is authorized to
increase the nominal capital, subject to Supervisory Board
approval, by issuing new shares against contributions in
cash once or several times by no more than € 20,000,000
altogether (Authorized Capital 2017/III).
Subject
to Supervisory Board approval, shareholders’
subscription rights are partially excluded or may be excluded
in certain cases for the above-mentioned, in principle
cumulative authorizations.
SEE NOTE 26, P. 182
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Contingent Capital
— The nominal capital of the company is conditionally
increased by up to € 36,000,000 (Contingent Capital 2010).
The Contingent Capital serves the purpose of granting
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holders or creditors of bonds that were issued up to
May 5, 2015 based on the resolution of the Annual General
Meeting on May 6, 2010 subscription or conversion rights
relating to no more than a total of 36,000,000 shares in
compliance with the corresponding conditions of the bonds.
On March 14, 2012, following the approval of the Supervisory
Board, the Executive Board resolved to make partial use of the
authorization granted by the Annual General Meeting on
May 6, 2010 and issued a convertible bond, excluding
shareholders’ subscription rights, on March 21, 2012. However,
the shares will only be issued insofar as bondholders make
use of their conversion rights. The total number of shares to
be issued to bondholders in case of full conversion amounted
to up to 3,182,525 shares as at December 31, 2016. Due to the
fact that conversion rights were exercised, which were all
serviced with treasury shares of the company, the remaining
number of shares to be issued to bondholders in case of
full conversion amounted to up to 377,190 shares as at
December 31, 2017.
Moreover, the authorization to issue bonds with warrants and/
or convertible bonds granted on May 6, 2010 was canceled by
resolution of the Annual General Meeting on May 8, 2014.
— Furthermore, the nominal capital of the company is
conditionally increased by up to € 12,500,000 (Contingent
Capital 2014). The Contingent Capital serves the purpose
of granting holders or creditors of bonds that were issued
based on the resolution of the Annual General Meeting on
May 8, 2014 subscription or conversion rights relating to
no more than a total of 12,500,000 shares in compliance
with the corresponding conditions of the bonds. Based on
the authorization granted by the Annual General Meeting
on May 8, 2014, the Executive Board is authorized,
subject to Supervisory Board approval, to issue bonds
with warrants and/or convertible bonds in an aggregate
nominal value of up to € 1,000,000,000 with or without a
limited term, against contributions in cash once or several
times until May 7, 2019, and to guarantee bonds issued by
subordinated Group companies. The Executive Board is
also authorized, subject to Supervisory Board approval,
to exclude shareholders’ subscription rights for fractional
amounts and to exclude shareholders’ subscription rights
insofar as this is necessary for granting subscription rights
to which holders or creditors of previously issued bonds are
entitled. Furthermore, the Executive Board is authorized,
subject to Supervisory Board approval, to also exclude
shareholders’ subscription rights if the issue price of the
bonds is not significantly below the hypothetical market
value of these bonds and the number of shares to be issued
does not exceed 10% of the nominal capital. The issuance
of new shares or the use of treasury shares must be taken
into account when calculating the limit of 10% in certain
specific cases.
The Executive Board has so far not utilized the authorization
to issue bonds with warrants and/or convertible bonds
granted by the Annual General Meeting on May 8, 2014.
AUTHORIZATION OF THE EXECUTIVE BOARD
TO REPURCHASE SHARES
The authorizations of the Executive Board to repurchase
adidas AG shares arise from §§ 71 et seq. AktG and, as at the
balance sheet date, from the authorization granted by the
Annual General Meeting on May 12, 2016.
— Until May 11, 2021, the Executive Board is authorized to
repurchase adidas AG shares in an amount totaling up to
10% of the nominal capital at the date of the resolution (or,
as the case may be, a lower amount of nominal capital at
the date of utilization of the authorization) for any lawful
purpose and within the legal framework. The authorization
may be used by the company but also by its subordinated
Group companies or by third parties on account of the
company or its subordinated Group companies or third
parties assigned by the company or one of its subordinated
Group companies.
The repurchase can be carried out via the stock exchange,
through a public invitation to submit sale offers, through a
public repurchase offer, or through granting tender rights
to shareholders. Furthermore, the authorization sets out
the lowest and highest nominal value that may be granted
in each case.
The purposes for which adidas AG shares repurchased
based on this authorization may be used are set out in the
resolution on Item 9 of the Agenda for the Annual General
Meeting held on May 12, 2016. The shares may in particular
be used as follows:
— They may be sold via the stock exchange, through a
public share purchase offer made to all shareholders
or sold otherwise against cash (limited to 10% of the
nominal capital taking into account certain offsets) at
a price not significantly below the stock market price
of shares with the same features.
— They may be offered and assigned as consideration
for the direct or indirect acquisition of companies,
parts of companies, participations in companies
or other economic assets or within the scope of
company mergers.
— They may be offered and sold as consideration for the
acquisition of industrial property rights or intangible
property rights or for the acquisition of licenses
relating to such rights, also through subordinated
Group companies.
— They may be used for purposes of meeting the
subscription or conversion rights or obligations or
the company’s right to delivery of shares arising from
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bonds with warrants and/or convertible bonds issued
by the company or its subordinated Group companies.
— In connection with employee stock purchase plans, up
to 4,000,000 shares may be issued in favor of (current
or former) employees of the company and its affiliated
companies as well as in favor of (current and former)
management bodies of the company’s affiliated
companies.
— They may be canceled without requiring an additional
resolution of the Annual General Meeting.
Furthermore, the shares may be assigned to members of the
Executive Board as compensation by way of a stock bonus
subject to the provision that resale by the Executive Board
members shall only be permitted following a retention period
of at least three years from the date of assignment.
Responsibility in this case lies with the Supervisory Board.
In case of utilization of shares for the above-mentioned
purposes, except for the cancelation of shares, shareholders’
subscription rights are excluded.
The Supervisory Board may provide that transactions based
on this authorization may only be carried out subject to the
approval of the Supervisory Board or one of its committees.
In the year under review, the Executive Board partly utilized
the authorization to repurchase treasury shares. In a third
tranche (total period from November 8, 2016 up to and
including January 31, 2017) of the share buyback program,
adidas AG bought back 472,966 treasury shares via the stock
exchange in the period from January 1, 2017 up to and
including January 31, 2017.
SEE NOTE 26, P. 182
— In the scope of the authorization resolved by the Annual
General Meeting on May 12, 2016, the Executive Board
is furthermore authorized to conduct the share buyback
also by using equity derivatives which are arranged with
a credit institution or financial services institution in close
conformity with market conditions. adidas AG may acquire
call options issued for physical delivery and/or sell put
options or use a combination of call and put options or
other equity derivatives if the option conditions ensure that
these shares are only delivered if they were purchased in
compliance with the equality principle. All share purchases
using the aforementioned equity derivatives are limited
to a maximum value of 5% of the nominal capital existing
at the date on which the resolution was adopted by the
Annual General Meeting (or, as the case may be, a lower
amount of nominal capital at the date of utilization of the
authorization). The term of the options may not exceed 18
months and must furthermore be chosen in such a way that
the shares are acquired upon the exercise of the options
no later than May 11, 2021. The authorization furthermore
sets out the lowest and highest nominal value that may be
granted in each case.
For excluding subscription rights, the use and cancelation of
shares purchased using equity derivatives, the general
provisions adopted by the Annual General Meeting (set out
above) are applicable accordingly.
CHANGE OF CONTROL/COMPENSATION
AGREEMENTS
Material agreements entered into by adidas AG containing
a change-of-control clause relate to financing agreements.
In the case of a change of control, these agreements, in
accordance with common practice, entitle the creditor to
termination and early calling-in of any outstanding amounts.
No compensation agreements exist between adidas AG and
members of the Executive Board or employees relating to the
event of a takeover bid.
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BUSINESS PERFORMANCE BY SEGMENT
BUSINESS PERFORMANCE
BY SEGMENT
adidas has divided its operating activities into the following
operating segments: Western Europe, North America
(excluding USA Reebok), USA Reebok, Greater China,
Russia/CIS, Latin America, Japan, Middle East, South Korea
and Southeast Asia/Pacific. While the business segments
Western Europe, Greater China, Russia/CIS, Latin America
and Japan are reported separately, North America (excluding
USA Reebok) and USA Reebok are combined to the reportable
segment North America. Similarly, the markets Middle East,
South Korea and Southeast Asia/Pacific are aggregated to the
reportable segment MEAA (‘Middle East, Africa and other
Asian markets’). Each market comprises all business
activities in the wholesale and retail distribution channels of
the adidas and Reebok brands. Segmental operating expenses
primarily relate to marketing expenditure as well as oper-
ating overhead costs.
WESTERN EUROPE
In 2017, sales in Western Europe increased 13% on a currency-
neutral basis. In euro terms, sales in Western Europe grew
11% to € 5.883 billion from € 5.291 billion in 2016. Despite
difficult prior year comparisons mainly resulting from
revenues generated with UEFA EURO 2016 related products
as well as the termination of the Chelsea F.C. sponsorship
as of June 30, 2016, adidas brand revenues grew 12% on a
currency-neutral basis. This development was driven by double-
digit sales growth in the running and outdoor categories as
well as at adidas Originals and adidas neo. In addition, mid-
single-digit increases in the training category also supported
this development. Reebok brand revenues in Western Europe
increased 24% on a currency-neutral basis, as a result of
double- digit sales growth in Classics as well as high-single-
digit growth in the training and running categories.
SEE TABLE 87
impact
Gross margin in Western Europe increased 1.1 percentage
points to 45.5% from 44.4% in 2016 as positive effects from a
more favorable pricing and channel mix more than offset the
significant negative
from unfavorable currency
developments as well as higher input costs. Operating
expenses were up 7% to € 1.501 billion versus € 1.398 billion
in 2016. This development reflects an increase in marketing
expenditure as well as higher operating overhead costs.
Operating expenses as a percentage of sales were down
0.9 per centage points to 25.5% (2016: 26.4%). The operating
margin increased 2.1 percentage points to 20.0% (2016:
18.0%), as a result of the gross margin improvement as well
as the positive effect of lower operating expenses as a
percentage of sales. Operating profit in Western Europe
increased 24% to € 1.178 billion versus € 951 million in the
prior year.
SEE TABLE 87
NORTH AMERICA
Revenues in North America grew 27% on a currency-neutral
in euro terms to € 4.275 billion from
basis and 25%
€ 3.412 billion in 2016. adidas brand sales increased 35% on a
currency-neutral basis, driven by double-digit sales growth in
the running and training categories as well as at adidas
Originals and adidas neo. Revenues of the Reebok brand
in North America decreased 15% on a currency-neutral
basis, reflecting the closure of own-retail stores in the US.
SEE REEBOK BRAND STRATEGY, P. 70 From a category perspective,
double-digit growth in Classics was more than offset by sales
declines in the training and running categories.
SEE TABLE 88
Gross margin in North America increased 1.8 percentage
points to 39.5% (2016: 37.7%) driven by an improved product
mix, partly offset by a less favorable channel and pricing mix
as well as higher input costs. Operating expenses were up
14% to € 1.280 billion versus € 1.124 billion in 2016, reflecting
an increase in marketing expenditure as well as higher
operating overhead costs. Operating expenses as a percentage
of sales decreased 3.0 percentage points to 29.9% (2016:
32.9%). As a result of the strong top-line development, the
Western Europe at a glance € in millions
87
North America at a glance € in millions
88
Net sales
adidas brand
Reebok brand
Gross profit
Gross margin
Segmental
operating profit
Segmental
operating margin
2017
5,883
5,388
496
2,679
45.5%
2016
5,291
4,889
402
2,350
44.4%
Change
11%
10%
23%
14%
1.1pp
1,178
951
24%
20.0%
18.0%
2.1pp
Change
(currency-
neutral)
13%
12%
24%
–
–
–
–
Net sales
adidas brand
Reebok brand
Gross profit
Gross margin
Segmental
operating profit
Segmental
operating margin
2017
4,275
3,843
432
1,689
39.5%
2016
3,412
2,897
514
1,286
37.7%
Change
25%
33%
(16%)
31%
1.8pp
468
214
119%
10.9%
6.3%
4.7pp
Change
(currency-
neutral)
27%
35%
(15%)
–
–
–
–
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gross margin increase as well as the positive effect of lower
operating expenses as a percentage of sales, the operating
margin improved 4.7 percentage points to 10.9% from 6.3% in
2016. Operating profit in North America more than doubled to
€ 468 million from € 214 million in 2016.
SEE TABLE 88
GREATER CHINA
Sales in Greater China grew 29% on a currency-neutral basis.
In euro terms, sales in Greater China were up 26% to
€ 3.789 billion from € 3.010 billion in 2016. Revenues of brand
adidas increased 30% on a currency-neutral basis. This
development was due to double-digit sales growth in the
running, training and basketball categories as well as at
adidas Originals and adidas neo. In addition, the outdoor
category, where revenues more than doubled, also contributed
to this development. Reebok brand sales in Greater China
grew 25% on a currency-neutral basis, driven by double-digit
sales increases in the training and running categories as well
as in Classics.
SEE TABLE 89
Gross margin in Greater China decreased 0.5 percentage
points to 57.1% (2016: 57.5%), as a more favorable product
and pricing mix was more than offset by negative currency
effects. Operating expenses were up 22% to € 820 million
versus € 671 million in 2016. This development reflects an
increase in both marketing expenditure as well as operating
overhead costs. Operating expenses as a percentage of sales
declined 0.6 percentage points to 21.7% (2016: 22.3%). As a
result of lower operating expenses as a percentage of sales,
which more than offset the decline in gross margin, the
operating margin improved 0.2 percentage points to 35.4%
versus 35.2% in 2016. Operating profit in Greater China
increased 27% to € 1.342 billion from € 1.060 billion in 2016.
SEE TABLE 89
Greater China at a glance € in millions
89
Net sales
adidas brand
Reebok brand
Gross profit
Gross margin
Segmental
operating profit
Segmental
operating margin
2017
3,789
3,707
82
2,162
57.1%
2016
3,010
2,944
67
1,731
57.5%
Change
26%
26%
23%
25%
(0.5pp)
1,342
1,060
27%
35.4%
35.2%
0.2pp
Change
(currency-
neutral)
29%
30%
25%
–
–
–
–
RUSSIA/CIS
Sales in Russia/CIS decreased 13% on a currency-neutral
basis, reflecting the significant number of store closures in
2017. In euro terms, sales in Russia/CIS declined 3% to
€ 660 million from € 679 million
in 2016. adidas brand
revenues were down 16% on a currency-neutral basis, due to
sales declines in most categories. Revenues of the Reebok
brand in Russia/CIS decreased 2% on a currency-neutral
basis, as increases in the training category were more than
offset by declines in the running category as well as in
Classics.
SEE TABLE 90
Gross margin in Russia/CIS increased 6.7 percentage points
to 64.9% from 58.1% in 2016, driven by an improved pricing
mix as well as significant positive currency effects, which
more than offset a less favorable channel mix. Operating
expenses were up 1% to € 292 million (2016: € 290 million),
reflecting negative currency effects. On a currency-neutral
basis, operating expenses declined, due to a decrease in
marketing expenditure as well as lower operating overhead
costs. Operating expenses as a percentage of sales increased
1.5 percentage points to 44.3% versus 42.7% in the prior
year. As a result of the gross margin increase, which more
than offset the negative effect of higher operating expenses
as a percentage of sales, the operating margin improved
5.2 per centage points to 20.6% from 15.4% in 2016. Operating
profit in Russia/CIS increased 30% to € 136 million versus
€ 105 million in 2016.
SEE TABLE 90
Russia/CIS at a glance € in millions
90
Net sales
adidas brand
Reebok brand
Gross profit
Gross margin
Segmental
operating profit
Segmental
operating margin
2017
660
478
182
429
2016
Change
679
514
166
395
(3%)
(7%)
10%
8%
64.9%
58.1%
6.7pp
136
105
30%
20.6%
15.4%
5.2pp
Change
(currency-
neutral)
(13%)
(16%)
(2%)
–
–
–
–
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BUSINESS PERFORMANCE BY SEGMENT
LATIN AMERICA
Revenues in Latin America increased 12% on a currency-
neutral basis and 10% in euro terms to € 1.907 billion from
€ 1.731 billion in 2016. Revenues of brand adidas were up 12%
on a currency-neutral basis. This development was driven by
double-digit sales growth at adidas Originals and adidas neo.
In addition, mid-single-digit increases in the football category
also contributed to this development. Reebok brand sales in
Latin America grew 12% on a currency-neutral basis, driven
by double-digit growth in the training category as well as in
Classics.
SEE TABLE 91
Gross margin in Latin America decreased 0.3 percentage
points to 42.1% (2016: 42.4%), as the positive effects from a
more favorable pricing, channel and product mix were more
than offset by significant negative currency effects as well as
higher input costs. Operating expenses increased 6% to
€ 535 million from € 507 million in 2016, reflecting an increase
in both marketing expenditure as well as operating overhead
costs. Operating expenses as a percentage of sales declined
1.2 percentage points to 28.1% (2016: 29.3%). As a result of
lower operating expenses as a percentage of sales, which
more than offset the decline in gross margin, the operating
margin increased 0.9 percentage points to 14.0% from 13.1%
in 2016. Operating profit in Latin America increased 18% to
€ 268 million versus € 227 million in 2016.
SEE TABLE 91
JAPAN
Sales in Japan grew 10% on a currency-neutral basis. In euro
terms, revenues in Japan increased 5% to € 1.056 billion from
€ 1.007 billion in 2016. adidas brand revenues grew 10% on a
currency-neutral basis, driven by double-digit sales increases
in the running and outdoor categories as well as at adidas
neo. In addition, high-single-digit increases in the football
category and at adidas Originals as well as mid-single-digit
growth in the training category also contributed to this
development. Sales of the Reebok brand in Japan were up 6%
on a currency-neutral basis, supported by double-digit sales
increases in the running and training categories, which more
than offset declines in Classics.
SEE TABLE 92
Gross margin in Japan increased 3.7 percentage points to
53.0% versus 49.4% in 2016, driven by a significantly more
favorable currency development as well as an improved
pricing and channel mix. This was partly offset by higher input
costs as well as a less favorable product mix. Operating
expenses were up 2% to € 310 million from € 304 million in
2016, reflecting higher marketing expenditure as well as an
increase in operating overhead costs. Operating expenses as
a percentage of sales decreased 0.8 percentage points to
29.4% (2016: 30.2%). The operating margin grew 4.6 per-
centage points to 25.2% versus 20.6% in 2016, as a result of
the gross margin increase as well as the positive effect of
lower operating expenses as a percentage of sales. Operating
from
profit
€ 207 million in 2016.
increased 28% to € 266 million
in Japan
SEE TABLE 92
MEAA
Revenues in MEAA were up 10% on a currency-neutral basis.
In euro terms, sales in MEAA grew 8% to € 2.907 billion from
€ 2.685 billion in 2016. Sales of the adidas brand increased
11% on a currency-neutral basis, due to double-digit sales
growth in the running and outdoor categories as well as at
adidas Originals and adidas neo. Reebok brand revenues in
MEAA were up 2% on a currency-neutral basis, driven by high-
single-digit increases in the training category.
SEE TABLE 93
Latin America at a glance € in millions
91
Japan at a glance € in millions
92
MEAA at a glance € in millions
93
Net sales
adidas brand
Reebok brand
Gross profit
Gross margin
Segmental
operating profit
Segmental
operating margin
2017
1,907
1,673
235
803
2016
1,731
1,515
216
734
Change
10%
10%
9%
9%
42.1%
42.4%
(0.3pp)
268
227
18%
14.0%
13.1%
0.9pp
Change
(currency-
neutral)
12%
12%
12%
–
–
–
–
Net sales
adidas brand
Reebok brand
Gross profit
Gross margin
Segmental
operating profit
Segmental
operating margin
2017
1,056
955
101
560
2016
1,007
907
100
497
53.0%
49.4%
Change
5%
5%
1%
13%
3.7pp
266
207
28%
25.2%
20.6%
4.6pp
Change
(currency-
neutral)
10%
10%
6%
–
–
–
–
Net sales
adidas brand
Reebok brand
Gross profit
Gross margin
Segmental
operating profit
Segmental
operating margin
2017
2,907
2,603
304
1,514
52.1%
2016
2,685
2,385
301
1,344
50.0%
Change
8%
9%
1%
13%
2.1pp
847
722
17%
29.1%
26.9%
2.2pp
Change
(currency-
neutral)
10%
11%
2%
–
–
–
–
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Gross margin in MEAA increased 2.1 percentage points to
52.1% (2016: 50.0%), driven by an improved pricing, product
and channel mix, partly offset by negative currency effects
and higher input costs. Operating expenses were up 7% to
€ 669 million versus € 624 million in 2016, mainly as a result
of higher operating overhead costs. As a percentage of sales,
operating expenses declined 0.2 percentage points to 23.0%
from 23.2% in 2016. The operating margin was up 2.2 per-
centage points to 29.1% (2016: 26.9%), as a result of the
higher gross margin as well as the positive effect of lower
operating expenses as a percentage of sales. Operating profit
in MEAA increased 17% to € 847 million versus € 722 million
in 2016.
SEE TABLE 93
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SUBSEQUENT EVENTS AND OUTLOOK
SUBSEQUENT EVENTS
AND OUTLOOK
In 2018, we expect the global economy and consumer
spending to grow, providing a positive backdrop for robust
growth and expansion of the sporting goods industry. Through
our extensive pipeline of innovative products, powerful
brand-building activities and tight control of both our
inventory levels and our cost base, we project strong top-
and bottom-line improvements in 2018. We forecast sales to
increase at a rate of around 10% on a currency-neutral basis.
Gross margin is projected to grow up to 0.3 percentage points
to a level of up to 50.7%. Operating margin is expected to
increase between 0.5 and 0.7 percentage points to a level
between 10.3% and 10.5%, driven by the increase in gross
margin as well as the positive effect of lower other operating
expenses as a percentage of sales. Paired with lower financial
expenses and a reduced tax rate, we project net income from
increase to a level between
continuing operations to
€ 1.615 billion and € 1.675 billion.
SUBSEQUENT EVENTS
NO SUBSEQUENT EVENTS
Since the end of 2017, there have been no significant
organizational, management, economic, sociopolitical, legal
or financial changes which we expect to influence our
business materially going forward.
OUTLOOK
FORWARD-LOOKING STATEMENTS
This Management Report contains forward-looking statements
that reflect Management’s current view with respect to the
future development of our company. The outlook is based on
estimates that we have made on the basis of all the information
available to us at the time of completion of this Annual Report.
In addition, such forward-looking statements are subject to
uncertainties which are beyond the control of the company.
SEE RISK AND OPPORTUNITY REPORT, P. 131 In case the underlying
assumptions turn out to be incorrect or described risks or
opportunities materialize, actual results and developments
may materially deviate (negatively or positively) from those
expressed by such statements. adidas does not assume any
obligation to update any forward-looking statements made in
this Management Report beyond statutory disclosure
obligations.
CHANGES TO SEGMENTAL REPORTING
To win the consumer
in the dynamic Asian business
environment and to provide consumers with a consistent
best-in-class brand experience across all channels and
markets, we aim at further driving simplicity and consistency
across Asia. In this context, effective January 1, 2018, we have
consolidated our former four Asia/Pacific markets Greater
China, Japan, South Korea and Southeast Asia/Pacific to one
operating segment Asia/Pacific. By doing so, we will create a
more sustainable business model across Asia, in which we
will be able to share and implement best practices in a more
efficient manner.
Therefore, effective January 1, 2018, adidas has divided its
operating activities into the following operating segments:
Western Europe, North America (excluding USA Reebok), USA
Reebok, Russia/CIS, Latin America, Asia/Pacific and Emerging
Markets. While the business segments Western Europe,
Russia/CIS, Latin America, Asia/Pacific and Emerging
Markets are reported separately, North America (excluding
USA Reebok) and USA Reebok are combined to the reportable
segment North America. Each market comprises all business
activities in the wholesale and retail distribution channels of
the adidas and Reebok brands.
GLOBAL ECONOMY TO GROW STEADILY IN 2018 1
Global GDP is projected to remain on a steady growth trajectory,
expanding 3.1% in 2018. The ongoing cyclical recovery is
expected to continue, driven by a further acceleration in global
trade, on the back of benign global financing conditions,
accommodative monetary policies, rising consumer confidence
and firming commodity prices. However, the headline growth
forecast conceals differences between the pace of growth in
developed and developing economies. Developing economies
are forecast to see an acceleration of growth to 4.5% as
commodity-exporting economies benefit from a stabilization of
oil and other commodity prices. In contrast, growth in developed
economies is projected to slow to 2.2%, as gradual monetary
tightening appears likely and aging populations as well as weak
productivity trends impose a constraint on growth. With
macroeconomic indicators generally at elevated levels already
and potential economic growth set to decrease due to a
slowdown in productivity growth as well as less favorable
demographic trends, risks to the global outlook are tilted to the
downside. A rise in borrowing costs or disorderly movements in
financial markets might cause turbulence and potentially derail
the expansion. In addition, instances of trade protectionism or
geopolitical conflicts could dampen consumer confidence,
trade and growth.
1
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1 Source: World Bank Global Economic Prospects.
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SUBSEQUENT EVENTS AND OUTLOOK
SPORTING GOODS INDUSTRY EXPANSION TO
CONTINUE IN 2018
In the absence of any major macroeconomic shocks, we expect
the global sporting goods industry to grow at a mid-single-digit
rate in 2018. Sector growth in North America, the biggest
market by size globally, is yet to return to the pace seen in the
past. At the same time, most markets globally look set to
continue expanding at robust rates. The occurrence of major
sports events such as the 2018 FIFA World Cup will provide a
modest tailwind to the overall sector. Consumer spending on
sporting goods in the developing economies is expected to
grow faster than in the more developed markets. Progressing
urbanization and a growing middle-class in many developing
economies are predicted to further propel industry growth
throughout the year. In developed economies, the sporting
goods industry is forecast to expand, as wage increases on
the back of generally strong labor market conditions will
support consumer spending on sporting goods. Around the
world, rising sports participation and health awareness is
for athletic
projected to continue to boost demand
performance products. In addition, sportswear penetration
rates are forecast to edge up further as sports-inspired apparel
and footwear (‘athleisure’) has become a structural component
of the broader fashion landscape, fueling the demand for
athletic casual and activewear products. Within the supply
chain, innovation such as the application of new manu fac-
turing techniques is projected to enhance speed-to-market
capabilities of sports brands, which will favorably impact
sales growth as consumers’ demands can be met faster and
more precisely. On the distribution side, the e-commerce
channel, which is already a significant growth driver for the
industry, is anticipated to broaden out further as investments
into the digital transformation continue across the sporting
goods industry.
2018 Outlook
94
Currency-neutral sales development (in %):
adidas
Western Europe 1
North America 1
Asia/Pacific 1
Russia/CIS 1
Latin America 1
Emerging Markets 1
Gross margin
to increase at a rate of around 10%
mid-single-digit increase
double-digit increase
double-digit increase
around prior year level
mid-single-digit increase
low-single-digit increase
to increase up to 0.3pp to a level of up to 50.7%
Other operating expenses in % of sales
below prior year level
Operating profit
Operating margin
to increase at a rate between 9% and 13%
to increase between 0.5 and 0.7pp to a level between 10.3% and 10.5%
Net income from continuing operations 2
to increase at a rate between 13% and 17% to a level between € 1.615 billion and € 1.675 billion
Basic earnings per share from continuing operations 2
to increase at a rate between 12% and 16%
Average operating working capital in % of sales
around prior year level
Capital expenditure
to increase to a level of around € 900 million
1 Combined sales of the adidas and Reebok brands.
2 2017 excluding negative one-time tax impact of € 76 million.
CURRENCY-NEUTRAL SALES TO INCREASE
AT A RATE OF AROUND 10% IN 2018
We expect sales to increase at a rate of around 10% on a
currency-neutral basis in 2018.
SEE TABLE 94 Despite continued
uncertainties regarding the global economic outlook, the
company’s sales development will be favorably impacted by
rising consumer spending, increasing penetration of sportswear
(‘athleisure’) and growing health awareness
in most
geographical areas, as well as major events such as the 2018
FIFA World Cup. In addition, the further expansion and
improvement of our controlled space initiatives, in particular
through our own e-commerce channel, is expected to contribute
to sales growth.
NORTH AMERICA AND ASIA/PACIFIC TO GROW
AT A DOUBLE-DIGIT CURRENCY-NEUTRAL RATE
In 2018, we expect currency-neutral revenues to increase in
most market segments. While currency-neutral sales are
projected to grow at double-digit rates in North America and
Asia/Pacific, currency-neutral sales in Western Europe and
Latin America are forecast to improve at a mid-single-digit
rate each. In addition, currency-neutral revenues in Emerging
Markets are expected to grow at a low-single-digit rate.
Currency-neutral sales in Russia/CIS are expected to be
around the prior year level.
SEE TABLE 94
GROSS MARGIN EXPECTED TO INCREASE TO A
LEVEL OF UP TO 50.7%
In 2018, the gross margin is forecast to increase up to
0.3 percentage points to a level of up to 50.7% (2017: 50.4%).
SEE TABLE 94 Gross margin will benefit from the positive effects
of a more favorable pricing, channel and regional mix. These
improvements will be partly offset by the negative impact
from unfavorable currency movements as well as higher
labor expenditures in our sourcing countries and higher
commodity prices.
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CAPITAL EXPENDITURE TO INCREASE TO A
LEVEL OF AROUND € 900 MILLION
In 2018, capital expenditure is expected to be around € 900 million
and thus above the prior year level (2017: € 752 million).
Investments will mainly focus on controlled space initiatives of
the adidas and Reebok brands, the company’s IT and logistics
infrastructure as well as the further development of the
corporate headquarters in Herzogenaurach, Germany.
MANAGEMENT TO PROPOSE DIVIDEND
OF € 2.60
As a result of the strong operational and financial performance
in 2017, our strong financial position as well as Management’s
confidence in our short- and long-term growth aspirations, the
adidas AG Executive and Supervisory Boards will recommend
paying a dividend of € 2.60 per dividend-entitled share for 2017
(2016: € 2.00) to shareholders at the Annual General Meeting
(AGM) on May 9, 2018. This represents a payout ratio of 37.1%
(2016: 37.4%) based on the company's net income from
continuing operations excluding the negative one-time tax
impact in 2017. This is consistent with the prior year's payout
ratio and in line with our long-term policy to distribute between
30% and 50% of net income from continuing operations to
shareholders.
SEE OUR SHARE. P, 57
OPERATING MARGIN TO EXPAND TO A LEVEL
BETWEEN 10.3% AND 10.5%
In 2018, other operating expenses as a percentage of sales
are expected to be below the prior year level of 41.9%. This,
together with continued top-line growth and the projected
gross margin improvement, is expected to drive an increase in
operating profit of between 9% and 13%. Consequently, we
expect the operating margin to increase between 0.5 and 0.7
percentage points to a level between 10.3% and 10.5%
compared to the prior year level of 9.8%.
SEE TABLE 94
NET INCOME FROM CONTINUING OPERATIONS
TO INCREASE BETWEEN 13% AND 17%
Net income from continuing operations is projected to
increase to a level between € 1.615 billion and € 1.675 billion.
This development reflects an increase of between 13% and
17% compared to the prior year level of € 1.430 billion,
excluding the negative one-time tax impact recorded in 2017.
Basic earnings per share from continuing operations are
expected to increase at a rate between 12% and 16% compared
to the prior year level of € 7.05, excluding the negative one-
time tax impact in 2017.
SEE TABLE 94 Net financial expenses
are forecast to decrease in 2018. The tax rate is projected to
be below the prior year level of 29.3%, excluding the negative
one-time tax impact recorded in 2017.
AVERAGE OPERATING WORKING CAPITAL AS A
PERCENTAGE OF SALES TO BE AROUND PRIOR
YEAR LEVEL
In 2018, average operating working capital as a percentage of
sales is projected to be around the prior year level of 20.4%.
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RISK AND OPPORTUNITY REPORT
RISK AND OPPORTUNITY
REPORT
In order to remain competitive and ensure sustainable
success, adidas consciously takes certain risks and
continuously explores and develops opportunities. Our risk
and opportunity management principles and system provide
the framework for our company to conduct business in a
well-controlled environment.
RISK AND OPPORTUNITY MANAGEMENT
PRINCIPLES
We define risk as the potential occurrence of an external or
internal event (or series of events) that may negatively impact
our ability to achieve the company’s business objectives or
financial goals. Opportunity is defined as the potential
occurrence of an external or internal event (or series of
events) that can positively impact the company’s ability to
achieve its business objectives or financial goals. We have
summarized risks
in four main categories: Strategic,
Operational, Legal and Compliance, and Financial.
Opportunities are classified in two main categories: Strategic
and Operational, and Financial.
RISK AND OPPORTUNITY MANAGEMENT
SYSTEM
The Executive Board has overall responsibility for establishing
an effective risk and opportunity management system that
ensures comprehensive and consistent management of all
material risks and opportunities.
SEE DIAGRAM 95 The Risk
Management department governs, operates and develops the
company’s risk and opportunity management system and is
the owner of the centrally managed risk and opportunity
management process on behalf of the Executive Board. The
the
is responsible
Supervisory Board
effectiveness of the risk management system. These duties
are undertaken by the Supervisory Board’s Audit Committee.
for monitoring
The Internal Audit department provides objective assurance
to the Executive Board and Supervisory Board regarding the
adequacy and effectiveness of the company’s risk and
opportunity management system on a regular basis. In
addition,
includes an
Internal Audit department
assessment of the effectiveness of risk management
the company’s Risk
processes and compliance with
Management Policy as part of its regular auditing activities
with selected adidas subsidiaries or functions each year.
the
system focuses on the identification, evaluation, handling,
monitoring and systematic reporting of risks and opportunities.
The key objective of the risk and opportunity management
system is to support business success and protect the
company as a going concern through an opportunity-focused
but risk-aware decision-making
framework. Our Risk
Management Policy outlines the principles, processes, tools,
risk areas, key responsibilities, reporting requirements and
communication timelines within our company.
To facilitate effective risk and opportunity management, we
implemented a risk and opportunity management system,
which is based on the integrated frameworks for enterprise
risk management and
internal controls developed and
published by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Additionally, we have
adapted our risk and opportunity management system to
more appropriately reflect the structure as well as the
corporate and management culture of the company. This
adidas risk and opportunity management system
95
Supervisory and Executive Boards
Risk Management
Risk Management Policy and Methodology / Support
Monitoring and
reporting
Identification
Risk Owners
Handling
Evaluation
Risk and opportunity management is a company-wide activity
which utilizes key insights from the members of the Executive
Board as well as from global and local business units and
functions.
Our risk and opportunity management process comprises the
following steps:
— Risk and opportunity identification: adidas continuously
monitors the macroeconomic environment and
developments in the sporting goods industry, as well as
internal processes, to identify risks and opportunities
as early as possible. Our company-wide network of Risk
Owners (generally all leaders reporting directly to the
Executive Board, including the Managing Directors of our
markets) ensures an effective bottom-up identification of
risks and opportunities. The Risk Management department
has defined a catalog of potential risk areas (Risk Universe)
to assist Risk Owners in identifying and categorizing risks
and opportunities. The Risk Owners use various instruments
in the risk and opportunity identification process, such as
primary qualitative and quantitative research including
trend scouting and consumer surveys as well as feedback
from our business partners and controlled space network.
These efforts are supported by global market research
and competitor analysis. Through this process, we seek to
identify the markets, categories, consumer target groups
and product styles which show most potential for future
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growth at a local and global level. Equally, our analysis
focuses on those areas that are at risk of saturation or
exposed to increased competition or changing consumer
tastes. However, our risk and opportunity identification
process is not only limited to external risk factors or
opportunities; it also includes an internal perspective
that considers processes, projects, human resources and
compliance aspects.
— Risk and opportunity evaluation: We evaluate identified
risks and opportunities individually according to a
systematic evaluation methodology, which allows adequate
prioritization as well as allocation of resources. Risk and
opportunity evaluation is also part of the Risk Owners’
responsibility. The Risk Management department supports
and guides the Risk Owners in the evaluation process.
According to our methodology, risks and opportunities are
evaluated by looking at two dimensions: the potential
impact and the likelihood that this impact materializes.
this evaluation, we classify risks and
Based on
opportunities
into five categories: marginal, minor,
moderate, significant and major.
The potential impact is evaluated using five categories:
very low, low, medium, high and very high. These
categories represent quantitative or equivalent qualitative
measurements. The quantitative measure ments are
based on the potential financial effect on the relevant
income statement metrics (operating profit, financial
result or tax expenses). Qualitative measure ments used
are, for example, the degree of media exposure or damage
to people’s health and safety. Likelihood represents the
possibility that a given risk or opportunity may materialize
with the specific impact. The likelihood of individual risks
and opportunities is evaluated on a percentage scale
divided into five categories: unlikely, possible, likely, very
likely and almost certain.
SEE DIAGRAM 96
Material Risks
When evaluating risks and opportunities, we also consider
the earliest time period when the company’s target
achievement may be impacted, in order to provide a broad
perspective and ensure early identification and mitigation.
Short-term risks and opportunities may affect the
achievement of the company’s objectives already in the
current financial year, mid-term risks and opportunities
would impact the company’s target achievement in the
next financial year, while long-term risks and opportunities
might only have an effect on the achievement of the
company’s objectives after the next financial year.
We consider both gross and net risks in our risk
assessments. While the gross risk reflects the inherent
(‘worst-case’) risk before any mitigating action, the net
risk reflects the residual (‘expected’) risk after all
mitigating action. On the one hand, this approach allows
for a good understanding of the impact of mitigating
1
3
2
Risk evaluation categories96LikelihoodAlmost certain>85%Very likely50% – 85%Likely30% – 50%Possible15% – 30%Unlikely<15%Very lowLowMediumHighVery highFinancial equivalent 1≤ € 5 million€ 5 million – € 20 million€ 20 million – € 50 million€ 50 million – € 100 million≥ € 100 millionQualitative equivalentAlmost no media coverageMinor injuries to employees or third parties such as consumers, customers, vendors, athletes that do not require medical treatment.Limited local media coverageMinor injuries to employees or third parties such as consumers, customers, vendors, athletes that require medical treatment.Local and limited national media coverageInjuries to employees or third parties such as consumers, customers, vendors, athletes that lead to hospitalization.National and limited international media coverageSerious, life- changing injuries to employees or third parties such as consumers, customers, vendors, athletes.Extensive inter-national media coverageFatalities of employees or third parties such as consumers, customers, vendors, athletes.Potential impactRisk classification: Marginal Minor Moderate Significant Major1 Based on operating profit, financial result or tax expenses.ADIDAS ANNUAL REPORT 2017
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action taken; on the other hand, it provides the basis for
scenario analysis. Our assessment of risks presented in
this report only reflects the net risk perspective. We
measure the actual financial impact of the most relevant
risks that materialized against the original assessment on
a yearly basis. In this way, we ensure continuous
monitoring of the accuracy of risk evaluations across the
company, which enables us to continuously improve
evaluation methodology based on our findings.
In assessing the potential effect from opportunities, each
opportunity
to viability,
is appraised with respect
commerciality and potential risks. This approach is
applied to longer-term strategic prospects but also to
shorter-term tactical and opportunistic initiatives at the
corporate level as well as at the market and brand level. In
contrast to the risk evaluation, only the net perspective
exists for assessing opportunities.
— Risk and opportunity handling: Risks and opportunities
are treated in accordance with the company’s risk and
opportunity management principles as described in the
Risk Management Policy. Risk Owners are in charge of
developing and implementing appropriate risk-mitigating
action and exploiting opportunities within their area
of responsibility. In addition, the Risk Owners need to
determine a general risk-handling strategy for the identified
risks, which is either risk avoidance, risk reduction with
the objective to minimize impact and/or likelihood, risk
transfer to a third party or risk acceptance. The decision
on the implementation of the respective risk-handling
strategy also takes into account the costs in relation to the
effectiveness of any planned mitigating action if applicable.
The Risk Management department works closely with
the Risk Owners to monitor the continuous progress of
planned mitigating action and assess the viability of already
implemented mitigating action.
— Risk and opportunity monitoring and reporting: Our risk
and opportunity management system aims to increase the
transparency of risks and opportunities. As both risks and
opportunities are subject to constant change, Risk Owners
not only monitor developments but also the adequacy and
effectiveness of the current risk-handling strategy on an
ongoing basis.
Regular risk reporting takes place half-yearly and consists
of a five-step reporting stream that is supported and
facilitated by a globally used company-wide IT solution:
1. Risk Owners are required to report to Risk Management
risks that have a possible gross impact of € 10 million
and above or a net impact of € 1 million and above, both
regardless of the likelihood of materializing. Risk
Owners are also required to report all opportunities
that have an impact of € 1 million and above.
2. Risk Management consolidates and aggregates the
reported risks and opportunities and provides a
consolidated report based on the Risk Owners’ input to
each member of the Executive Board concerning his or
her
individual area of responsibility. Each report
specifically highlights substantial individual risks and
opportunities. Each member of the Executive Board
reviews the reported risks and opportunities of his or
her individual area of responsibility, adding his or her
own assessment of risks and opportunities if necessary.
3. Risk Management provides a consolidated report to all
members of the Executive Board that includes both the
assessment of each member of the Executive Board
and the material risks and opportunities reported by
Risk Owners. The Executive Board reviews the report,
jointly agrees on a final company assessment of risks
and opportunities and decides if Risk Owners are
required to take further action.
4. Based on
the Executive Board’s decision, Risk
Management creates the final risk and opportunity
report that is also shared with a selected group of
leaders across the company.
5. The Executive Board
in collaboration with Risk
Management presents the final risk and opportunity
assessment results to the Audit Committee of the
Supervisory Board.
in previously reported risks and
Material changes
risks and
identified
opportunities and/or newly
opportunities that are classified as moderate, significant
or major as well as any issues identified which, due to
their material nature, require immediate reporting, are
also reported outside the regular half-yearly reporting
stream on an ad hoc basis to the Risk Management
department and the Executive Board.
COMPLIANCE MANAGEMENT SYSTEM
(ADIDAS FAIR PLAY COMPLIANCE
FRAMEWORK)
We consider compliance with the law as well as with external
and internal regulations to be imperative. Every employee is
required to act ethically and in compliance with the law as
well as with external and internal regulations while executing
the company’s business. Violations must be avoided under all
circumstances. As a company with worldwide operations and
more than 56,000 employees, however, we realize that it will
never be possible to exclude compliance violations with
absolute certainty.
The adidas Fair Play Compliance Framework and our risk and
opportunity management system are closely aligned and both
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are overseen by the company’s Chief Compliance Officer who
reports directly to the company’s Chief Executive Officer. We
see compliance as all-encompassing, spanning all business
functions throughout the entire value chain, from supply chain
through to the end consumer. In 2017, we therefore
significantly increased the size of our central Compliance
team and added dedicated regional Compliance teams based
across our major regional hubs. The central Compliance team
works closely with regional Compliance Managers and local
Compliance Officers to conduct a systematic assessment of
key compliance risks on a half-yearly basis. In addition, the
central Compliance
team regularly conducts detailed
compliance risk assessments within selected entities.
policy, the privacy policy or the antitrust and competition law
policy, training of employees or targeted compliance-related
the Compliance
communication by management or
department. In 2017, more than 6,000 employees participated
in our web-based Code of Conduct training, which is a
mandatory component of employee onboarding, while around
2,700 employees completed our web-based anti-bribery and
corruption training. In addition, 11,800 employees completed
the Preventing Anti-Competitive Practices
training.
Furthermore, over 95% of senior executives were trained in
the
dedicated
members of the Executive Board also completed a separate
compliance training session.
three-hour compliance workshops and
The company’s compliance management system is based on
the OECD Principles of Corporate Governance. It refers to the
OECD Guidelines for Multinational Enterprises and
is
designed to:
— Support the achievement of qualitative and sustainable
growth through good corporate governance.
— Reduce and mitigate the risk of financial losses or damage
To ensure timely detection of potential infringements of
statutory regulations or
internal guidelines, we have
implemented whistleblowing procedures which allow
employees to either report concerns over wrongdoing/
potential compliance violations internally (e.g. directly to their
supervisor,
the Chief Compliance Officer, regional
Compliance Managers or local Compliance Officers, the
to
relevant HR manager or the Works Council) or externally via
an independent, confidential reporting hotline or email
service. The hotline (named ‘Fair Play hotline’) is available at
all times worldwide. In case of reported or suspected
compliance violations, the Chief Compliance Officer or the
Compliance department undertake the required investigations.
Appropriate and timely response to compliance violations is
essential. Therefore, we have established a team of regional
Compliance Managers and a global network of
local
Compliance Officers overseen by the Chief Compliance Officer
as contact persons to whom complaints and information
concerning compliance violations can be reported. We track,
monitor and report potential incidents of non-compliance
worldwide using a web-based reporting solution. In 2017, we
recorded 419 potential compliance violations, representing a
26% increase compared to the prior year when 331 potential
violations were recorded.
SEE DIAGRAM 98 This
increase is attributable to ongoing senior management
communication
(e.g. reemphasizing our non-retaliation
policy), training and workshops, which have led to improved
SEE DIAGRAM 97
caused by non-compliant conduct.
— Protect and further enhance the value and reputation of
the company and its brands through compliant conduct.
— Preserve diversity by fighting harassment and discrimination.
Our Fair Play Code of Conduct, which is applicable globally
and for all business areas, stipulates guidelines for behavior
in everyday work, which all employees are obliged to comply
with. The Code of Conduct is accessible on our website, on our
intranet and as an app for smartphones. ↗ ADIDAS-GROUP.COM/S/
CODE-OF-CONDUCT The Code of Conduct is the cornerstone of our
compliance management program which is founded on three
pillars: prevention, detection and response.
Prevention includes, for example, policies such as the
company’s Code of Conduct, the anti-bribery and corruption
Potential compliance violations
97
Financial,
including theft
Malfeasance, including
conflicts of interest
and corruption
Competition
Behavioral
Other 1
210
180
150
120
90
60
30
0
32
36
2
1 Includes payroll issues, intellectual property and leaks of confidential information, inter alia.
194
155
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employee awareness with respect to ethical conduct and our
continuously improving compliance activities.
Appropriate sanction mechanisms, ranging from warnings
through to termination of employment, are used to react
promptly to confirmed compliance violations. Insights gained
investigation of past violations are used to
from the
continuously improve the compliance management system.
to
the Executive Board by
Monthly key performance indicators, including those for
participation in training and for compliance violations, are
reported
the Compliance
department. The Chief Compliance Officer regularly reports
to the Chief Executive Officer on the further development of
the compliance program and on major compliance cases,
which are also reported to the Audit Committee. Further, he
reports to the Audit Committee at one of its meetings at least
once a year concerning the contents and the further
development of the compliance program.
Reporting of potential compliance violations in %
98
20%
Compliance Officer
38%
Anonymous call
to hotline
42%
Named call
to hotline
DESCRIPTION OF THE MAIN FEATURES OF THE
INTERNAL CONTROL AND RISK MANAGEMENT
SYSTEM RELATING TO THE CONSOLIDATED
FINANCIAL REPORTING PROCESS PURSUANT
TO § 315 SECTION 4 GERMAN COMMERCIAL
CODE (HANDELSGESETZBUCH – HGB)
The internal control and risk management system relating to
the consolidated financial reporting process of the company
represents a process embedded within the company-wide
corporate governance system. It aims to provide reasonable
assurance regarding the reliability of the company’s external
financial reporting by ensuring company-wide compliance
with statutory accounting regulations, in particular the
International Financial Reporting Standards (IFRS) and
internal consolidated financial reporting policies (Finance
Manual). We regard the internal control and risk management
system as a process based on the principle of segregation of
duties, encompassing various sub-processes in the areas of
Accounting, Controlling, Taxes, Treasury, Planning, Reporting
and Legal, focusing on the
identification, assessment,
treatment, monitoring and reporting of financial reporting
risks. Clearly defined responsibilities are assigned to each
distinct sub-process. In a first step, the internal control and
risk management system serves to identify and assess as
well as to limit and control risks identified in the consolidated
financial reporting process which might result
in our
consolidated financial statements not being compliant with
internal and external regulations.
Internal Control over Financial Reporting (ICoFR) serves to
provide reasonable assurance regarding the reliability of
financial reporting and compliance with applicable laws and
regulations despite identified financial reporting risks. To
monitor the effectiveness of ICoFR, the Policies and Internal
Controls department and the Internal Audit department
regularly review accounting-related processes. Additionally,
as part of the year-end audit, the external auditor selects and
examines internal controls, including IT controls, to assess
their effectiveness. The Audit Committee of the Supervisory
Board also monitors the effectiveness of ICoFR. However, due
to the limitations of ICoFR, even with appropriate and
functional systems absolute certainty about the effectiveness
of ICoFR cannot be guaranteed.
All adidas companies are required to comply with the
consolidated financial reporting policies (Finance Manual),
which are available to all employees involved in the financial
reporting process through the company-wide intranet. We
update the Finance Manual on a regular basis, dependent on
regulatory changes and internal developments. Changes to
the Finance Manual are promptly communicated to all adidas
companies. Clear policies serve to limit employees’ scope of
discretion with regard to recognition and valuation of assets
and
inconsistent
accounting practices within the company. We aim to ensure
compliance with the Finance Manual through continuous
adherence to the four-eyes principle in accounting-related
processes. In addition, each quarter, the local manager
responsible for the accounting process within the respective
company and the respective local Managing Director confirm
adherence to the Finance Manual and to IFRS in a signed
representation letter to the Accounting department.
liabilities, thus reducing the risk of
The accounting for adidas companies is conducted either
locally or by an adidas Shared Service Center. The majority of
the IT Enterprise Resource Planning (ERP) systems used are
based on a company-wide standardized SAP system. Some
adidas companies use Navision-based ERP software. As part
of an initiative aimed at harmonizing our system infrastructure
(One ERP), we will also introduce an SAP-based ERP system
within these adidas companies in the medium term. Following
approval by the Finance Director of the respective adidas
company, the local financial statements are transferred to a
central consolidation system based on SAP SEM-BCS. At the
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corporate level, the regularity and reliability of the financial
statements prepared by adidas companies are reviewed by
the Accounting and Controlling departments. These reviews
include automated validations in the system as well as the
creation of reports and analyses to ensure data integrity and
adherence to the reporting logic. In addition, differences
between current year and prior year financial data as well as
budget figures are analyzed on a market level. If necessary,
adidas seeks the opinion of independent experts to review
business transactions that occur infrequently and on a non-
routine basis. After ensuring data plausibility, the centrally
coordinated and monitored consolidation process begins,
running automatically on SAP SEM-BCS. Controls within the
individual consolidation steps, such as those relating to the
consolidation of debt or of income and expenses, are
conducted both manually and system-based, using
automatically created consolidation logs. Any inadequacies
are remedied manually by systematically processing the
individual errors as well as differences and are reported back
to the adidas companies. After finalization of all consolidation
Corporate risks overview
99
Potential impact
Change
(2016 rating)
Likelihood
Change
(2016 rating)
Strategic risks
Risks related to distribution strategy
Consumer demand risks
Risks related to technology change
Competition risks
Macroeconomic, sociopolitical and regulatory risks
Operational risks
Business partner risks
IT and cyber security risks
Personnel risks
Inventory risks
Legal and compliance risks
Data privacy risks
Risks related to product counterfeiting and imitation
Risks related to customs and tax regulations
Fraud and corruption risks
Financial risks
Currency risks
Credit risks
Interest rate and share price risks
Financing and liquidity risks
↑ (Medium)
Very high
Very high
High
Medium
Very high
Very high
↑ (High)
High
High
High
Very high
Very high
High
Very high
Very high
Very high
Low
Very low
↑ (Possible)
↓ (Possible)
Likely
Possible
Possible
Likely
Unlikely
Possible
Possible
Unlikely
Unlikely
Possible
Possible
Likely
Unlikely
↑ (High)
Possible
Unlikely
Possible
Very Likely
↓ (Likely)
↓ (Likely)
↑ (Likely)
steps, all items in the consolidated income statement and in
the consolidated statement of financial position are analyzed
with respect to trends and variances. Unless already otherwise
clarified, the adidas companies are asked to explain any
identified material deviations.
All financial systems used are protected against malpractice
by means of appropriate authorization concepts, approval
concepts and access restrictions. Access authorizations are
reviewed on a regular basis and updated if required. The risk
of data loss or outage of accounting-related IT systems is
minimized through central control and monitoring of virtually
all IT systems, centralized management of change processes
and regular data backups.
that could
ILLUSTRATION OF MATERIAL RISKS
This report includes an explanation of what we perceive as
material risks to the achievement of the company’s objectives
in the time period from 2018 to 2020. Our presentation of risks
in this year’s Annual Report differs from the 2016 Annual
Report as we have expanded our scope and do not only focus
on risks
the company’s business
performance over a one-year period. Besides our material
risks, we also report the following risks that we deem to be
relevant: competition risks, macroeconomic, sociopolitical
and regulatory risks, personnel risks, inventory risks, fraud
and corruption risks, credit risks, interest rate and share
price risks as well as financing and liquidity risks. The risks
overview table shows the assessment of all risks described
below.
impact
SEE TABLE 99
STRATEGIC RISKS
Risks related to distribution strategy
The inability to appropriately influence the channels in which
the company’s products are sold constitutes a continuous
risk. Gray market activity or parallel imports could negatively
affect our own sales performance and the image of our
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brands. Furthermore, changes to segmentation, store formats
and channel strategies could lead to inadequate utilization of
our multiple distribution channels as well as strong retaliation
from our customers and franchise partners. An unbalanced
portfolio of own-retail stores (e.g. overexposure to certain
markets or store formats) or inappropriate store locations
may result in worse-than-expected sales development and
lower profitability. Failure to recognize and respond to
consolidation in the retail industry could lead to increased
dependency on particular retail partners, reduced bargaining
power and, consequently, margin erosion. The inability to
properly adjust our distribution strategy to the continuously
changing retail industry, which is experiencing increasing
substitution of physical retail stores by digital commerce
platforms, could result in sales and profit shortfalls.
To mitigate these risks, adidas has developed and implemented
clearly defined distribution policies and procedures to avoid
overdistribution of products in a particular channel and limit
the exposure to gray markets. We continuously monitor our
own-retail store portfolio, which helps us identify imbalances
and quickly take appropriate action such as store closure or
remodeling. New store openings are managed according to a
standardized company-wide business plan model, taking into
account our many years of own-retail experience and best
practices from around the world. In addition, we conduct
specific training for our sales force to appropriately manage
product distribution and ensure that the right product is sold
at the right point of sale to the right consumer at an
appropriate price. We invest significant resources in the
further expansion of our own e-commerce activities and work
closely with retail partners with strong expertise in digital
commerce.
Consumer demand risks
Success in the sporting goods industry largely depends on the
ability to anticipate and quickly respond to changes in
consumer demand or consumer trends. Consumer demand
changes can be sudden and unexpected, particularly when it
comes to fashion-related businesses. Therefore, failure to
anticipate consumer demand, as well as creating and offering
products that do not resonate with consumers, is a critical
risk to the success of our brands. Because of average lead
times of 12 to 18 months, we face a risk of short-term revenue
loss in cases where we are unable to respond quickly to
changes in consumer demand. Even more critical, however, is
the risk of continuously overlooking new consumer trends or
failing to acknowledge their potential magnitude over a
sustained period of time.
To mitigate these risks, identifying and responding to shifts in
consumer demand as early as possible is a key responsibility
of our brand organizations and, in particular, of the respective
Risk Owners. Therefore, we utilize extensive primary and
secondary research tools as outlined
in our risk and
opportunity identification process. We continuously expand
our consumer analytics efforts to read and quickly react to
changes in demand or trend shifts. In addition, direct
communication with consumers on social media platforms or
direct touchpoints with consumers via our own e-commerce
channel help us strengthen our understanding of consumer
preferences and behavior and, as a result, help us to reduce
our vulnerability to changes in demand. Through continuous
monitoring of sell-through data and disciplined product
lifecycle management, in particular for our major product
franchises, we are able to better detect demand patterns and
prevent overexposure.
Risks related to technology change
Technological advancement is happening at an unprecedented
pace and has profound implications for our company’s
operations. Technologies such as 3D printing, augmented
reality, blockchain and artificial intelligence are changing the
way products and services are made, offered, experienced
and exchanged. Failure to anticipate, recognize and respond
to changes in technology in a timely manner could disrupt the
company’s business model, lead to a deterioration of our
competitive position in the marketplace and substantially
affect our ability to achieve our strategic and financial goals.
leadership group
In order to mitigate this risk, we established a cross-functional
digital
identifies and assesses
that
technology
trends and coordinates adoption of new
technologies. Furthermore, we build partnerships with
technology and business leaders around the world to stay
connected to the latest advancements. For example, we have
entered into a partnership with Carbon, a Silicon Valley-based
digital 3D manufacturing company.
SEE INNOVATION, P. 78
Competition risks
Strategic alliances amongst competitors and/or retailers, the
increase of retailers’ own private label businesses and intense
competition for consumers and promotion partnerships
between well-established industry peers and new market
entrants (e.g. new brands, vertical retailers
SEE GLOSSARY)
pose a substantial risk to adidas. This could lead to harmful
competitive behavior, such as price wars in the marketplace
or bidding wars for promotion partnerships. Sustained pricing
pressure in key markets could threaten the company’s
financial performance and the competitiveness of our brands.
Aggressive competitive practices could also drive increases in
marketing costs and market share losses, thus hurting the
company’s profitability and market position. World leaders in
digital technologies could threaten adidas’ success in markets
for sport, health and fitness apps.
To mitigate competition risks, we continuously monitor and
analyze information on our competitors and markets in order
to be able to anticipate unfavorable changes in the competitive
environment rather than reacting to such changes. This
enables us to proactively adjust our marketing and sales
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activities when needed. Continuous investment in research
and development ensures that we remain innovative and
SEE INNOVATION, P. 78 We also pursue
distinct from competitors.
a strategy of entering into long-term agreements with key
promotion partners such as FC Bayern Munich or Lionel
Messi, as well as adding new partners to refresh and diversify
our portfolio, e.g. Gabriel Jesus or Victoria Beckham. In
addition, our product and communication initiatives are
designed to increase brand desire, drive market share growth
and strengthen our brands’ market position.
investments to alternative, more attractive markets, changes
in product prices, closure of own-retail stores, more
conservative product purchasing, tight working capital
management and an increased focus on cost control. In
addition, by building on our leading position within the
sporting goods industry, we actively engage in supporting
policymakers and regulators in their efforts to liberalize
global trade and curtail trade barriers and also in order to
proactively adapt to significant changes in the regulatory
environment.
Macroeconomic, sociopolitical and regulatory risks
Growth in the sporting goods industry is highly dependent on
consumer spending and consumer confidence. Economic
downturns and sociopolitical factors such as military conflicts,
changes of government, civil unrest, nationalization or
expropriation, in particular in regions where adidas is strongly
represented, therefore could negatively impact the company’s
business activities and top- and bottom-line performance. In
addition, substantial changes in the regulatory environment
(e.g. trade restrictions, economic and political sanctions)
could lead to potential sales shortfalls or cost increases. For
example, the ongoing negotiations between the UK and the
European Union regarding the UK’s withdrawal from the
European Union (‘Brexit’) could cause business and consumer
uncertainty, create an additional administrative burden to
adhere to changes in regulatory frameworks and also increase
uncertainty concerning the future of the European Union.
To mitigate
these macroeconomic, sociopolitical and
regulatory risks, adidas strives to balance sales across key
regions and also between developed and emerging markets.
We also continuously monitor the macroeconomic, political
and regulatory landscape in all our key markets to anticipate
potential problem areas, so that we are able to quickly adjust
our business activities accordingly upon any change in
conditions. Potential adjustments may be a reallocation of
OPERATIONAL RISKS
Business partner risks
adidas interacts and enters into partnerships with various
third parties, such as promotion partners, retail partners or
suppliers. As a result, the company is exposed to a multitude
of business partner risks.
Injuries to individual athletes or poor on-field performance on
the part of sponsored teams or athletes could reduce their
consumer appeal and eventually result in lower sales and
diminished attractiveness of our brands. Failure to cement
and maintain strong relationships with retailers could have
substantial negative effects on our wholesale activities and
thus the company’s business performance. Losing important
customers in key markets due to sub-par relationship
management would result in significant sales shortfalls. We
work with strategic partners in various areas of our business
(e.g. product creation, manufacturing,
research and
development) or distributors in a few selected markets whose
approach might differ from our own business practices and
standards, which could also negatively impact the company’s
business performance and reputation. Similarly, failure to
maintain strong relationships with suppliers or service
providers could negatively impact the company’s sales and
profitability. Risks may also arise from a dependence on
particular suppliers, customers or service providers.
Overreliance on a supplier for a substantial portion of the
company’s product volume, or overdependence on a particular
customer, increases the company’s vulnerability to delivery
and sales shortfalls and could lead to significant margin
pressure. Business partner default (including insolvency) or
other disruptive events such as strikes may negatively affect
the company’s business activities and result in additional
costs and liabilities as well as lower sales for the company.
Unethical business practices or improper behavior on the part
of business partners could have a negative spill-over effect on
the company’s reputation, lead to higher costs or liabilities
and disrupt business activities.
To mitigate business partner risks, adidas has implemented
various measures. For example, we generally include clauses
in contractual agreements with athletes, clubs and federations
or other promotion partners that allow us to suspend or even
terminate our partnership in case of improper or unethical
conduct. In addition, we work with a broad portfolio of
promotion partners, including individual athletes, club teams
and federations or associations in numerous sports in order
to reduce the dependence on the success and popularity of a
few individual partners. To ensure strong relationships with
retailers, adidas is committed to delivering outstanding
customer service and providing our retail partners with the
support and tools required to establish and maintain a
relationship. Customer
mutually successful business
relationship management is not only a key activity for our
sales force but also of utmost importance to our company’s
top executives and second-line management. We also utilize a
broad distribution strategy which includes further expansion
of our direct-to-consumer business to reduce the risk of
overreliance on particular key customers. Specifically, no
single customer accounted for more than 5% of the company’s
sales in 2017. To reduce the risk of business interruption in
the supply chain, we work with suppliers who demonstrate
reliability, quality and innovation. Furthermore, in order to
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minimize any potential negative consequences such as a
violation of our Workplace Standards by our suppliers, we
enforce strict control and inspection procedures at our
suppliers and also demand adherence to social and
environmental standards throughout our supply chain.
SUSTAINABILITY, P. 88 In addition, we have selectively bought
insurance coverage for the risk of business interruptions
caused by physical damage to suppliers’ premises. To reduce
dependency on any particular supplier, the company follows a
strategy of diversification. In this context, adidas works with a
broad network of suppliers and, for the vast majority of its
products, does not have a single-sourcing model
SEE GLOSSARY.
SEE
IT and cyber security risks
Theft or leakage of confidential and sensitive information or
data (e.g. product data, employee data, consumer data) could
lead to reputational damage, penalties and higher costs. Data
leakage could trigger in-depth forensic investigation resulting
in temporary unavailability of key systems and business
interruption. Key business processes, including product
marketing, order management, warehouse management,
invoice processing, customer support and financial reporting,
are all dependent on IT systems. A significant systems outage
or application failure in our infrastructure or that of our
business partners could therefore result in considerable
disruptions to our business. Virus or malware attacks could
also lead to systems disruption, result in the loss of business-
critical and/or confidential information or harm data integrity.
To mitigate these risks, our IT organization proactively
engages in system preventive maintenance, service continuity
planning and adherence to applicable IT policies. Data security
is managed by restricting user access based on job description
and adhering to data protection regulations. We conduct
security reviews of key systems and applications on a regular
basis and have established monitoring and alert systems to
detect and properly tackle IT security incidents. Additional
security measures such as anti-virus software and firewalls
are designed to further protect our systems and critical
information. We perform multiple backups at alternating data
center locations for the company’s core ERP system on a daily
basis. In addition, for the ERP system, our contingency solution
allows us to quickly switch to a remote site if necessary –
without any loss of data. System security, controls and reliability
are regularly reviewed and tested by the Internal Audit
department. To increase awareness amongst employees with
regard to information security and data privacy, we conduct
various training programs and regular information campaigns.
Personnel risks
Achieving the company’s strategic and financial objectives is
highly dependent on our employees and their talents. In this
respect, strong leadership and a performance-enhancing
culture are critical to the company’s success. Therefore,
inconsistent or ineffective leadership as well as the failure to
install and maintain a performance-oriented culture and
ensure strong employee engagement amongst our workforce
could also substantially impede our ability to achieve our
goals. An ineffective, unbalanced allocation of resources to
business activities could cause operational inefficiencies and
result in lower employee engagement. In addition, global
competition for highly qualified personnel remains fierce. As
a result, the loss of key personnel in strategic positions and
the inability to identify, recruit and retain sufficient numbers
of highly qualified and skilled people who best meet the
specific needs of our company pose substantial risks to our
business performance. Unattractive or non-competitive
management and employee remuneration may exacerbate
these risks. In addition, a lack of sufficient training measures
and inadequate documentation of critical know-how might
dilute or lead to a loss of key capabilities.
Our People Strategy, aimed at fostering a corporate culture of
confidence, creativity and collaboration that is needed to be
successful, is an essential part of our strategic business plan
‘Creating the New’ and is designed to reduce these risks.
SEE PEOPLE AND CULTURE, P. 81 To optimize staffing levels and
resource allocation (i.e. having the right people with the right
skillsets in the right roles), we have launched a strategic
workforce management initiative. We continuously invest in
improving employer branding activities to be the ‘employer of
choice’ in our industry and as a result attract and retain the
right talent. We have also established a global recruiting
organization to enhance our internal and external recruiting
services and capabilities. In addition, we strengthen employee
retention by providing employees with development and
career opportunities (e.g. via our Talent Carousel program)
and we focus on promoting from within the organization
rather than recruiting externally. We also have attractive
reward and incentive schemes in place, designed to further
support long-term employee commitment.
Inventory risks
As we place initial production orders up to nine months in
advance of delivery, adidas is exposed to inventory risks
relating to misjudging consumer demand at the time of
production planning. Overestimating demand could result in
inappropriate capacity utilization at our suppliers’ factories,
lead to overproduction and cause excess inventory for the
company as well as in the marketplace. This can have negative
implications for our financial performance, including product
returns, inventory obsolescence and higher levels of clearance
activity as well as reduced liquidity due to higher operating
working capital requirements. Similarly, underestimating
demand can lead to product shortfalls at the point of sale. In
this situation, adidas faces the risk of missed sales
opportunities and/or customer and consumer disappointment,
which could lead to a reduction in brand loyalty and hurt our
faces potential
reputation. In addition,
profitability impacts from additional costs such as airfreight in
efforts to speed up replenishment.
the company
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In order to mitigate these risks, we actively manage inventory
levels, for example by continuous monitoring of stock levels
as well as centralizing stock holding and clearance activities.
We also continuously strive to improve our forecasting and
material planning processes.
SEE INTERNAL MANAGEMENT SYSTEM, P. 102
In addition, our Global Operations function is continuously
improving the agility and flexibility of our planning environment
in order to shorten lead times and ensure availability of
products while trying to avoid excess inventories.
OPERATIONS, P. 74 In this context, the company’s strategic priority
‘Speed’ is an important driver, leveraging market and sell-
through data in new ways. This, in turn, enables us to respond
quickly to consumer demand and to deliver concepts that are
fresh and desirable and made available when and where they
are wanted by the consumer.
SEE CORPORATE STRATEGY, P. 62
SEE GLOBAL
LEGAL AND COMPLIANCE RISKS
Data privacy risks
As a globally operating company, adidas is subject to various
laws and regulations concerning data protection and privacy.
Non-compliance with such laws and regulations could lead to
substantial penalties and fines. For example, non-compliance
with the EU General Data Protection Regulation, which will be
in force as of May 2018, may result in fines of up to 4% of annual
net sales. In addition, publication of failure to comply with
data protection and privacy regulations could cause significant
reputational damage and result in a loss of consumer trust in
our brands. As it is critical for the company’s future success to
constantly analyze and effectively utilize data, these risks
have become increasingly important for the company.
To mitigate these risks, we have established a global data
privacy policy that applies to all adidas businesses worldwide.
In addition, our data protection officer and the data protection
department are continuously monitoring the adherence to
data privacy standards and provide training and guidance. We
are also working with external partners and law firms to
ensure we understand legal requirements across the globe
and take appropriate action to remain compliant.
Risks related to product counterfeiting and imitation
As popular consumer brands which
largely rely on
technological and design innovation, our brands are frequent
targets for counterfeiting and imitation.
To reduce the loss of sales and the potential damage to brand
reputation resulting from counterfeit products, the company
makes use of extensive legal protection (generally through
registration of trademarks) and works closely with law
enforcement authorities, investigators and external legal
counsel. Although we have stepped up measures such as
product security labeling with our authorized suppliers, the
development of these measures remains a key priority going
forward.
Risks related to customs and tax regulations
Numerous laws and regulations regarding customs and taxes
as well as changes in such laws and regulations affect the
company’s business practices worldwide. Non-compliance
imports (including
with regulations concerning product
calculation of customs values), intercompany transactions or
income taxes could lead to substantial financial penalties and
additional costs as well as negative media coverage and
therefore reputational damage, for example in case of
understatements or underpayments of corporate income
taxes or customs duties. Changes in regulations regarding
customs and taxes may also have a substantial impact on the
company’s sourcing costs or income taxes. Therefore, we also
create provisions in accordance with the relevant accounting
regulations to account for potential disputes with customs or
tax authorities.
To proactively manage such risks, we constantly seek expert
advice from specialized law and tax advisory firms. We closely
monitor changes in legislation in order to properly adopt
regulatory requirements regarding customs and taxes. In
addition, our internal legal, customs or tax departments
advise our operational management teams to ensure
appropriate and compliant business practices. Furthermore,
we work closely with customs authorities and governments
worldwide to make sure we adhere to customs and import
regulations and obtain the required clearance of products to
fulfill sales demand.
Fraud and corruption risks
We face the risk that members of the Executive Board as well
as our employees breach rules and standards that guide
appropriate and responsible business behavior. This includes
the risks of fraud, financial misstatements or manipulation,
bribery and corruption.
Our Fair Play Compliance Framework helps us manage these
risks in a proactive way and enables us to prevent, detect and
adequately respond in case of fraudulent or corrupt behavior.
Our Global Policy Manual provides a framework for basic
work procedures and processes and our Fair Play Code of
Conduct stipulates that every employee and our business
partners shall act ethically in compliance with the laws and
regulations of the legal systems where they conduct company
business. In addition, our regional compliance managers and
local compliance officers guide and advise our operating
managers regarding fraud and corruption topics. Furthermore,
we utilize controls such as segregation of duties in IT systems
and data analytics technology to prevent or detect fraudulent
activities.
FINANCIAL RISKS
Currency risks
Currency risks for adidas are a direct result of multi-currency
cash flows within the company. Furthermore, translation
impacts from the conversion of non-euro-denominated
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results into the company’s functional currency, the euro,
might lead to a material negative impact on our company’s
financial performance. The biggest single driver behind this
risk results from the mismatch of the currencies required for
sourcing our products versus the denominations of our sales.
The vast majority of our sourcing expenses are in US dollars,
while sales are denominated in other currencies to a large
extent – most notably the euro. Exposures are presented in
the respective table.
SEE TABLE 100 The exposure from firm
commitments and forecast transactions was calculated on a
one-year basis.
In line with IFRS 7 requirements, we have calculated the
impact on net income and shareholders’ equity based on
changes in our most important currency exchange rates. The
calculated impacts mainly result from changes in the fair
value of our hedging instruments. The analysis does not
include effects that arise from the translation of our foreign
entities’ financial statements into the company’s reporting
currency, the euro. The sensitivity analysis is based on the net
balance sheet exposure, including intercompany balances
from monetary assets and liabilities denominated in foreign
currencies. Moreover, all outstanding currency derivatives were
re-evaluated using hypothetical foreign exchange rates to
determine the effects on net income and equity. The analysis
was performed on the same basis for both 2016 and 2017.
Based on this analysis, a 10% increase in the euro versus the
US dollar at December 31, 2017 would have led to a € 7 million
increase in net income.
SEE TABLE 101 The more negative
market values of the US dollar hedges would have decreased
shareholders’ equity by € 255 million. A 10% weaker euro at
December 31, 2017 would have led to a € 14 million decrease
in net income. Shareholders’ equity would have increased by
€ 334 million. The impacts of fluctuations of the US dollar
against the Chinese renminbi and of the euro against the
British pound and the Japanese yen on net income and
shareholders’ equity are also included in accordance with
IFRS requirements.
impacts of currency on our sourcing activities (due to their
own private label sourcing efforts), are also excluded from
this analysis.
However, many other financial and operational variables that
could potentially reduce the effect of currency fluctuations are
excluded from the analysis. For instance:
— Interest rates, commodity prices and all other exchange
rates are assumed constant.
— Exchange rates are assumed at a year-end value instead
of the more relevant sales-weighted average figure, which
we utilize internally to better reflect both the seasonality of
our business and intra-year currency fluctuations.
— The underlying forecast cash flow exposure (which the
hedge instrument mainly relates to) is not required to be
revalued in this analysis.
— Operational issues, such as potential discounts for key
accounts, which have high transparency regarding the
SEE
Utilizing a centralized currency risk management system, we
hedge currency needs for projected sourcing requirements on
a rolling basis up to 24 months in advance. In rare instances,
hedges are contracted beyond the 24-month horizon.
TREASURY, P. 115 Our goal is to have the vast majority of our
hedging volume secured six months prior to the start of a
given season. The company also largely hedges balance sheet
risks. Due to our strong global position, we are able to partly
minimize currency risk by utilizing natural hedges. Our gross
US dollar cash flow exposure calculated for 2018 was around
€ 6.0 billion at year-end 2017, which we hedged using forward
exchange contracts, currency options and currency swaps.
SEE TABLE 100 Our Treasury Policy allows us to utilize hedging
Exposure to foreign exchange risk based on notional amounts € in millions
As at December 31, 2017
Exposure from firm commitments and forecast transactions
Balance sheet exposure including intercompany exposure
Total gross exposure
Hedged with other cash flows
Hedged with currency options
Hedged with forward contracts
Net exposure
As at December 31, 2016
Exposure from firm commitments and forecasted transactions
Balance sheet exposure including intercompany exposure
Total gross exposure
Hedged with other cash flows
Hedged with currency options
Hedged with forward contracts
Net exposure
USD
GBP
(5,824)
(154)
(5,978)
453
4,465
(1,060)
(6,763)
(478)
(7,241)
114
405
5,253
(1,469)
1,206
(17)
1,189
(68)
(919)
202
985
(11)
974
(985)
(11)
JPY
659
(6)
653
(44)
(431)
178
615
(6)
609
(54)
(578)
(23)
100
CNY
845
(43)
802
(997)
(195)
252
28
280
(53)
227
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Sensitivity analysis of foreign exchange rate changes € in millions
101
As at December 31, 2017
Equity
Net income
Equity
Net income
As at December 31, 2016
Equity
Net income
Equity
Net income
USD
GBP
JPY
CNY
EUR +10%
EUR +10%
EUR +10%
USD +10%
(255)
7
88
1
43
1
76
12
EUR –10%
EUR –10%
EUR –10%
USD –10%
334
(14)
(101)
(3)
(52)
(1)
(76)
(11)
EUR +10%
EUR +10%
EUR +10%
USD +10%
(277)
7
85
1
53
1
48
7
EUR –10%
EUR –10%
EUR –10%
USD –10%
355
(8)
(104)
(1)
(66)
(1)
(48)
(6)
instruments, such as currency options or option combinations,
which provide protection from negative exchange rate
fluctuations while – at the same time – retaining the potential
to benefit from future favorable exchange rate developments
in the financial markets.
Credit risks
A credit risk arises if a customer or other counterparty to a
financial instrument fails to meet its contractual obligations.
SEE NOTE 30, P. 190 adidas is exposed to credit risks from its
operating activities and from certain financing activities.
Credit risks arise principally from accounts receivable and, to
a lesser extent, from other third-party contractual financial
obligations such as other financial assets, short-term bank
deposits and derivative financial instruments. Without taking
into account any collateral, the carrying amount of financial
assets and accounts receivable represents the maximum
exposure to credit risk.
At the end of 2017, there was no relevant concentration of credit
risk by type of customer or geography. Our credit risk exposure
is mainly influenced by individual customer characteristics.
Under the company’s credit policy, new customers are analyzed
for creditworthiness before standard payment and delivery
terms and conditions are offered. Tolerance limits for accounts
receivable are also established for each customer. Both
creditworthiness and accounts receivable limits are monitored
on an ongoing basis. Customers that fail to meet the company’s
minimum creditworthiness are, in general, allowed to purchase
products only on a prepayment basis.
Other activities to mitigate credit risks include retention of
title clauses as well as, on a selective basis, credit insurance,
the sale of accounts receivable without recourse, and bank
guarantees.
Objective evidence that financial assets are impaired includes,
for instance, significant financial difficulty of the issuer or
debtor, indications of the potential bankruptcy of the borrower
and the disappearance of an active market for a financial asset
because of financial difficulties. The company utilizes allowance
accounts for impairments that represent our estimate of
incurred credit losses with respect to accounts receivable.
Allowance accounts are used as long as the company is
satisfied that recovery of the amount due is possible. Once
this is no longer the case, the amounts are considered
irrecoverable and are directly written off against the financial
asset. The allowance consists of two components:
— firstly, an allowance established for all receivables
dependent on the aging structure of receivables past due
date and
— secondly, a specific allowance that relates to individually
assessed risks for each specific customer – irrespective
of aging.
At the end of 2017, no customer accounted for more than 10%
of accounts receivable.
The Treasury department arranges currency, commodity and
interest rate hedges, and invests cash, with major banks of a
high credit standing throughout the world. adidas subsidiaries
are authorized to work with banks rated BBB+ or higher. Only
in exceptional cases are subsidiaries authorized to work with
banks rated lower than BBB+.
SEE TREASURY, P. 115 To limit risk
in these cases, restrictions are clearly stipulated, such as
maximum cash deposit levels. In addition, the credit default
swap premiums of our partner banks are monitored on a
monthly basis. In the event that the defined threshold is
exceeded, credit balances are shifted to banks compliant with
the limit.
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We believe our risk concentration is limited due to the broad
distribution of our investment business with more than
20 globally operating banks. At December 31, 2017, no bank
accounted for more than 10% of our investments. Including
subsidiaries’ short-term deposits in local banks, the average
concentration was 1%. This leads to a maximum exposure of
€ 98 million in the event of default of any single bank. We have
further diversified our investment exposure by investing into
AAA-rated money market funds.
In addition, in 2017, we held derivatives with a positive fair market
value in the amount of € 101 million. The maximum exposure
to any single bank resulting from these assets amounted to
€ 27 million and the average concentration was 4%.
In accordance with IFRS 7, the following table includes further
information about set-off possibilities of derivative financial
assets and liabilities.
SEE TABLE 102 The majority of agreements
between financial institutions and adidas include a mutual
right to set off. However, these agreements do not meet the
criteria for offsetting in the statement of financial position,
because the right to set off is enforceable only in the event of
counterparty defaults.
The carrying amounts of recognized derivative financial
instruments, which are subject to the mentioned agreements,
are also presented in the following table.
SEE TABLE 102
Set-off possibilities of derivative financial assets and
liabilities € in millions
102
December 31, 2017 would have led to a € 5.8 million decrease
in net income.
Assets
Gross amounts of recognized financial assets
Financial instruments which qualify for set-off
in the statement of financial position
Net amounts of financial assets presented in the
statement of financial position
Set-off possible due to master agreements
Total net amount of financial assets
Liabilities
Gross amounts of recognized financial
liabilities
Financial instruments which qualify for set-off
in the statement of financial position
Net amounts of financial liabilities presented in
the statement of financial position
Set-off possible due to master agreements
Total net amount of financial liabilities
2017
2016
115
0
115
(100)
15
383
0
383
(96)
287
(280)
(112)
0
(280)
100
(180)
0
(112)
96
(16)
Interest rate and share price risks
Changes in global market interest rates affect future interest
payments for variable-interest liabilities. As the company
does not have material variable-interest liabilities, even a
significant increase in interest rates should have only slight
adverse effects on the company’s profitability, liquidity and
financial position. In addition, share price fluctuations may
affect our Long-Term Incentive Plan (LTIP), which is a share-
based remuneration scheme with cash settlement. In line
with IFRS 7 requirements, we have calculated the impact on
net income based on changes in the company’s share price. A
10% increase in the adidas AG share price versus the closing
share price at December 31, 2017 would have led to a € 5.8
million increase in net income whereas a 10% decrease in the
adidas AG share price versus the closing share price at
To reduce interest rate risks and maintain financial flexibility,
a core tenet of our company’s financial strategy is to continue
to use surplus cash flow from operations to reduce gross
borrowings. Beyond that, we may consider adequate hedging
strategies through interest rate derivatives in order to mitigate
interest rate risks.
SEE TREASURY, P. 115 To reduce share price
risks, the company uses derivative instruments to hedge
against share price fluctuations.
Financing and liquidity risks
Liquidity risks arise from not having the necessary resources
available to meet maturing liabilities with regard to timing,
volume and currency structure. In addition, the company
faces the risk of having to accept unfavorable financing terms
due to liquidity restraints. Our Treasury department uses an
efficient cash management system to manage liquidity risk.
At December 31, 2017, cash and cash equivalents together
with marketable securities amounted to € 1.604 billion
(2016: € 1.515 billion). Moreover, our company maintains
€ 2.251 billion (2016: € 2.403 billion) in bilateral credit lines,
which are designed to ensure sufficient liquidity at all times.
Of these, € 600 million consist of core committed lines.
SEE TREASURY, P. 115
Future cash outflows arising from financial liabilities that are
recognized in the consolidated statement of financial position
are presented in the following table.
SEE TABLE 103 This
includes payments to settle obligations from borrowings as
well as cash outflows from cash-settled derivatives with
negative market values. Financial liabilities that may be
settled in advance without penalty are included on the basis of
the earliest date of potential repayment. Cash flows for
variable-interest liabilities are determined with reference to
the conditions at the balance sheet date.
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Future cash outflows € in millions
103
these initiatives could enable us to accelerate top- and
bottom-line growth.
SEE SALES AND DISTRIBUTION STRATEGY, P. 72
Up to
1 year
Up to 2
years
Up to 3
years
Up to 4
years
Up to 5
years
More than 5
years
As at December 31, 2017
Bank borrowings
Eurobond1
Accounts payable
Other financial liabilities
Accrued liabilities2
Derivative financial liabilities
Total
As at December 31, 2016
Bank borrowings
Eurobond1
Accounts payable
Other financial liabilities
Accrued liabilities2
Derivative financial liabilities
Total
1 Including interest payments.
2 Accrued interest excluded.
106
16
1,975
88
837
275
3,297
379
16
2,496
90
704
110
3,795
16
5
9
31
16
16
9
3
44
Total
106
1,099
1,975
93
838
284
17
616
17
616
9
9
425
1
426
4,395
16
17
616
435
379
1,116
2,496
107
713
113
16
17
616
435
4,924
We ended the year 2017 with net cash of € 484 million (2016:
net borrowings of € 103 million).
ILLUSTRATION OF OPPORTUNITIES
In this report, we focus on opportunities we deem to be
material for adidas in the period from 2018 to 2020. Our
presentation of opportunities in this year’s Annual Report
differs from the 2016 Annual Report as we have expanded our
scope and do not only focus on opportunities that could impact
the company’s business performance over a one-year period.
The assessment is shown in the opportunities overview table.
SEE TABLE 104
STRATEGIC AND OPERATIONAL
OPPORTUNITIES
Organic growth opportunities
Distribution strategy: The sporting goods retail environment
is changing constantly. We therefore continue to adapt our
distribution strategy to this constantly changing environment
and have made controlled space initiatives a strategic priority.
SEE CORPORATE STRATEGY, P. 62 This includes the further expansion
of our own e-commerce activities, a clear focus on retail
partners that provide consumers with the best shopping
experience and customer service, retail space management
with key retail partners, as well as the introduction and roll-
out of new own-retail store formats. Successful results from
Partnerships: adidas is constantly evolving its partnership
network within sport and culture, such as with academic
organizations and companies from other industries in research
SEE INNOVATION, P. 78 These partnerships
and development.
have generated multiple new growth opportunities for adidas,
as we have acquired product or process know-how and gained
access to new distribution channels or markets. Partnerships,
strategic alliances and collaborations may enable us to pursue
further growth and efficiency opportunities.
Product portfolio: Over the last years, we have benefited from
strong consumer demand for selected product franchises
such as UltraBOOST, Stan Smith or NMD. We believe that a
continued focus on product franchises combined with
disciplined product lifecycle management and well-executed
distribution offers further upside potential both in terms of
sales and profit. In addition, further optimizing pricing and
range architecture could result in better-than-expected top-
line growth and bottom-line improvements. We continue to
see untapped sales potential at more commercial price
points. Consequently, the further expansion in categories
such as basketball and running, where we feel currently
underrepresented, could result in additional market share
and net sales growth and lead to further profitability
improvements.
Opportunities related to organizational and process improvements
Data analytics: Data and analytics play a crucial role in
enabling fact-based decision making. Therefore, we have
established a dedicated Advanced Analytics team to drive
business decision making by leveraging the power of data.
Throughout 2018, we will continue to enhance our existing
capabilities to build and scale insights-driven use cases,
using latest technology that will bring value to our business
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help us increase efficiency and productivity beyond our
current expectations by optimizing organizational structures
and capability management.
FINANCIAL OPPORTUNITIES
Favorable financial market changes
Favorable exchange and interest rate developments can
potentially have a positive impact on the company’s financial
results. Our Treasury department closely monitors the
identify and exploit opportunities.
financial markets to
from the conversion of non-euro-
Translation effects
denominated results into our company’s functional currency,
the euro, might positively impact our company’s financial
performance.
SEE TREASURY, P. 115
operations across the entire company. As a result, we could
become faster and more efficient in our operations. We may
increase visibility and understanding of consumer preferences,
increase full-price sales, reduce discounts and optimize order
book management, inventory management and purchasing.
This could result
top- and bottom-line
improved
performance.
in
Process optimization: Continued optimization of key business
processes and strict cost control are vital to achieving high
profitability and return on invested capital. We are confident
that there is still significant opportunity to improve process
efficiency and effectiveness and further streamline cost
structures throughout our company. Consequently, we will
continue to focus on driving the standardization and
harmonization of processes, as reflected by the company’s
‘ONE adidas’ initiative.
SEE CORPORATE STRATEGY, P. 62 For
example, further centralizing and bundling our global non-
trade procurement activities
SEE GLOSSARY could help realize
additional cost savings. Our strategic workforce management
initiative also not only mitigates the risk of unbalanced
allocation of personnel across the company but could also
Corporate opportunities overview
104
Strategic and operational opportunities
Organic growth opportunities
Opportunities related to organizational and process
improvements
Financial opportunities
Potential impact
Change
(2016 rating)
Likelihood
Change
(2016 rating)
Very high
↑ (High)
Possible
High
↑ (Medium)
Likely
↑ (Possible)
Favorable financial market changes
Very high
Possible
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MANAGEMENT
ASSESSMENT OF
PERFORMANCE, RISKS
AND OPPORTUNITIES,
AND OUTLOOK
ASSESSMENT OF PERFORMANCE VERSUS TARGETS
We communicate our financial targets on an annual basis. We
also provide updates throughout the year as appropriate. In
2017, the company delivered a strong operational and financial
performance. Sales development was favorably impacted by
rising consumer spending on sporting goods, supported by
global trends such as increasing penetration of sportswear
(‘athleisure’), increasing health awareness and rising sports
participation rates.
SEE ECONOMIC AND SECTOR DEVELOPMENT, P. 105
The strong brand momentum, supported by innovative product
launches and inspiring marketing campaigns, as well as the
successful execution of the company’s strategic business plan
‘Creating the New’ drove strong sales and earnings growth
throughout the year. As a result, we increased our full-year top-
and bottom-line guidance in July 2017.
SEE TABLE 105
In 2017, revenues increased 16% on a currency-neutral basis,
driven by double-digit growth at the adidas brand. Currency-
neutral sales grew at double-digit rates in nearly all market
segments. As a result, revenues increased above our initial
guidance of 12% to 14% currency-neutral sales growth. Gross
margin increased 1.2 percentage points to 50.4%, exceeding
our initial forecast of an increase of up to 0.3 percentage points.
This development was due to the larger-than-expected positive
effects from a better pricing and product mix, which more than
offset headwinds from unfavorable currency movements. The
operating margin increased 1.2 percentage points to a level of
9.8%, which was above our initial guidance of an increase of
between 0.2 and 0.4 percentage points. This development was
MANAGEMENT ASSESSMENT OF
PERFORMANCE, RISKS AND
OPPORTUNITIES, AND OUTLOOK
due to the gross margin increase as well as the positive effect
from lower other operating expenses as a percentage of
sales, which more than offset the decline in other operating
income. As a result, net income from continuing operations,
excluding the negative one-time tax impact in 2017, was up
32% to € 1.430 billion, and thus exceeded our initial guidance of
an improvement at a rate between 13% and 15%.
SEE INCOME
STATEMENT, P. 107
In 2017, average operating working capital as a percentage of
sales ended the year at a level of 20.4%. This development
represents a decrease compared to the prior year level of
21.1%, while our initial guidance was for a modest increase.
Capital expenditure (excluding acquisitions) amounted to
€ 752 million in 2017, below our initial guidance of around
€ 1.1 billion, mainly reflecting fewer-than-expected store
openings throughout the year. Investments were mainly
focused on controlled space initiatives of the adidas and Reebok
brands, aimed at further strengthening our own-retail activities,
franchise store presence and shop-in-shop presentations.
Other areas of investment included logistics infrastructure and
IT systems as well as the further development of our corporate
headquarters in Herzogenaurach, Germany.
SEE STATEMENT OF
FINANCIAL POSITION AND STATEMENT OF CASH FLOWS, P. 111
(NPS) saw
SEE INTERNAL MANAGEMENT SYSTEM, P. 102
Beyond our financial performance, we also actively monitor
In
non-financial KPIs.
2017, our Net Promoter Score
further
improvements, reflecting the strong momentum of our brands
and products throughout the year. Also from a market share
perspective, we continue to be very encouraged by our strong
performance in key categories and key markets, as defined in
the company’s strategic business plan. North America and
Greater China, two of our focus markets, were once again
notable standouts, as we were able to further improve our
market share in these regions.
Our diligence and discipline
in sustainability matters continues to yield strong recognition
for our company. In 2017, adidas AG was again represented in
a variety of high-profile sustainability indices. For the 18th
consecutive time, adidas AG was selected to join the Dow
Jones Sustainability Indices (DJSI), the world’s first global
sustainability index family tracking the performance of the
leading sustainability-driven companies worldwide. In the
sector ‘Textiles, Apparel & Luxury Goods’, we were rated
industry best in the criteria Human Rights, Supply Chain
Management, Impact Measurement and Valuation, Materiality,
Environmental Policy and Management Systems, Risk and
Crisis Management, Brand Management, Corporate Citizenship
and Philanthropy, and Customer Relationship Management.
SEE SUSTAINABILITY, P. 88 As we are convinced that our employees’
feedback plays a crucial role in our pursuit of creating a
world-class work environment, during the course of 2017, we
kicked off a new approach and system platform (‘People
Pulse’) for a monthly measurement of the level of employee
satisfaction. Following the implementation of this approach in
June 2017, our monthly participation rates toward year-end
exceeded our minimum participation rate target. In 2018, we
aim to further expand People Pulse across the organization
and build on the key learnings from the surveys.
AND CULTURE, P. 81 Finally, we continue to enjoy a strong level of
on-time in-full (OTIF) deliveries to our customers and own-
retail stores. In 2017, OTIF saw a slight improvement
compared to the prior year level and we are well on track to
achieve our mid-term target.
SEE GLOBAL OPERATIONS, P. 74
SEE PEOPLE
1
4
6
ADIDAS ANNUAL REPORT 2017
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
MANAGEMENT ASSESSMENT OF
PERFORMANCE, RISKS AND
OPPORTUNITIES, AND OUTLOOK
ASSESSMENT OF OVERALL RISKS AND
OPPORTUNITIES
Our Risk Management team aggregates all risks and
opportunities reported by Risk Owners and Executive Board
members through the half-yearly risk and opportunity
assessment process. Results from this process are analyzed
and reported to the Executive Board accordingly. In addition,
the Executive Board discusses and assesses risks and opportu-
SEE RISK AND OPPORTUNITY REPORT, P. 131
nities on a regular basis.
Taking into account the potential financial impact as well as
the likelihood of materializing of the risks explained within
this report, and considering the strong balance sheet as well
as the current business outlook, we do not foresee any
material jeopardy to the viability of the company as a going
concern. This assessment is also supported by the historical
response to our financing demands. adidas therefore has not
sought an official rating by any of the leading rating
agencies. We remain confident that our earnings strength
Company targets versus actual key metrics
Sales (year-over-year change,
currency-neutral)
2016
Results 1
20%
2017
Initial targets 1, 2
2017
Updated targets 1, 3
to increase at a rate
between 12% and 14%
to increase at a rate
between 17% and 19%
Gross margin
49.2%
to increase up to 0.3pp
to increase up to 0.8pp
Other operating expenses
(in % of net sales)
Operating profit (€ in millions)
Operating margin
Net income from continuing
operations 4 (€ in millions)
42.7%
below prior year level
below prior year level
1,582
8.6%
1,082
to increase at a rate
between 13% and 15%
to increase at a rate
between 24% and 26%
to increase between
0.2pp and 0.4pp
to increase up to 0.6pp
to increase at a rate
between 13% and 15%
to increase at a rate
between 26% and 28%
Basic earnings per share from
continuing operations 4 (in €)
5.39
to increase at a rate
between 13% and 15%
to increase at a rate
between 25% and 27%
Average operating working
capital (in % of net sales)
21.1%
modest increase
modest increase
Capital expenditure 5 (€ in millions)
642
around € 1.1 billion
up to € 1.0 billion
1 Figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
2 As published on March 8, 2017.
3 As published on July 27, 2017.
4 2017 excluding negative one-time tax impact of € 76 million.
5 Excluding acquisitions and finance leases.
105
2018
Outlook
to increase at a rate around
10%
to increase up to 0.3pp to a
level of up to 50.7%
below prior year level
to increase at a rate between
9% and 13%
to increase between 0.5pp
and 0.7pp to a level between
10.3% and 10.5%
to increase at a rate between
13% and 17% to a level
between € 1.615 billion and
€ 1.675 billion
to increase at a rate between
12% and 16%
around prior year level
to increase to a level of
around € 900 million
2017
Results 1
16%
50.4%
1.2pp
41.9%
(0.8pp)
2,070
31%
9.8%
1.2pp
1,430
32%
7.05
31%
20.4%
(0.7pp)
752
17%
forms a solid basis for our future business development and
provides the resources necessary to pursue the opportunities
available to the company. Compared to the prior year, our
assessment of certain risks has changed in terms of likelihood
of occurrence and/or potential financial impact. The partial
changes in risk evaluation have no substantial impact on the
overall adidas risk profile, which we believe remains
unchanged compared to the prior year.
ASSESSMENT OF FINANCIAL OUTLOOK
In March 2015, adidas unveiled ,Creating the New’, its 2020
strategic business plan, which defines strategic priorities and
objectives for the period up to 2020. The strategy is designed
to drive brand desirability which, in turn, is expected to spur
top- and bottom-line growth for the company in the years to
come. Our successes since 2016, as measured by financial as
well as non-financial KPIs, are a direct consequence of
relentlessly executing Creating the New. Therefore, we will
continue to focus on further executing against our strategic
business plan, while at the same time fine-tuning it wherever
needed and whenever necessary.
In March 2017, Creating the New was updated with
complementary initiatives in order to grow the top and bottom
line even faster than initially projected. This will ensure we
continue our momentum in the years to come, resulting in
strong sales and profitability improvements until 2020.
Consequently, we increased our financial targets for 2020. We
project currency-neutral revenues to increase at a rate of 10%
to 12% on average per year until 2020 compared to the 2015
results. By outperforming the sporting goods industry, our
brands will increase market share over the period. This, in
combination with the expected gross margin improvement
and our ability to generate operating leverage, will significantly
increase our profitability. As a result, net income from
continuing operations is expected to grow at a higher rate
than the top line. While in March 2017, we projected net
1
4
7
ADIDAS ANNUAL REPORT 2017
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MANAGEMENT ASSESSMENT OF
PERFORMANCE, RISKS AND
OPPORTUNITIES, AND OUTLOOK
income from continuing operations to expand by 20% to 22%
on average per year during the five-year period, we now
expect net income from continuing operations to grow by 22%
to 24% on average per year, following the strong operational
and financial performance in 2017.
SEE CORPORATE STRATEGY, P. 62
Through our extensive pipeline of new product launches
paired with brand-building activities, the positive effects from
major sporting events, including the 2018 FIFA World Cup, as
well as through tight control of inventory levels and stringent
cost management, we project strong revenue and profitability
improvements in 2018. Our net income is expected to benefit
from a further expansion in gross margin and the positive
effect of lower other operating expenses as a percentage of
SEE SUBSEQUENT EVENTS AND OUTLOOK, P. 128 We believe that
sales.
our outlook for 2018 is realistic within the scope of the current
trading and economic environment.
Assuming no significant deterioration in the global economy,
we are confident that we will achieve strong top- and bottom
line improvements in 2018. However, ongoing uncertainties
regarding the economic outlook and consumer sentiment in
both developed and emerging economies as well as persisting
high levels of currency volatility represent risks to the
achievement of our stated financial goals and aspirations.
SEE ECONOMIC AND SECTOR DEVELOPMENT, P. 105 No other material
event between the end of 2017 and the publication of this report
has altered our view.
1
4
8
ADIDAS ANNUAL REPORT 2017
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
7
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
S
A
D
D
A
I
Consolidated Statement of
Financial Position
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Changes in Equity
Consolidated Statement of Cash Flows
150
152
153
154
155
Notes
Notes to the Consolidated Statement of
Financial Position
Notes to the Consolidated Income Statement
Additional Information
157
169
201
205
Statement of Movements of
Intangible and Tangible Assets
Shareholdings
Responsibility Statement
Independent Auditor’s Report
Independent Auditor’s Assurance Report
213
215
220
221
226
1
4
9
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
adidas AG Consolidated Statement of Financial Position (IFRS) € in millions
Assets
Cash and cash equivalents
Short-term financial assets
Accounts receivable
Other current financial assets
Inventories
Income tax receivables
Other current assets
Assets classified as held for sale
Total current assets
Property, plant and equipment
Goodwill
Trademarks
Other intangible assets
Long-term financial assets
Other non-current financial assets
Deferred tax assets
Other non-current assets
Total non-current assets
Total assets
The accompanying notes are an integral part of these consolidated financial statements.
Note
Dec. 31, 2017
Dec. 31, 2016
Change in %
5
6
7
8
9
35
10
11
12
13
14
14
15
16
35
17
1,598
5
2,315
393
3,692
71
498
72
8,645
2,000
1,220
1,309
154
236
219
630
108
5,877
14,522
1,510
5
2,200
729
3,763
98
580
–
8,886
1,915
1,412
1,680
167
194
96
732
94
6,290
15,176
5.8
0.2
5.2
(46.1)
(1.9)
(27.4)
(14.1)
n.a.
(2.7)
4.5
(13.6)
(22.1)
(7.5)
21.8
127.3
(14.0)
14.7
(6.6)
(4.3)
1
5
0
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
adidas AG Consolidated Statement of Financial Position (IFRS) € in millions
Note
Dec. 31, 2017
Dec. 31, 2016
Change in %
Liabilities and equity
Short-term borrowings
Accounts payable
Other current financial liabilities
Income taxes
Other current provisions
Current accrued liabilities
Other current liabilities
Liabilities classified as held for sale
Total current liabilities
Long-term borrowings
Other non-current financial liabilities
Pensions and similar obligations
Deferred tax liabilities
Other non-current provisions
Non-current accrued liabilities
Other non-current liabilities
Total non-current liabilities
Share capital
Reserves
Retained earnings
Shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
18
19
35
20
21
22
11
18
23
24
35
20
21
25
26
28
137
1,975
362
424
741
2,180
473
–
6,291
983
22
298
275
80
85
53
1,796
204
(81)
6,327
6,450
(15)
6,435
636
2,496
201
402
573
2,023
434
–
6,765
982
22
355
387
44
120
46
1,957
201
749
5,521
6,472
(17)
6,455
14,522
15,176
(78.5)
(20.9)
80.5
5.3
29.3
7.8
8.9
n.a.
(7.0)
0.1
1.1
(16.3)
(28.8)
81.7
(29.4)
14.6
(8.2)
1.2
n.a.
14.6
(0.3)
13.6
(0.3)
(4.3)
1
5
1
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED INCOME STATEMENT
adidas AG Consolidated Income Statement (IFRS) € in millions
Net sales
Cost of sales
Gross profit
(% of net sales)
Royalty and commission income
Other operating income
Other operating expenses
(% of net sales)
Operating profit
(% of net sales)
Financial income
Financial expenses
Income before taxes
(% of net sales)
Income taxes
(% of income before taxes)
Net income from continuing operations
(% of net sales)
Losses from discontinued operations, net of tax
Net income
(% of net sales)
Net income attributable to shareholders
(% of net sales)
Net income attributable to non-controlling interests
Basic earnings per share from continuing operations (in €)
Diluted earnings per share from continuing operations (in €)
Basic earnings per share from continuing and discontinued operations (in €)
Diluted earnings per share from continuing and discontinued operations (in €)
The accompanying notes are an integral part of these consolidated financial statements.
Note
37
31
12, 14, 32
34
34
35
3
36
36
36
36
Year ending
Dec. 31, 2017
Year ending
Dec. 31, 2016
21,218
10,514
10,703
50.4%
115
133
8,882
41.9%
2,070
9.8%
46
93
2,023
9.5%
668
33.0%
1,354
6.4%
254
1,100
5.2%
1,097
5.2%
3
6.68
6.63
5.42
5.38
18,483
9,383
9,100
49.2%
105
262
7,885
42.7%
1,582
8.6%
28
74
1,536
8.3%
454
29.6%
1,082
5.9%
62
1,020
5.5%
1,017
5.5%
2
5.39
5.29
5.08
4.99
Change
14.8%
12.1%
17.6%
1.2pp
9.6%
(49.3%)
12.6%
(0.8pp)
30.8%
1.2pp
67.6%
25.7%
31.7%
1.2pp
47.2%
3.5pp
25.2%
0.5pp
310.0%
7.9%
(0.3pp)
7.8%
(0.3pp)
21.4%
23.9%
25.2%
6.7%
7.8%
1
5
2
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
adidas AG Consolidated Statement of Comprehensive Income (IFRS) € in millions
Net income after taxes
Items of other comprehensive income that will not be reclassified subsequently to profit or loss
Remeasurements of defined benefit plans (IAS 19), net of tax1
Subtotal of items of other comprehensive income that will not be reclassified subsequently to profit or loss
Items of other comprehensive income that are or will be reclassified to profit or loss when specific conditions are met
Net (loss)/gain on cash flow hedges, net of tax
Reclassification of foreign currency differences on loss of significant influence
Currency translation differences
Subtotal of items of other comprehensive income that are or will be reclassified to profit or loss when specific conditions are met
Other comprehensive income
Total comprehensive income
Attributable to shareholders of adidas AG
Attributable to non-controlling interests
1 Includes actuarial gains or losses relating to defined benefit obligations, return on plan assets (excluding interest income) and the asset ceiling effect.
The accompanying notes are an integral part of these consolidated financial statements.
Note
24
30
Year ending
Dec. 31, 2017
1,100
Year ending
Dec. 31, 2016
1,020
23
23
(375)
15
(539)
(899)
(876)
224
220
4
(60)
(60)
87
(0)
71
158
97
1,117
1,115
2
1
5
3
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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FINANCIAL REVIEW
STATEMENTS
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
adidas AG Consolidated Statement of Changes in Equity (IFRS) € in millions
Balance at December 31, 2015
Net income recognized directly in equity
Net income
Total comprehensive income
Reissuance of treasury shares due to the conversion of convertible bonds
Repurchase of treasury shares
Dividend payment
Equity-settled share-based payment
Balance at December 31, 2016
Net income recognized directly in equity
Net income
Total comprehensive income
Reissuance of treasury shares due to the conversion of convertible bonds
Repurchase of treasury shares
Repurchase of treasury shares due to equity-settled share-based payment
Reissuance of treasury shares due to equity-settled share-based payment
Dividend payment
Equity-settled share-based payment
Balance at December 31, 2017
Hedging
reserve
Other
reserves1
(122)
(60)
(60)
(182)
23
23
Note
Share
capital
200
Cumulative
currency
translation
differences
Capital
reserve
777
(123)
71
71
59
87
87
3
(2)
60
201
838
46
3
(0)
(0)
0
26
26
26
27
26
26
26
26
27
(52)
(525)
146
(375)
(525)
(375)
204
884
(577)
(229)
(159)
1 Reserves for remeasurements of defined benefit plans (IAS 19), option plans and acquisition of shares from non-controlling interest shareholders.
The accompanying notes are an integral part of these consolidated financial statements.
Retained
earnings
4,874
1,017
1,017
178
(228)
(320)
1
5,521
1,097
1,097
180
(73)
(15)
19
(405)
2
6,327
Share-
holders’
equity
5,666
97
1,017
1,115
240
(229)
(320)
1
6,472
(877)
1,097
220
229
(73)
(15)
20
(405)
2
6,450
Non-con-
trolling
interests
(18)
0
2
2
(2)
(17)
1
3
4
(1)
(15)
Total equity
5,648
97
1,020
1,117
240
(229)
(322)
1
6,455
(876)
1,100
224
229
(73)
(15)
20
(406)
2
6,435
1
5
4
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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FINANCIAL REVIEW
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CONSOLIDATED STATEMENT OF
CASH FLOWS
CONSOLIDATED STATEMENT OF CASH FLOWS
adidas AG Consolidated Statement of Cash Flows (IFRS) € in millions
Operating activities:
Income before taxes
Adjustments for:
Depreciation, amortization and impairment losses
Reversals of impairment losses
Unrealized foreign exchange gains, net
Interest income
Interest expense
Losses/(gains) on sale of property, plant and equipment and intangible assets, net
Other non-cash expense/(income)
Payment for external funding of pension obligations (CTA)
Proceeds from early termination of promotion and advertising contracts
Operating profit before working capital changes
Increase in receivables and other assets
Increase in inventories
Increase in accounts payable and other liabilities
Cash generated from operations before interest and taxes
Interest paid
Income taxes paid
Net cash generated from operating activities – continuing operations
Net cash generated from operating activities – discontinued operations
Net cash generated from operating activities
The accompanying notes are an integral part of these consolidated financial statements.
Note
Year ending
Dec. 31, 2017
Year ending
Dec. 31, 2016
2,023
1,536
12, 13, 14, 32, 34
31
34
34
31, 32
4, 31
484
(1)
(75)
(25)
62
17
3
(30)
76
2,534
(477)
(216)
422
2,263
(65)
(556)
1,641
6
1,648
376
(2)
(7)
(21)
70
(24)
(0)
–
–
1,927
(462)
(656)
973
1,782
(46)
(427)
1,309
39
1,348
1
5
5
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
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FINANCIAL REVIEW
STATEMENTS
CONSOLIDATED STATEMENT OF
CASH FLOWS
adidas AG Consolidated Statement of Cash Flows (IFRS) € in millions
Investing activities:
Purchase of trademarks and other intangible assets
Proceeds from sale of trademarks and other intangible assets
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Proceeds from sale of assets held for sale
Proceeds from sale of a disposal group
Proceeds from disposal of discontinued operations net of cash disposed
Purchase of short-term financial assets
Purchase of investments and other long-term assets
Interest received
Net cash used in investing activities – continuing operations
Net cash used in investing activities – discontinued operations
Net cash used in investing activities
Financing activities:
Repayments of finance lease obligations
Dividend paid to shareholders of adidas AG
Dividend paid to non-controlling interest shareholders
Acquisition of non-controlling interests
Repurchase of treasury shares
Repurchase of treasury shares due to share-based payments
Proceeds from reissuance of treasury shares due to share-based payments
Proceeds from short-term borrowings
Repayments of short-term borrowings
Net cash used in financing activities – continuing operations
Net cash used in financing activities – discontinued operations
Net cash used in financing activities
Effect of exchange rates on cash
Increase of cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
The accompanying notes are an integral part of these consolidated financial statements.
Note
Year ending
Dec. 31, 2017
Year ending
Dec. 31, 2016
(74)
0
(678)
2
–
6
174
(0)
(132)
25
(676)
(4)
(680)
(2)
(405)
(1)
–
(85)
(15)
13
–
(273)
(769)
(0)
(769)
(111)
88
1,510
1,598
11
11
26
28
26
18
5
5
(64)
0
(578)
5
14
29
–
(0)
(33)
21
(605)
(9)
(614)
(3)
(320)
(2)
(24)
(218)
–
–
159
(138)
(545)
(9)
(553)
(35)
145
1,365
1,510
1
5
6
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STATEMENTS
NOTES
NOTES
adidas AG is a listed German stock corporation and parent
of the adidas Group located at Adi-Dassler-Str. 1, 91074
Her zogen aurach, Germany, and is entered into the commercial
register at the Local Court of Fürth (HRB 3868). adidas AG
and its subsidiaries (collectively ‘ adidas’, ‘the Group’ or ‘the
company’) design, develop, produce and market a broad
range of athletic and sports lifestyle products. As at
December 31, 2017, the operating activities of adidas are
into 13 operating segments: Western Europe,
divided
North America
(excluding USA Reebok), USA Reebok,
Greater China, Russia/CIS, Latin America, Japan, Middle East,
South Korea, Southeast Asia/Pacific, adidas Golf, Runtastic
and Other centrally managed businesses. Due to the completed
divestitures of the former TaylorMade and CCM Hockey
operating segments on October 2, 2017, and September 1, 2017,
respectively, income and expenses of the former TaylorMade
and CCM Hockey operating segments were reported as
dis continued operations as at December 31, 2017.
SEE NOTE 03
Each market comprises all wholesale, retail and e-commerce
business activities relating to the distribution and sale of
products of the adidas and Reebok brands to retail customers
and end consumers. adidas and Reebok branded products
include footwear, apparel and hardware, such as bags and balls.
Runtastic operates in the digital health and fitness space. The
company provides a comprehensive ecosystem for tracking
and managing health and fitness data.
The operating segment Other centrally managed businesses
primarily includes the business activities of the Y-3 label.
01 » GENERAL
The consolidated financial statements of adidas AG as at
December 31, 2017 comprise adidas AG and its subsidiaries
and are prepared in compliance with International Financial
Reporting Standards (IFRS), as to be applied in the European
Union (EU) as at December 31, 2017, and the additional
requirements pursuant to § 315e section 1 German Commercial
Code (Handelsgesetzbuch – HGB).
following new standards and
The
interpretations and
amendments to existing standards and interpretations are
effective for financial years beginning on January 1, 2017 and
have been applied for the first time to the consolidated
financial statements:
— IAS 7 Amendment – Disclosure Initiative (EU effective
date: January 1, 2017): This amendment introduces a new
disclosure relating to changes in liabilities arising from
financing activities. The amendment requires enhanced
disclosures in the consolidated financial statements.
SEE NOTE 38
— IAS 12 Amendment – Recognition of Deferred Tax Assets
for Unrealised Losses (EU effective date: January 1, 2017):
This amendment clarifies existing guidance for recognizing
deferred tax assets. The amendment did not have any
material impact on the consolidated financial statements.
— Improvements to IFRSs (2014–2016) – Amendments
to IFRS 12 (EU effective date: January 1, 2017): These
improvements include amendments to IFRS 12 which
clarify the scope of the standard with regard to disclosure
requirements. The improvement clarifies that the scope
of the standard applies to an entity’s interests regardless
of whether they are classified as held for sale, held for
distribution or discontinued operations in accordance with
IFRS 5. These amendments did not have a material impact
on the consolidated financial statements.
New standards and interpretations as well as amendments to
existing standards and interpretations are usually not applied
by adidas before the EU effective date.
New standards and interpretations and amendments to existing
standards and interpretations issued by the International
Accounting Standards Board (IASB) and endorsed by the EU
which are effective for financial years beginning after
January 1, 2017, and which have not been applied in preparing
these consolidated financial statements are:
— IFRS 4 Amendment – Applying IFRS 9 Financial
Instruments with IFRS 4 Insurance Contracts (EU effective
date: January 1, 2018): The amendment addresses the
temporary accounting consequences of the different
effective dates of IFRS 9 Financial Instruments and IFRS 4
Insurance Contracts. adidas does not have any insurance
contracts accounted for under IFRS 4. Therefore, the
amendment is not expected to have any impact on the
company’s consolidated financial statements.
— IFRS 9 Financial Instruments (EU effective date:
January 1, 2018): The new standard prescribes rules
for the accounting of financial instruments, replacing
the current guidelines in IAS 39 Financial Instruments:
Recognition and Measurement. In particular, IFRS 9
prescribes new classification methods for financial assets,
which has an effect on the company’s classification and
subsequent presentation of certain financial assets.
adidas has identified all financial instruments that require
classification according to IFRS 9, defined the respective
business models for managing the financial assets and
analyzed contractual cash flow characteristics of financial
assets by performing a test based on the single contracts.
The business model and fulfilling the so-called ‘SPPI
test’ are the basis for the respective classification and
measurement of financial assets according to IFRS 9. As a
result of the changes in IFRS 9 classification, the company
has determined that most financial assets previously
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classified as available-for-sale will be classified as at
fair value through profit or loss. The classification as at
fair value through profit or loss is caused by the fact that
the respective financial instruments do not achieve the
contractual cash flow characteristic. Furthermore, equity
investments which are currently classified as available-
for-sale and measured at cost because they do not
have a quoted market price in an active market will be
measured as fair value through profit or loss. Furthermore,
investment securities which are currently measured at fair
value in other comprehensive income based on IAS 39 will
be measured as fair value through profit or loss since the
respective contracts do not satisfy the contractual cash flow
characteristics test. Due to the classification changes, as of
January 1, 2018, adidas expects a positive fair value change
in the mid-single-digit million range in euros.
The new standard also introduces the ‘expected credit
loss model’ for financial assets, which will require
company-wide policy adjustments to the allowance for
doubtful accounts relating to accounts receivable. adidas
has analyzed and determined the future calculation model
for this allowance, which will calculate the allowance for
doubtful accounts on all accounts receivable using lifetime
expected credit losses. This calculation model also uses
portfolios consisting of accounts receivable bearing
similar features, such as the Credit Default Spread (CDS)
and Days Sales Outstanding (DSO). The calculation model
is based on historic information about default rates which,
at the respective balance sheet date, are adjusted for
current information and forecasts. At the first-time
application of IFRS 9 as of January 1, 2018, the adjusted
calculation of the allowances for doubtful accounts
relating to accounts receivable is expected to result in a
low double-digit million decrease
in euros with a
corresponding increase in retained earnings.
According to the new standard, an entity can choose to
either account for hedge instruments according to IFRS 9
in
is expected to result
or continue accounting for hedge instruments according
to IAS 39. The company has decided to adopt IFRS 9 for
hedge accounting at the EU effective date. As a result of
the evaluation, the company has decided to designate
forward exchange contracts – with the exception of hedges
of a net investment in foreign operations – solely by the
spot value, with the forward element posted under the
costs of hedging in Other Comprehensive Income (OCI).
This change
less hedge
ineffectiveness for forward exchange contracts. Hedges of
net investment in a foreign operation will retain a forward
designation, resulting in the expected future ineffectiveness
from the cross-currency basis under IFRS 9 accounted for
in profit or loss. In this respect, at the first-time application
of IFRS 9 as of January 1, 2018, the company expects an
immaterial effect. In addition, the company will continue
to designate foreign currency options solely with their
intrinsic value as the hedged instrument, with resulting
changes in time value recognized as costs of hedging in
OCI. adidas decided to designate solely the spot value
components of forward exchange contracts as hedge
instruments for the cash flow hedges under the application
of IFRS 9. adidas has elected to utilize the option to account
for forward elements for a period of time as costs of
hedging in OCI.
Additionally, the new standard adds new disclosures going
beyond the current disclosure requirements in accordance
with IFRS 7 Financial Instruments: Disclosures. adidas
has identified the disclosures relevant to the company
which are either new or have to be changed due to the
implementation of IFRS 9. Retrospective restatement in
the consolidated financial statements
is either not
permitted or not required for most disclosures, with the
exception of certain disclosures related to hedge
accounting. The company does not plan to retrospectively
restate information except where required by the standard.
adidas will take advantage of the option allowing it not to
restate comparative information for prior periods with
respect to classification and measurement (including
impairment) changes. Differences in the carrying amounts
of financial assets and financial liabilities due to the first-
time adoption of IFRS 9 will be recognized in retained
earnings and other reserves as at January 1, 2018.
IFRS 9 is neither expected to have a significant effect on
the company’s accounting for financial liabilities nor on
the derecognition of financial assets as the new guidelines
are – to a large extent – adopted from IAS 39. As a result
of the IFRS 9 evaluation, adidas identified the need for
changes of accounting-related IT systems including: adding
new accounts, e.g. for separating hedge components, as
well as adding aging buckets for impairment purposes.
The estimated effects of the IFRS 9 implementation on
the above- mentioned balance sheet line items as at
January 1, 2018, are based on current estimations. The
actual effects of the IFRS 9
implementation as at
January 1, 2018, may deviate because the new accounting
methods may be subject to changes until the publication
of the first consolidated financial statements after the
effective date.
— IFRS 15 Revenue from Contracts with Customers including
Amendments to IFRS 15: Effective Date of IFRS 15 (EU
effective date: January 1, 2018): This new standard
replaces the current guidance on recognizing revenue
in accordance with IFRS, in particular IAS 18 Revenue,
IAS 11 Construction contracts and IFRIC 13 Customer
Loyalty Programmes and provides a holistic framework
for all aspects of revenue recognition. IFRS 15 creates a
centralized, single five-step model for recognizing revenue
arising from contracts with customers.
adidas has determined that the accounting for revenue
recognition at the transfer of control is comparable to
current practice in accordance with IAS 18. It has also
been determined that customer incentives and options
such as volume rebates, cooperative advertising
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allowances and slotting fees as well as any obligation of
adidas to pay for the delivery of goods to the customer do
IFRS 15.
not create performance obligations under
Currently, customer incentives which are contractually
agreed upon are accounted for as sales discounts and are
accrued over the financial year. Customer incentives
which are not contractually agreed upon as well as
promises that are implied by adidas’ customary business
practice and do not bear the characteristics of a discount
are accounted for as expenditure for marketing investments.
According to IFRS 15, customer incentives are principally
treated as a reduction of sales, except in cases where
adidas receives from its customer a distinct service as
consideration for the payment to the customer.
In accordance with IAS 18, adidas accrues revenue related
to estimated returns based on past experience by means
of a return provision which is recorded in the statement of
financial position with a corresponding debit entry in the
income statement in the form of a reduction of gross
sales. The current adidas policy requires that the provision
is calculated on a net basis in the amount of the standard
margin (i.e. the difference between gross sales and cost of
sales) for the products sold which are expected to be
returned. IFRS 15 requires a gross presentation of the
return provision. In addition, an asset for the right to
recover products from customers upon settling the refund
liability has to be recognized. The company currently
performs a fine adjustment of the calculation logic of the
return rate. The first-time application of IFRS 15 as at
January 1, 2018, is expected to lead to a balance sheet
prolongation in the low three-digit million range in euros
due to the increase in the return provision, the initially
recognized return asset and a potential adjustment of
retained earnings.
No significant changes in the timing or amount of revenue
recognized are expected with regard to revenue from own-
timing and
retail
transactions and
licensing. The
measurement of sales-based licensing-out of trademarks
and royalties is similar to the previous practice in
accordance with IAS 18. Contract assets and liabilities will
arise in relation to licensing-out contracts with fixed
consideration, with the following expected effects to be
recognized in the consolidated statement of financial
position on January 1, 2018: approximately € 3 million in
contract assets, less than € 1 million in contract liabilities,
and an adjustment to retained earnings in an amount of
approximately € 2 million. The change will have an
immaterial effect on revenues in the 2018 financial year.
The estimated effects of the IFRS 15 implementation on
the above-mentioned balance sheet line items as at
January 1, 2018, are based on current estimations. The
actual effects of the IFRS 15 implementation as at
January 1, 2018, may deviate because the new accounting
methods may be subject to changes until the publication
of the first consolidated financial statements after the
effective date.
After further analysis, adidas has chosen the modified
retrospective method (also called
‘cumulative effect
method’) for the first-time application of IFRS 15. According
to this transition method, the cumulative effect of applying
IFRS 15 will be shown in the opening balance as at
January 1, 2018. adidas will use a practical expedient
offered in the IFRS 15 Amendment Clarifications to
IFRS 15 which is applicable for the modified retrospective
method. This allows the company to reflect the aggregate
effect of all contract modifications that occur before the
beginning of the earliest period presented or before the
initial application. Except for the separate
date of
presentation of contract assets and contract liabilities in
the consolidated statement of financial position, IFRS 15
does not change the presentation in the consolidated
statement of financial position or in the consolidated
income statement.
The company has updated internal policies and IT systems
according to IFRS 15 in order to collect the necessary
information for new IFRS 15 disclosures. It is not expected
that IFRS 15 will significantly increase the amount of
disclosures in the consolidated financial statements of
adidas AG.
— IFRS 15 Amendment – Clarifications to IFRS 15 (EU
effective date: January 1, 2018): The amendment provides
some transition relief for modified and completed contracts
and adds guidance for identifying performance obligations,
principal vs. agent considerations, and licensing. The
company will use the transition relief available for the
modified retrospective method related to modified and
completed contracts. The transition relief reduces the
workload necessary to analyze contracts with customers.
— Improvements to IFRSs (2014–2016) – Amendments to
IFRS 1 and IAS 28 (EU effective date: January 1, 2018):
These improvements include amendments to IFRS 1
and IAS 28. The amendments to IFRS 1 eliminated the
short-term transition exemptions and the amendments to
IAS 28 made a clarification about the option for qualifying
entities (such as venture capital organizations) to apply
either the equity method or fair value through profit or loss
to the measurement of associates or joint ventures at initial
recognition. These improvements are not expected to have
a material impact on the consolidated financial statements.
— IFRS 16 Leases (EU effective date: January 1, 2019): The
new standard replaces the guidance in IAS 17 Leases
and the respective interpretations IFRIC 4 Determining
Whether an Arrangement Contains a Lease, SIC-15
Operating Leases – Incentives and SIC-27 Evaluating the
Substance of Transactions Involving the Legal Form of a
Lease. IFRS 16 eliminates the required classification of
leases into operating and finance leases in accordance
with IAS 17, replacing it with a single accounting model
requiring lessees to recognize a right-of-use asset and
a corresponding lease liability for leases with a lease
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term of more than twelve months. The new standard is
expected to have a significant impact on the company’s
consolidated statement of financial position and the
consolidated income statement, in particular upon initial
application. adidas has a significant number of operating
leases worldwide – mainly pertaining to more than
2,500 rented own-retail stores and rented warehouses.
SEE NOTE 29 Under IFRS 16, these have to be accounted for as
right-of-use assets with corresponding lease liabilities in
the consolidated statement of financial position. In addition,
the nature of the expenses relating to lease obligations is
going to change: Depreciation expenses for the right-of-use
assets and interest expenses for the lease obligations are to
be reported in the consolidated income statement instead
of rent expenses, which under IAS 17 were expensed to the
consolidated income statement on a straight-line basis
over the lease term.The company has continued to collect
real estate lease contracts in the global lease management
system, which captures relevant information from lease
contracts and uses this information to create accounting
reports. adidas intends to use this system also for IFRS 16
accounting purposes and is in the process of working with
the supplier to ensure system functionality and compliance
according to IFRS 16 logic. Based on a completeness survey,
the company is internally evaluating which other leased
assets fall under the scope of IFRS 16. adidas has decided
to apply the modified retrospective method with optional
practical expedients as the transition method. The company
expects changes to Key Performance Indicators (KPIs),
in particular: an extension of the statement of financial
position, a decrease in the equity ratio as well as an increase
in EBITDA, EBIT, cash used in financing activities and cash
generated from operating activities. Further analysis of the
expected impact on the company’s consolidated financial
statements is still in progress.
The following new standards and interpretations as well as
amendments to existing standards and interpretations were
issued by the IASB. These are not yet effective in the EU and
hence have not been applied in preparing these consolidated
financial statements:
— IFRS 2 Amendment – Classification and Measurement of
Share-Based Payment Transactions (IASB effective date:
January 1, 2018): The amendment clarifies the accounting
treatment for cash-settled share-based payment
transactions that include a performance condition, the
classification of share-based payment transactions with
net settlement features, and the treatment of share-
based payment classification due to modifications of the
terms and conditions. The company currently accounts
for cash-settled share-based payment transactions with
performance conditions in line with the upcoming clarified
guidance. Additionally, adidas does not currently have
share-based payment transactions with net settlement
features or regularly modify terms and conditions of share-
based payment transactions. This amendment is not
expected to have any impact on the company’s consolidated
financial statements.
— IFRS 9 Amendment – Prepayment Features with Negative
Compensation (IASB effective date: January 1, 2019): The
amendment offers additional guidance on how to classify
prepayable financial assets according to IFRS 9 and it
clarifies the accounting for financial liabilities following
a modification. According to the IFRS 9 evaluation, adidas
does not have any financial assets with prepayment
features. Additionally, the company does not currently
expect modifications to financial liabilities. Therefore, this
amendment is not expected to have any material impact on
the company’s consolidated financial statements.
— IFRS 10 and IAS 28 Amendment – Sale or Contribution
of Assets between an Investor and its Associate or Joint
Venture (IASB effective date: indefinitely postponed): The
amendment addresses an inconsistency between IFRS 10
and IAS 28 regarding the sale or contribution of assets
between an investor and its associate or joint venture. This
amendment is not expected to have any material impact on
the consolidated financial statements.
— IFRS 17 – Insurance Contracts (IASB effective date:
January 1, 2021): The new standard regulates the
recognition, measurement, presentation, and disclosure
of certain insurance contracts that influence the entity’s
financial position, financial performance and cash flows.
Insurance contracts which the entity issues, reinsurance
contracts the entity holds, and investment contracts with
discretionary participation features issued by the entity
are all within the scope of the standard. IFRS 17 replaces
IFRS 4 Insurance contracts, which is currently not applied
by the company. Therefore, the standard is not expected to
have any impact on the consolidated financial statements.
— IAS 28 Amendment – Long-term Interests in Associates
and Joint Ventures (IASB effective date: January 1, 2019):
The amendment clarifies that IFRS 9 Financial Instruments –
including the impairment requirements – should be applied
to long-term interests in an associate or joint venture
forming part of a net investment but for which the equity
method is not applied. adidas does not have long-term
interests in an associate or joint venture forming part of
a net investment but for which the equity method is not
applied and which will not be accounted for according to
IFRS 9 starting January 1, 2018. Therefore, the amendment
is not expected to have any impact on the consolidated
financial statements.
— IAS 40 Amendment – Transfers of Investment Property
(IASB effective date: January 1, 2018): This amendment
clarifies guidance for transfers of property to – or from –
investment property. adidas does not have investment
property and therefore this amendment will not have an
effect on the company’s financial statements.
— IFRIC 22 – Foreign Currency Transactions and Advance
Consideration (IASB effective date: January 1, 2018):
This new interpretation clarifies the accounting for
transactions that include the receipt or payment of advance
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consideration in a foreign currency. The interpretation
states that the transaction date, for the purpose of
determining the exchange rate for received or performed
prepayments, is the date of the initial recognition of the
non-monetary prepayment asset or deferred income
liability. adidas already translates non-monetary items,
such as prepayments, at the exchange rate as of the initial
recognition date. Therefore, this interpretation is not
expected to have an impact on the consolidated financial
statements.
— IFRIC 23 – Uncertainty over Income Tax Treatments (IASB
effective date: January 1, 2019): This new interpretation
applies to income taxes within the scope of IAS 12 Income
Taxes and clarifies the accounting for uncertainties in
income taxes. In the case of uncertainty regarding the
determination of taxable profit/tax loss, tax bases, unused
tax losses, unused tax credits and tax rates under IAS 12,
this interpretation should be applied. This interpretation
is not expected to have an impact on the consolidated
financial statements.
— Improvements to IFRSs (2015–2017) – Amendments
to IFRS 3, IFRS 11, IAS 12 and IAS 23 (IASB effective
date: January 1, 2019): These improvements include
amendments to IFRS 3 which clarify that when an entity
obtains control of a business that was previously a joint
operation, the entity must remeasure its previously held
interests in that business. The amendments to IFRS 11
clarify that an entity does not remeasure previously held
interests in a business when it assumes joint control of a
joint operation. The amendments to IFRS 3 and IFRS 11
would only have a potential impact in the case that the
aforementioned transactions take place in the year of
initial application. The amendments to IAS 12 clarify that
the income tax effects resulting from dividend payments
should be presented in the same manner as the income
from which the dividends are derived. In other words,
the income tax consequences from dividends should
be shown in profit or loss unless the dividend relates to
income which is recorded in equity or other comprehensive
income. adidas does not expect any effects from this
amendment. The amendments to IAS 23 specify that
when a qualifying asset has become ready for its intended
sale or use, any outstanding borrowed amount is no
longer used in the calculation of the capitalization rate
for the specific qualifying asset, but instead used in the
general capitalization rate for borrowings. adidas currently
capitalizes the borrowing costs for one qualifying asset. The
amendments to IAS 23 are not expected to have a material
impact on the consolidated financial statements.
The consolidated financial statements have in principle been
prepared on the historical cost basis with the exception of
certain items in the statement of financial position such as:
financial instruments valued at fair value through profit or loss,
available-for-sale
financial
instruments and plan assets which are measured at fair value.
financial assets, derivative
The consolidated financial statements are presented in euros (€)
and, unless otherwise stated, all values are presented in
millions of euros (€ in millions). Due to rounding principles,
numbers presented may not exactly sum up to totals provided.
02 » SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The consolidated financial statements are prepared in
accordance with the consolidation, accounting and valuation
principles described below.
Principles of consolidation
The consolidated financial statements include the financial
statements of adidas AG and all its direct and indirect
subsidiaries, which are prepared in accordance with uniform
accounting principles. An entity is considered a subsidiary if it
is controlled by adidas AG. Control exists when adidas is
exposed to, or has rights to, variable returns from its
involvement with the investee and has the ability to affect
those returns through its power over the investee.
The number of consolidated subsidiaries developed as follows
for the years ending December 31, 2017 and December 31, 2016,
respectively:
Number of consolidated subsidiaries
January 1
First-time consolidated subsidiaries
Thereof: newly founded
Thereof: purchased
Deconsolidated/divested subsidiaries
Intercompany mergers
December 31
2017
143
3
3
–
(17)
–
129
2016
145
2
2
–
(3)
(1)
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The subsidiaries are held either directly by adidas AG or
indirectly via the two holding companies adidas Beteiligungs-
gesellschaft mbH in Germany or adidas International B.V. in the
Netherlands.
Principles of measurement
The following table
includes an overview of selected
subsequent measurement principles used in the preparation
of the consolidated financial statements.
A schedule of the shareholdings of adidas AG is shown in
Attachment II to the consolidated financial statements.
SEE SHAREHOLDINGS OF ADIDAS AG, HERZOGENAURACH, P. 215 This
schedule comprises information about the name, domicile,
currency and equity of all consolidated subsidiaries as well as
the respective share held in the capital of these subsidiaries.
Furthermore, the schedule of the shareholdings of adidas AG
will be published on the electronic platform of the German
Federal Gazette.
Within the scope of the first-time consolidation, all acquired
assets and liabilities are recognized in the statement of
financial position at fair value at the acquisition date. A debit
difference between the acquisition cost and the proportionate
fair value of assets, liabilities and contingent liabilities is
shown as goodwill. A credit difference is recorded in the
income statement.
Acquisitions of additional investments in subsidiaries which
are already controlled are recorded as equity transactions.
Therefore, neither fair value adjustments of assets and
liabilities nor gains or losses are recognized. Any difference
between the cost for such an additional investment and the
carrying amount of the net assets at the acquisition date is
recorded directly in shareholders’ equity.
The financial effects of intercompany transactions as well as
any unrealized gains and losses arising from intercompany
business relations are eliminated in preparing the consolidated
financial statements.
Overview of selected subsequent measurement principles
Item
Assets
Cash and cash equivalents
Short-term financial assets
Accounts receivable
Inventories
Assets classified as held for sale
Property, plant and equipment
Goodwill
Intangible assets (except goodwill):
With definite useful life
With indefinite useful life
Subsequent measurement principle
Nominal amount
At fair value through profit or loss
Amortized cost
Lower of cost and net realizable value
Lower of carrying amount and fair value less costs to sell
Amortized cost
Impairment-only approach
Amortized cost
Impairment-only approach
Other financial assets (categories according to IAS 39):
At fair value through profit or loss
At fair value through profit or loss
Held to maturity
Loans and receivables
Available-for-sale
Liabilities
Borrowings
Accounts payable
Liabilities/provisions for cash-settled share-based
payment arrangements
Other financial liabilities
Provisions:
Pensions
Other provisions
Accrued liabilities
Amortized cost
Amortized cost
At fair value in other comprehensive income or at amortized cost
Amortized cost
Amortized cost
Fair value
Amortized cost
Projected unit credit method
Expected settlement amount
Amortized cost
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Currency translation
Transactions in foreign currencies are initially recorded in the
respective functional currency by applying the spot exchange
rate valid at the transaction date to the foreign currency amount.
In the
individual financial statements of subsidiaries,
monetary items denominated in non-functional currencies of
the subsidiaries are generally translated into the functional
currency at closing exchange rates at the balance sheet date.
The resulting currency gains and losses are recorded directly
in the income statement.
Assets and liabilities of the company’s non-euro functional
currency subsidiaries are translated into the presentation
currency, the euro, which is also the functional currency of
adidas AG, using closing exchange rates at the balance sheet
date. For practical reasons, revenues and expenses are
translated at average rates for the period which approximate the
exchange rates on the transaction dates. All cumulative
differences from the translation of equity of foreign subsidiaries
resulting from changes in exchange rates are included in a
separate item within shareholders’ equity without affecting the
income statement.
A summary of exchange rates to the euro for major currencies in
which the Group operates is as follows:
Exchange rates
€ 1 equals
Average rates for the year
ending Dec. 31,
Spot rates at Dec. 31,
USD
GBP
JPY
CNY
RUB
2017
2016
2017
2016
1.1266
0.8754
1.1069
0.8188
1.1993
0.8872
1.0541
0.8562
126.2381
120.4031
135.0100
123.4000
7.6116
65.5601
7.3515
74.2778
7.8365
69.0799
7.3123
63.9384
Discontinued operations
A component of the company’s business is classified as a
discontinued operation if the operations and cash flows of the
component can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of the company
and if the component either has been disposed of or is
classified as held for sale, and:
— represents a separate major line of business or geographic
area of operations,
— is part of a single coordinated plan to dispose of a separate
major line of business or geographic area of operations or
— is a subsidiary acquired exclusively with a view to resale.
When an operation is classified as a discontinued operation,
income statement and
the comparative consolidated
consolidated statement of cash flows are restated and
presented as if the operation had been classified as such from
the start of the comparative year.
Derivative financial instruments
adidas uses derivative financial instruments, such as currency
options, forward exchange contracts, commodity futures as
well as interest rate swaps and cross-currency interest rate
swaps, to hedge its exposure to foreign exchange, commodity
price and interest rate risks. In accordance with its Treasury
Policy, adidas does not enter into transactions with derivative
financial instruments for trading purposes.
Derivative financial instruments are initially recognized in the
statement of financial position at fair value, and subsequently
also measured at their fair value. The method of recognizing
the resulting gains or losses is dependent on the nature of the
hedge. On the date a derivative contract is entered into, adidas
designates derivatives as either a hedge of a forecast
transaction (cash flow hedge) or a hedge of a net investment
in a foreign operation.
Changes in the fair value of derivatives that are designated
and qualify as cash flow hedges, and that are effective, as
defined in IAS 39 ‘Financial instruments: recognition and
measurement’, are recognized
the
effectiveness is not 100%, the ineffective portion of the change
in the fair value is recognized in the income statement.
Accumulated gains and losses in equity are transferred to the
income statement in the same periods during which the
hedged forecast transaction affects the income statement.
in equity. When
Certain derivative transactions, while providing effective
economic hedges under the company’s risk management
policies, may not qualify for hedge accounting under the
specific rules of IAS 39. Changes in the fair value of any
derivative instruments that do not meet these rules are
recognized immediately in the income statement.
Hedges of net investments in foreign entities are accounted
for in a similar way to cash flow hedges. If the hedging
instrument is a derivative (e.g. a forward exchange contract)
or a foreign currency borrowing, effective currency gains and
losses in the derivative and all gains and losses arising on the
translation of the borrowing, respectively, are recognized in
equity.
adidas documents
the relationship between hedging
instruments and hedge objects at transaction inception, as
well as the risk management objectives and strategies for
undertaking various hedge
transactions. This process
includes linking all derivatives designated as hedges to
specific firm commitments and forecast transactions. adidas
also documents its assessment of whether the derivatives
that are used in hedging transactions are highly effective by
using different methods of effectiveness testing, such as the
‘dollar offset method’ or the ‘hypothetical derivative method’.
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The fair values of currency options, forward exchange
contracts and commodity futures are determined on the basis
of market conditions on the reporting dates. The fair value of
a currency option is determined using generally accepted
models to calculate option prices. The fair value of an option
is influenced not only by the remaining term of the option but
also by additional factors, such as the actual foreign exchange
rate and the volatility of the underlying foreign currency base.
Fair values are determined taking into consideration the
counterparty risk. adidas has exercised the option to calculate
the amounts on counterparty level according to IFRS 13 ‘Fair
Value Measurement’, paragraph 48.
Cash and cash equivalents
Cash and cash equivalents represent cash at banks, cash on
hand and short-term deposits with maturities of three months
or less from the date of acquisition.
Cash equivalents are short-term, highly liquid investments
that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value.
Receivables and other financial assets
Receivables and other financial assets are recognized at fair
value, which corresponds to the nominal value for current
receivables and other financial assets. For non-current
receivables and other financial assets, the fair value is
estimated as the present value of future cash flows discounted
at the market rate of interest at the balance sheet date.
Subsequently, these are measured at amortized cost using the
‘effective interest method’. Required allowances, if necessary,
are determined on the basis of individual risk assessments,
and on the aging structure of receivables past due.
Inventories
Merchandise and finished goods are valued at the lower of
cost or net realizable value, which is the estimated selling
price in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary to
make the sale. Costs are determined using a standard
valuation method: the ‘average cost method’. Costs of finished
goods include cost of raw materials, direct labor and the
components of the manufacturing overheads which can be
reasonably attributed to finished goods. The allocation of
overheads is based on the planned average utilization. The
net realizable value allowances are computed consistently
throughout the company based on the age and expected
future sales of the items on hand.
Assets/liabilities and disposal groups classified as held for sale
Assets/liabilities and disposal groups classified as held for
sale are primarily non-current assets and liabilities expected
to be recovered principally through sale rather than through
continuing use. These are measured at the lower of their
carrying amount and fair value less costs to sell. Assets
classified as held for sale are not depreciated on a straight-
line basis.
Property, plant and equipment
Property, plant and equipment are measured at amortized
cost. This comprises any costs directly attributable to bringing
the asset to the condition necessary for it to be capable of
operating in the manner intended by Management less any
impairment
accumulated depreciation and accumulated
losses. Depreciation is recognized for those assets, with the
exception of land and construction in progress, over the
estimated useful life utilizing the ‘straight-line method’ and
taking into account any potential residual value, except where
the ‘declining-balance method’ is more appropriate in light of
the actual utilization pattern. Parts of an item of property,
plant and equipment with a cost that is significant in relation
to the total cost of the item are depreciated separately.
Land leases are measured at the lower of the fair value or the
present value of minimum lease payments and are depreciated
on a straight-line basis over the contractually agreed lease term.
Estimated useful lives are as follows:
Estimated useful lives of property, plant and equipment
Land
Land leases
Buildings and leasehold improvements
Furniture and fixtures
Technical equipment and machinery as well as
other equipment
1 Or, if shorter, the lease term/useful life.
SEE NOTE 29
Years
indefinite
50 – 99
20 – 50 1
3 – 5
2 – 10 1
Expenditures for repairs and maintenance are expensed as
incurred. Renewals and improvements are capitalized and
depreciated separately, if the recognition criteria are met.
Impairment losses
If facts and circumstances indicate that non-current assets
(e.g. property, plant and equipment and intangible assets
including goodwill) might be impaired, the recoverable
amount is determined. It is measured at the higher of its fair
value less costs of disposal and value in use. Non-financial
items measured at the recoverable amount primarily relate to
impaired property, plant and equipment being measured
based on value in use or on fair value taking unobservable
inputs (e.g. profit or cash flow planning) into account. The fair
value is measured at Level 3 according to IFRS 13 ‘Fair Value
Measurement’.
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An impairment loss is recognized in other operating expenses
or reported in goodwill impairment losses if the carrying
amount exceeds the recoverable amount.
future cash flows discounted at the financial asset’s original
effective interest rate, or as the difference between amortized
cost and the fair value considering previous impairment
losses.
The impairment test for goodwill is performed based on
groups of cash-generating units which represent the lowest
level within the company at which goodwill is monitored for
internal management purposes. If there is an impairment
loss for a group of cash-generating units, first the carrying
amount of any goodwill allocated to the group of cash-
generating units is reduced. Subsequently, provided that the
recoverable amount is lower than the carrying amount, the
other non-current assets of the group of cash-generating
units are reduced pro rata on the basis of the carrying amount
of each asset in the group of cash-generating units.
Irrespective of whether there is an impairment indication,
intangible assets with an indefinite useful life (in particular
trademarks) and goodwill acquired in business combinations
are tested annually on September 30 for impairment.
An impairment loss recognized in goodwill is not reversible.
With respect to all other impaired assets, an impairment loss
recognized in prior periods is reversed affecting the income
statement if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset’s carrying amount
does not exceed the carrying amount that would have been
determined (net of depreciation or amortization)
if no
impairment loss had been recognized.
Impairment losses for financial assets are recognized when,
as a result of one or more events that occurred after the initial
recognition of the financial asset, there is objective evidence
that a financial asset is impaired. The amount of the
impairment loss is measured as the difference between the
asset’s carrying amount and the present value of estimated
the minimum
Leases
Under finance lease arrangements, the substantial risks and
rewards associated with an asset are transferred to the
lessee. At the beginning of the lease arrangement, the
respective asset and a corresponding liability are recognized
at the fair value of the asset or, if lower, the net present value
of
lease payments. For subsequent
measurement, minimum lease payments are apportioned
between the finance expense and the reduction of the
outstanding liability. The finance expense is allocated to each
period during the lease term so as to produce a constant
periodic interest rate on the remaining balance of the liability.
In addition, depreciation and any impairment losses for the
associated assets are recognized. Depreciation is performed
over the lease term or, if shorter, over the useful life of the
asset.
Under operating lease agreements, rent expenses are
recognized on a straight-line basis over the term of the lease.
Goodwill
Goodwill is an asset representing the future economic benefits
arising from assets acquired in a business combination that
are not individually identified and separately recognized. This
results when the purchase cost exceeds the fair value of
liabilities and contingent
acquired
liabilities. Goodwill arising from the acquisition of a foreign
entity and any fair value adjustments to the carrying amounts
of assets, liabilities and contingent liabilities of that foreign
entity are treated as assets, liabilities and contingent liabilities
of the respective reporting entity, and are translated at
exchange rates prevailing at the date of the initial consolidation.
identifiable assets,
Goodwill is carried in the functional currency of the acquired
foreign entity.
Intangible assets (except goodwill)
Intangible assets are valued at amortized cost. Amortization
is calculated on a straight-line basis taking into account any
potential residual value.
Expenditures during the development phase of internally
generated intangible assets are capitalized as incurred if they
qualify for recognition under IAS 38 ‘Intangible Assets’.
Estimated useful lives are as follows:
Estimated useful lives of intangible assets
Trademarks
Software
Patents and licenses
Websites
1 For exceptions
SEE NOTE 14
Years
indefinite 1
5 – 7
5 – 15
2
Research and development
Research costs are expensed in full as incurred. Development
costs for internally generated intangible assets are also
expensed as incurred if they do not meet the recognition
criteria of IAS 38 ‘Intangible Assets’, paragraph 57.
Financial assets
All purchases and sales of financial assets are recognized on
the trade date and initially measured at fair value. Available-
for-sale financial assets include non-derivative financial
assets which are not allocable under another category of
IAS 39. If their respective fair value can be measured reliably,
they are subsequently carried at fair value. If this is not the
case, these are measured at cost. Realized and unrealized
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gains and losses arising from changes in the fair value of
financial assets are included in the income statement for the
period in which they arise, except for available-for-sale
financial assets where unrealized gains and losses are
recognized in equity unless they are impaired.
(e.g. Eurobonds) and other
Borrowings and other liabilities
Borrowings
liabilities are
recognized at fair value using the ‘effective interest method’,
net of transaction costs incurred. In subsequent periods,
long-term borrowings are stated at amortized cost using the
‘effective interest method’. Any difference between proceeds
(net of transaction costs) and the redemption value is
recognized in the income statement over the term of the
borrowing.
Compound financial instruments (e.g. convertible bonds) are
divided into a liability component shown under borrowings
and into an equity component resulting from conversion
rights. The equity component is included in the capital reserve.
The fair value of the liability component is determined by
discounting the
interest and principal payments of a
comparable liability without conversion rights, applying risk-
adjusted interest rates. The liability component is subsequently
measured at amortized cost using the ‘effective interest
method’. The equity component
is determined as the
difference between the fair value of the total compound
financial instrument and the fair value of the liability
component and is reported within equity. There is no
subsequent measurement of the equity component. At initial
transaction costs are
recognition, directly attributable
assigned to the equity and liability component pro rata on the
basis of the respective carrying amounts.
Provisions and accrued liabilities
Other provisions are recognized where a present obligation
(legal or constructive) to third parties has been incurred as a
result of a past event which can be estimated reliably and is
likely to lead to an outflow of resources, and where the timing
or amount is uncertain. Other non-current provisions are
discounted if the effect of discounting is material.
Accrued liabilities are liabilities to pay for goods or services
that have been received or supplied but have not been paid,
invoiced or formally agreed with the supplier, including
amounts due to employees. Here, however, the timing and
amount of an outflow of resources is not uncertain.
Pensions and similar obligations
Provisions and expenses for pensions and similar obligations
relate to the company’s obligations for defined benefit and
defined contribution plans. The obligations under defined
benefit plans are determined separately for each plan by
valuing the employee benefits accrued in return for their
service during the current and prior periods. These benefit
accruals are discounted to calculate their present value, and
the fair value of any plan assets is deducted in order to
determine the net liability. The discount rate is set on the
basis of yields of high-quality corporate bonds at the balance
sheet date provided there is a deep market for high-quality
corporate bonds in a given currency. Otherwise, government
bond yields are used as a reference. Calculations are
performed by qualified actuaries using the ‘projected unit
credit method’ in accordance with IAS 19 ‘Employee Benefits’.
Obligations for contributions to defined contribution plans are
recognized as an expense in the income statement as
incurred.
Contingent liabilities
Contingent liabilities are possible obligations that arise from
past events and whose existence will be confirmed only by the
occurrence of one or more uncertain future events not wholly
within the control of adidas. Additionally, contingent liabilities
may be present obligations that arise from past events but
which are not recognized because it is not probable that an
outflow of resources will be required to settle the obligation or
the amount of the obligation cannot be measured with
sufficient reliability. Contingent liabilities are not recognized
in the consolidated statement of financial position but are
disclosed and explained in the Notes.
SEE NOTE 39
Treasury shares
When treasury shares recognized as equity are repurchased,
the amount of the consideration paid, which includes directly
attributable costs, net of any tax effects, is recognized as a
deduction from equity. The nominal value of € 1 per treasury
share is debited to share capital. Any premium or discount to
the nominal value is shown as an adjustment to the capital
reserve. If treasury shares are sold or re-issued, the nominal
value of the shares will be credited to share capital and the
amount exceeding the nominal value will be added to the
capital reserve.
Revenue
Revenue in terms of income derived from the sale of goods is
recognized when the significant risks and rewards of
ownership of the goods are transferred to the buyer and when
adidas does not retain any continuing managerial involvement
with the goods. The timing of the transfer of significant risks
and rewards depends on the individual terms of the sales
agreement (terms of delivery). In addition, revenue from the
sale of goods is only recognized when the amount of revenue
as well as associated costs can be measured reliably and
when it is probable that the economic benefits associated with
the transaction will flow to the company.
Revenue is measured at the fair value of the consideration
received or receivable, net of returns, early payment discounts
and rebates.
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Under certain conditions and in accordance with contractual
agreements, customers of adidas have the right to return
products and to either exchange them for similar or other
products or to return the products against the issuance of a
credit note. Revenue related to estimated returns is accrued
based on past experience by means of a provision for returns,
allowances and warranty.
SEE NOTE 20
Provided that the customers meet certain pre-defined
conditions, adidas grants its customers different types of
globally aligned performance-based rebates. Examples are
sales growth and loyalty as well as sell-out support, e.g.
through retail space management/franchise stores. When it is
assumed that the customer fulfills the requirements for being
granted the rebate, this amount is accrued by means of an
accrued liability for marketing and sales.
SEE NOTE 21
that is directly attributable to the acquisition, construction or
production of a qualifying asset. This interest is capitalized as
part of the cost of the qualifying asset.
Income tax is recognized in the income statement except to
the extent that it relates to items recognized directly in equity,
in which case it is recognized in equity.
Government grants
adidas receives government grants related to income in the
form of subsidies, subventions or premiums from local,
national or international government authorities such as
those of the Federal Republic of Germany, the European Union
and the Free State of Bavaria.
Government grants related to income are recognized if there
is reasonable assurance that the grants will be received and
that adidas will comply with the conditions attached.
Grants related to income are reported in the consolidated
income statement as a deduction from the related expenses.
Share-based payment
The cost of equity-settled share-based payment transactions
with employees is determined by the fair value at the grant
date using an appropriate valuation model.
SEE NOTE 27 That
cost is recognized in personnel expenses, together with a
corresponding increase in equity (retained earnings), over the
period in which the service and, where applicable, the
performance conditions are fulfilled (the vesting period). The
cumulative expense recognized for equity-settled transactions
at each reporting date until the vesting date reflects the extent
to which the vesting period has expired and the company’s
best estimate of the number of equity instruments that will
ultimately vest.
In addition, adidas generates revenue from the licensing-out
of the right to use the adidas and Reebok brands as well as
various other trademarks to third parties. The related royalty
and commission income is recognized based on the contract
terms on an accrual basis.
Income taxes
Current income taxes are computed in accordance with the
applicable taxation rules established in the countries in which
adidas operates.
Advertising and promotional expenditures
Advance payments for media campaigns are included in
prepaid expenses (other current and non-current assets) until
the services are received, and upon receipt expensed in full.
Significant costs for media campaigns are expensed over the
duration of the media campaign.
adidas computes deferred taxes for all temporary differences
between the carrying amount and the tax base of its assets
and liabilities and tax loss carry-forwards. As it is not
permitted to recognize a deferred tax liability for the initial
recognition of goodwill, adidas does not compute any deferred
taxes thereon.
Promotional expenses including one-time up-front payments
for promotion contracts are principally expensed on a
straight-line basis over the term of the agreement.
Interest
Interest is recognized as income or expense as incurred using
the ‘effective interest method’ with the exception of interest
Deferred tax assets arising from deductible temporary
differences and tax loss carry-forwards which exceed taxable
temporary differences are only recognized to the extent that it
is probable that the entity concerned will generate sufficient
taxable income to realize the associated benefit.
Service and non-market performance conditions are not
taken into account when determining the fair value of awards
at the grant date, but the likelihood of the conditions being
met is assessed as part of the company’s best estimate of the
number of equity instruments that will ultimately vest. If the
estimate is changed, even a credit in the income statement for
the period can be possible as it reflects the movement in
cumulative expenses from the beginning to the end of that
period.
No expense is recognized for awards that do not ultimately vest
because non-market performance and/or service conditions
have not been met.
Equity-settled share-based payment transactions with parties
other than employees are generally measured at the fair
value of the goods or services received, except where the fair
value cannot be estimated reliably, in which case they are
measured at the fair value of the equity instruments granted,
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measured at the date the entity obtains the goods or the
counterparty renders the service.
For cash-settled share-based payment transactions, the
goods or services acquired and the liability incurred are
measured at the fair value of the liability. Until the liability is
settled, the fair value of the liability is remeasured at each end
of the reporting period and at the date of settlement, with any
changes in fair value recognized in profit or loss for the period.
Estimation uncertainties and judgments
The preparation of financial statements in conformity with
IFRS requires the use of assumptions and estimates that
affect reported amounts and related disclosures. Although
such estimates are based on the best knowledge of current
events and actions, actual results may ultimately differ from
these estimates.
The key assumptions concerning the future and other key
sources of estimation uncertainty at the balance sheet date
which have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the
next financial year are outlined in the respective Notes, in
particular goodwill
other provisions
SEE NOTE 13, trademarks
SEE NOTE 20, pensions
SEE NOTE 14,
SEE NOTE 24, derivatives
SEE NOTE 35, as well as litigation
SEE NOTE 30, deferred taxes
and other legal risks
SEE NOTE 39.
Judgments have also been used in classifying leasing
arrangements as well as in determining valuation methods
for intangible assets.
The results of the Rockport, TaylorMade and CCM operations
are shown as discontinued operations in the consolidated
income statement:
Discontinued operations € in millions
Net sales
Expenses
Gain/(loss) from operating activities
Income taxes
Gain/(loss) from operating activities, net of tax
(Loss) from the sale of discontinued
operations
Income taxes
(Loss) from the sale of discontinued operations,
net of tax
(Loss) from discontinued operations, net of tax
Basic earnings per share from discontinued
operations (€)
Diluted earnings per share from discontinued
operations (€)
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
667
(666)
1
0
1
(304)
48
(256)
(254)
808
(895)
(87)
27
(60)
(3)
1
(2)
(62)
(1.26)
(0.31)
(1.26)
(0.31)
The loss from discontinued operations in an amount of
€ 254 million (2016: € 62 million) was entirely attributable to
the shareholders of adidas AG.
03 » DISCONTINUED OPERATIONS
On May 10, 2017, adidas signed a definitive agreement to sell
its TaylorMade business including the brands TaylorMade,
Adams Golf and Ashworth (together TaylorMade). The
transaction was completed on October 2, 2017. The TaylorMade
business
is reported as discontinued operations. The
consideration was paid in cash and via a combination of a
secured note and contingent considerations of which the fair
values were estimated by applying the discounted cash flow
model and Monte Carlo method, respectively.
SEE NOTE 04
On July 26, 2017, adidas signed an agreement to sell the
CCM Hockey business. The transaction was completed on
September 1, 2017. The CCM Hockey business is reported as
discontinued operations. The consideration was paid in cash
and in the form of a secured note. The fair value of the secured
note was estimated by applying the discounted cash flow
method.
SEE NOTE 04
The net result of discontinued operations presented in the
consolidated income statement as at December 31, 2017 also
contains the fair value adjustment of the contingent
considerations as well as allowances for outstanding receivables
in connection with the sale of the Rockport operating segment
in July 2015.
TaylorMade and CCM Hockey were classified as assets held
for sale and discontinued operations for the first time as of
May 10, 2017 and June 30, 2017, respectively. The prior year
figures of the consolidated statement of cash flows have been
restated to show the discontinued operations separately from
continuing operations.
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04 » DISPOSAL OF SUBSIDIARIES AS WELL AS
ASSETS AND LIABILITIES
The divestiture of the TaylorMade business was completed on
October 2, 2017. The total purchase price amounted to
US $ 425 million consisting of US $ 200 million in cash, a
promissory note in an amount of US $ 100 million and earn-
out components in an amount of US $ 125 million. In 2017, a
preliminary cash consideration of US $ 155 million was
received for which the cash component of US $ 200 million
was adjusted mainly due to lower estimated net working
capital compared to target net working capital and the net
cash transferred. The assets and liabilities, which were
reported as assets/liabilities held for sale since May 10, 2017
due to the concrete plans to sell the business, were
consequently derecognized from the consolidated statement
of financial position as of October 2, 2017. For the impact of
the divestiture on the items in the consolidated statement of
financial position
SEE NOTE 38 The TaylorMade business is
part of Other Businesses (discontinued operations).
The divestiture of the CCM Hockey business was completed
on September 1, 2017 for a preliminary cash consideration of
US $ 76 million plus a promissory note amounting to
US $ 40 million. The assets and liabilities which were reported
as assets/liabilities held for sale since June 30, 2017 due to
the concrete plans to sell the business were consequently
derecognized from the consolidated statement of financial
position as of September 1, 2017. For the impact of the
divestiture on the items in the consolidated statement of
financial position
SEE NOTE 38 The CCM Hockey business is
part of Other Businesses (discontinued operations).
As of June 30, 2016 (closing date), the company formally
completed the divestiture of the Mitchell & Ness business.
The preliminary purchase price amounted to US $ 75 million
in total. According to the purchase agreement, the first half of
the total purchase price was received in cash and for the other
half a promissory note was
issued by the buyer. All
contractually agreed closing assets were transferred by
adidas at the closing date. This was followed by a transition
service period which ended on June 30, 2017. The final
purchase price will be determined in early 2018. In 2016, a
resulting gain from this transaction
in an amount of
€ 39 million was accounted for as other operating income.
SEE NOTE 31
Accounts receivable € in millions
Accounts receivable, gross
Less: accumulated allowances for doubtful
accounts
Accounts receivable, net
Dec. 31,
2017
2,484
(169)
2,315
Dec. 31,
2016
2,377
(177)
2,200
NOTES TO THE CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
Movement in allowances for doubtful accounts
€ in millions
05 » CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash at banks, cash on
hand and short-term deposits.
Allowances at January 1
Additions
Reversals
Short-term deposits are only shown as cash and cash
equivalents if they are readily convertible to a known amount
of cash and are subject to an insignificant risk of changes in
value.
Write-offs charged against the allowance
accounts
Currency translation differences
Other changes
Allowances at December 31
2017
177
46
(39)
(9)
(7)
0
169
2016
149
76
(41)
(8)
0
0
177
06 » SHORT-TERM FINANCIAL ASSETS
Short-term financial assets are classified ‘at fair value
through profit or loss’. Changes in the fair value are recognized
in the consolidated income statement as they occur.
The majority of short-term financial assets are marketable
securities.
07 » ACCOUNTS RECEIVABLE
Accounts receivable consist mainly of the currencies US
dollar, euro, Chinese renminbi as well as Japanese yen and
are as follows:
Accounts receivable past due but not impaired
€ in millions
Past due
1 – 30
days
Past due
31 – 60
days
Past due
61 – 90
days
Past due
91 – 180
days
Past due
> 180
days
Dec. 31, 2017
Dec. 31, 2016
153
164
61
63
6
11
4
5
2
6
With respect to accounts receivable as at the balance sheet
date past due but not impaired, based on credit history and
current credit ratings, there are no indications that customers
will not be able to meet their obligations.
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Further, no indications of default are recognizable for accounts
receivable that are neither past due nor impaired.
09 » INVENTORIES
Inventories by major classification are as follows:
For further information about credit risks
SEE RISK AND
Inventories € in millions
OPPORTUNITY REPORT, P. 131
08 » OTHER CURRENT FINANCIAL ASSETS
Other current financial assets consist of the following:
Other current financial assets € in millions
Merchandise and finished goods on hand
Goods in transit
Raw materials
Work in progress
Inventories
Currency options
Forward exchange contracts
Security deposits
Financial assets related to the early
termination of promotion contracts
Promissory notes
Sundry
Other current financial assets
Dec. 31,
2017
Dec. 31,
2016
12
98
44
–
–
239
393
20
348
81
77
15
187
729
The line item ‘Sundry’ mainly relates to a secured promissory
note in the amount of € 31 million which is part of the divestiture
of the Mitchell & Ness business as well as to credit cards and
similar receivables. The secured promissory note will be due
upon finalization of the sale of Mitchell & Ness in 2018.
Goods in transit mainly relate to shipments of finished goods
and merchandise from suppliers in Asia to subsidiaries in
Europe, Asia, North America and Latin America.
10 » OTHER CURRENT ASSETS
Other current assets consist of the following:
Other current assets € in millions
11 » ASSETS/LIABILITIES AND DISPOSAL
GROUPS CLASSIFIED AS HELD FOR SALE
At December 31, 2017, assets/liabilities held for sale
comprise a building of Reebok International Ltd. in an
amount of € 72 million. The Reebok headquarters was moved
from Canton to Boston in September 2017. From this moment
on, the land and building were readily sellable and therefore
reported as ‘Assets classified as held for sale’.
Dec. 31,
2017
Dec. 31,
2016
At December 31, 2017, impairment loses (before transaction
costs) of € 1 million were included in operating profit.
Dec. 31, 2017
Dec. 31, 2016
Allowance
for
obsoles-
cence
(132)
–
–
–
Gross
value
2,716
1,103
5
0
Net
value
2,584
1,103
5
0
Allowance
for
obsoles-
cence
(170)
–
(2)
–
Gross
value
2,748
1,151
35
1
Net
value
2,578
1,151
34
1
3,824
(132)
3,692
3,935
(172)
3,763
Other current financial assets include accumulated allowances
in the amount of € 51 million.
For further information about currency options and forward
exchange contracts
SEE NOTE 30
Prepaid expenses
Tax receivables other than income taxes
Sundry
Other current assets, gross
Less: accumulated allowances
Other current assets, net
261
146
99
506
(8)
498
311
180
97
588
(8)
580
Prepaid expenses mainly relate to promotion and service
contracts as well as rents.
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NOTES
12 » PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Property, plant and equipment € in millions
The increase in the line item ‘Construction in progress, net’
mainly relates to investments in the company’s headquarters
in Herzogenaurach and to the expansion of the warehouse in
Rieste, Germany.
Land, land leases, buildings and leasehold
improvements
Technical equipment and machinery
Other equipment as well as furniture and
fixtures
Dec. 31,
2017
Dec. 31,
2016
1,242
288
1,721
3,251
1,395
325
1,710
3,430
Additionally, borrowing costs in an amount of € 1 million
(2016: € 1 million) related to the construction of qualifying
assets at adidas AG were capitalized using a capitalization
rate of 1.3% (2016: 1.3%).
For details see Attachment I to the consolidated financial
statements
SEE STATEMENT OF MOVEMENTS OF INTANGIBLE AND TANGIBLE
Less: accumulated depreciation and
impairment losses
(1,629)
(1,733)
ASSETS, P. 213
Construction in progress, net
Property, plant and equipment, net
1,622
378
2,000
1,697
218
1,915
Depreciation expenses were € 358 million and € 303 million
for the years ending December 31, 2017 and 2016, respectively.
SEE NOTE 32
As a general principle, it is regularly assessed whether there
are any indications that furniture and fixtures might be
impaired. Irrespective of the existence of such indications,
furniture and fixtures in own-retail stores are tested annually
for impairment whereby the recoverable amount is calculated
using the discounted cash flow method as part of determining
the profitability of the respective own-retail stores. Impairment
losses amounted to € 13 million and € 10 million for the years
SEE NOTE 32
ending December 31, 2017 and 2016, respectively.
These are related to other equipment, furniture and fixtures
as well as buildings and leasehold improvements, mainly in
the company’s own-retail activities, for which contrary to
expectations there will be an insufficient flow of future
economic benefits. In 2017, reversals of impairment losses
were recorded in an amount of € 1 million (2016: € 2 million).
13 » GOODWILL
Goodwill primarily relates to the acquisitions of the Reebok,
TaylorMade and Runtastic businesses as well as acquisitions
of subsidiaries, primarily in the USA, Australia, New Zealand,
the Netherlands, Denmark and Italy.
Goodwill € in millions
Goodwill, gross
Less: accumulated impairment losses
Goodwill, net
Dec. 31,
2017
Dec. 31,
2016
1,675
(454)
1,220
1,908
(496)
1,412
The majority of goodwill, which primarily relates to the
acquisition of the Reebok business in 2006, is denominated in
US dollars. A currency translation effect of negative € 78 million
and positive € 20 million was recorded for the years ending
December 31, 2017 and 2016, respectively.
adidas determines whether goodwill impairment is necessary
at least on an annual basis. The impairment test for goodwill
is performed based on groups of cash-generating units which
represent the lowest level within the company at which
goodwill is monitored for internal management purposes.
This requires an estimation of the recoverable amount of the
groups of cash-generating units to which the goodwill is
allocated. The recoverable amount of a group of cash-
generating units is determined on the basis of value in use.
Estimating the value in use requires adidas to make an
estimate of the expected future cash flows from the groups of
cash-generating units and also to choose a suitable discount
rate in order to calculate the present value of those cash flows.
This calculation uses cash flow projections based on the
financial planning covering a three-year period in total. The
planning is based on long-term expectations of the company
and reflects in total for the groups of cash-generating units an
average annual mid-single- to low-double-digit sales increase
with varying forecast growth prospects for the different
groups of cash-generating units. Furthermore, adidas expects
the operating margin to expand, primarily driven by an
improvement in the gross margin as well as lower operating
expenses as a percentage of sales. The planning for capital
expenditure and working capital is primarily based on past
experience. The planning for future tax payments is based on
current statutory corporate tax rates of the individual groups
of cash-generating units. Cash flows beyond this three-year
period are extrapolated using steady growth rates of 1.7%
(2016: 1.7%). According to the company’s expectations, these
growth rates do not exceed the long-term average growth rate
of the business sector in which the respective group of cash-
generating units operates.
Discount rates are based on a weighted average cost of capital
calculation considering a five-year average market-weighted
debt/equity structure and financing costs referencing major
competitors for the respective group of cash-generating
units. The discount rates used are after-tax rates and reflect
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NOTES
the specific equity and country risk of the respective group of
cash-generating units.
basis of an existing purchase price offer at this point of time.
SEE NOTES 03, 04 AND 30
‘Other’ comprises the groups of cash-generating units for
which the respective carrying amount of allocated goodwill is
not significant in comparison with the company’s total
carrying amount of goodwill.
The groups of cash-generating units are defined as the
regional markets which are responsible for the
joint
distribution of the adidas and Reebok brands as well as the
other operating segments adidas Golf and Runtastic. The
regional markets are: Western Europe, North America
(excluding USA Reebok), USA Reebok, Greater China, Russia/
CIS, Latin America, Japan, Middle East, South Korea and
Southeast Asia/Pacific. The number of groups of cash-
generating units amounted to a total of twelve at the end of
2017 and 2016, respectively.
The divestiture of TaylorMade, Adams Golf and Ashworth was
formally completed on October 2, 2017.
On July 26, 2017, adidas signed an agreement to sell its CCM
Hockey business. The divestiture of the CCM Hockey business
was formally completed on September 1, 2017.
A change in the discount rate by up to approximately 4.2
percentage points or a reduction of planned free cash inflows
by up to approximately 40% would not result in any impairment
requirement.
At December 31, 2017, the number of cash-generating units
decreased again to a total of twelve as a result of the completed
divestiture of the CCM Hockey and TaylorMade businesses.
Future changes in expected cash flows and discount rates may
lead to impairments of the reported goodwill in the future.
Following the company’s internal management reporting
and the related split of the market North America into
North America (excluding USA Reebok) and USA Reebok, the
number of groups of cash-generating units increased from
twelve to a total of thirteen in 2017.
In the course of the annual impairment test, adidas assessed
whether goodwill impairment was required. In this context,
there was no need for goodwill impairment for the years
ending December 31, 2017 and 2016, respectively.
On May 10, 2017, adidas signed an agreement to sell its golf
equipment business which included the brands TaylorMade,
Adams Golf and Ashworth (together TaylorMade). As a result,
the goodwill allocated to the group of cash-generating units
TaylorMade- adidas Golf in the amount of € 292 million was
split and re-allocated to the new cash-generating units
TaylorMade amounting to € 113 million and adidas Golf
amounting to € 179 million based on relative values (value in
use) of the operation disposed of and the cash-generating unit
retained, respectively. The re-allocated goodwill was initially
measured according to IAS 36 ‘Impairment of Assets’ and
goodwill allocated to the cash-generating unit TaylorMade
was subsequently transferred to ‘Assets classified as held for
sale’. The recoverable amount of the new cash-generating
unit TaylorMade identified in the course of the impairment
test was determined based on the net realizable value on the
The carrying amounts of acquired goodwill allocated to the
respective groups of cash-generating units and the respective
discount rates applied to the cash flow projections are as
follows:
Allocation of goodwill
Goodwill
(€ in millions)
Discount rate
(after taxes)
Dec. 31,
2017
Dec. 31,
2016
Dec. 31,
2017
Dec. 31,
2016
600
215
–
178
228
643
231
293
–
8.2%
8.1%
–
7.7%
7.7%
7.5%
6.5%
–
245
7.9 – 9.5%
7.3 – 8.9%
1,220
1,412
Western Europe
Greater China
TaylorMade-
adidas Golf
adidas Golf
Other
Total
For details see Attachment I to the consolidated financial
statements
SEE STATEMENT OF MOVEMENTS OF INTANGIBLE AND TANGIBLE
ASSETS, P. 213
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NOTES
The reconciliation of goodwill is as follows:
Reconciliation of goodwill, net € in millions
January 1, 2017
Re-allocation of
goodwill
Currency translation
differences
Decrease in companies
consolidated
December 31, 2017
Western
Europe
Greater China
Taylor-
Made-
adidas Golf
TaylorMade
adidas Golf
643
–
(43)
–
600
231
–
(16)
–
215
293
(292)
(1)
–
–
–
113
–
(113)
–
–
179
(1)
–
178
Other
245
–
(17)
–
228
to ‘Assets classified as held for sale’ at June 30, 2017. The
divestiture of the CCM Hockey business was formally
completed on September 1, 2017.
adidas tests at least on an annual basis whether trademarks
are impaired. This requires an estimation of the fair value less
costs to sell of the trademarks. As part of this estimation,
adidas is required to make an estimate of the expected future
trademark-specific sales and appropriate arm’s length notional
royalty rates and also to choose a suitable discount rate in
order to calculate the present value of those cash flows. Future
trademark-specific sales are based on the underlying financial
planning used for the goodwill impairment test.
Total
1,412
–
(78)
(113)
1,220
14 » TR ADEMARKS AND OTHER
INTANGIBLE ASSETS
Trademarks and other intangible assets consist of the
following:
Trademarks and other intangible assets € in millions
Reebok
CCM Hockey
Runtastic
Other
Less: accumulated amortization and
impairment losses
Trademarks
Software, patents and licenses
Less: accumulated amortization and
impairment losses
Other intangible assets
Trademarks and other intangible assets
Dec. 31,
2017
1,292
–
31
9
(23)
1,309
839
(685)
154
1,463
Dec. 31,
2016
1,470
122
31
57
–
1,680
925
(758)
167
1,847
At December 31, 2017, trademarks, mainly related to the
acquisition of Reebok International Ltd. (USA) in 2006 and
runtastic GmbH in 2015, have indefinite useful lives, with the
exception of the definite useful life of the Five Ten trademark.
This is due to the expectation of permanent use of the acquired
trademarks Reebok and Runtastic and of the limited use of
the Five Ten trademark.
The Ashworth and Adams Golf trademarks amounting to
€ 41 million were initially measured according to IAS 36
‘Impairment of Assets’ and subsequently transferred to
‘Assets classified as held for sale’ due to the signing of an
agreement in May 2017 to sell the TaylorMade business. The
divestiture of TaylorMade, Adams Golf and Ashworth was
formally completed on October 2, 2017.
On July 26, 2017, adidas signed an agreement to sell its CCM
Hockey business. For this reason, the CCM Hockey trademarks
amounting to € 109 million were initially measured according
to IAS 36 ‘Impairment of Assets’ and subsequently transferred
During the impairment test for trademarks, the recoverable
amount is determined on the basis of fair value less costs to
sell (costs to sell are calculated with 1% of the fair value). The
fair value is determined by discounting notional royalty
savings after tax and adding a tax amortization benefit,
resulting from the amortization of the acquired asset (‘relief-
from-royalty method’). These calculations use projections of
net sales-related royalty savings, based on financial planning
which covers a period of three years in total. The level of the
applied royalty rate for the determination of the royalty
savings is based on contractual agreements between adidas
and external licensees as well as publicly available royalty
rate agreements for similar assets. The royalty rates applied
are in a range between 3% and 4.5% of the respective
trademark-specific sales. Notional royalty savings beyond
this period are extrapolated using steady growth rates of 1.7%
(2016: 1.7%). The growth rates do not exceed the long-term
average growth rate of the business to which the trademarks
are allocated.
The discount rate is based on a weighted average cost of
capital calculation derived using a five-year average market-
weighted debt/equity structure and financing costs referencing
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the company’s major competitors. The discount rate used is
an after-tax rate and reflects the specific equity and country
risk. The applied discount rate depends on the respective
intangible asset being valued and ranges between 8.5% and
9.6% (2016: between 6.5% and 9.0%).
In total, trademark impairment losses of € 23 million were
recognized in 2017 (2016: € 0 million).
On the basis of the value in use determination of Runtastic on
the cash-generating unit level and due to adjusted growth
assumptions, an indication of a potential impairment was
identified. In the course of the trademark impairment test, the
recoverable amount of the Runtastic trademark in the amount
of € 16 million was determined to be lower than its carrying
amount and an
loss of € 15 million was
recognized. Regarding the determination of the fair value less
costs to sell, a royalty rate of 3.5% and a discount rate of 9.6%
was applied.
impairment
In the course of the trademark
impairment test, the
recoverable amount of the Five Ten trademark in the amount
of € 1 million was also determined to be lower than its
carrying amount. The impairment loss of € 8 million was
mainly due to the planned integration of the Five Ten
trademark into adidas by the end of 2020 and the resulting
limitation of its remaining useful life to three years.
For the Reebok trademark, there was no indication of a
potential impairment. Neither an increase in the discount rate
of up to approximately 2.0 percentage points nor a reduction
of trademark-specific sales of up to approximately 28.4% or of
the applied royalty rate of approximately 1.3 percentage points
would result in any impairment requirement. However, future
changes in expected cash flows and discount rates may lead
to impairments of the accounted trademarks in the future.
As part of the goodwill impairment test, the Reebok and the
Five Ten trademarks are allocated on a pro rata basis to the
groups of cash-generating units. Thereof, the major shares
relate to Western Europe (€ 353 million), USA Reebok
(€ 224 million), Russia/CIS
(€ 203 million) and Latin
America (€ 118 million). All other trademarks are part of the
respective groups of cash-generating units.
Amortization expenses for intangible assets with definite
useful lives were € 63 million and € 70 million for the years
ending December 31, 2017 and 2016, respectively. In 2017,
impairment losses on other intangible assets amounted to
€ 10 million (2016: € 10 million).
SEE NOTE 32
For details see Attachment I to the consolidated financial
statements
SEE STATEMENT OF MOVEMENTS OF INTANGIBLE AND TANGIBLE
ASSETS, P. 213
15 » LONG-TERM FINANCIAL ASSETS
Long-term financial assets primarily include an 8.33% invest-
ment in FC Bayern München AG (2016: 8.33%) of € 82 million
(2016: € 81 million). This investment is classified as ‘fair value
through profit or loss’ and recorded at fair value. This equity
security does not have a quoted market price in an active
market. Therefore, existing contractual arrangements were
used in order to calculate the fair value as at December 31, 2017.
The line item ‘Investments and loans’ comprises investments
which are mainly invested in insurance products, which are
measured at fair value, securities for long-term variable
compensation components as well as other loans. Investments
include impairment losses in an amount of € 11 million in
2017 (2016: € 0 million).
amounting to € 56 million (2016: € 50 million) which are
classified as ‘available-for-sale’ and measured at cost as a
reliable determination of the fair value is impossible without
having concrete negotiations regarding a sale. Other minority
shareholdings include impairment losses in an amount of
€ 20 million in 2017 (2016: € 5 million). These shares are
unlisted and do not have an active market. There is currently
no intention to sell these shares.
Long-term financial assets € in millions
Investment in FC Bayern München AG
Investments and loans
Other financial assets
Long-term financial assets
Dec. 31,
2017
Dec. 31,
2016
82
98
56
236
81
49
64
194
Other financial assets mainly
instruments.
include unquoted equity
16 » OTHER NON-CURRENT FINANCIAL ASSETS
Other non-current financial assets consist of the following:
Other non-current financial assets € in millions
Currency options
Forward exchange contracts
Security deposits
Earn-out components
Promissory notes
Sundry
Other non-current financial assets
Dec. 31,
2017
Dec. 31,
2016
14
1
67
19
118
0
219
18
13
34
–
30
0
96
1
7
4
The line item ‘Other financial assets’ includes the shares in
Immobilieninvest und Betriebsgesellschaft Herzo-Base
GmbH & Co. KG as well as other minority shareholdings
For further information about currency options and forward
exchange contracts
SEE NOTE 30
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
NOTES
For information about promissory notes and earn-out
components
SEE NOTE 03
The amounts disclosed as gross borrowings represent
outstanding borrowings under the following arrangements
with aggregated expiration dates as follows:
17 » OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
Other non-current assets € in millions
Gross borrowings as at December 31, 2017 € in millions
Prepaid expenses
Sundry
Other non-current assets
Dec. 31,
2017
Dec. 31,
2016
108
0
108
94
0
94
Bank borrowings incl. commercial paper
Eurobond
Convertible bond
Total
Up to
1 year
Between
1 and 3 years
Between
3 and 5 years
More than
5 years
106
–
31
137
–
–
–
–
–
596
–
596
–
387
–
387
Total
106
983
31
1,120
Prepaid expenses mainly include prepayments for long-term
promotion contracts and rents.
SEE NOTES 39 AND 29
18 » BORROWINGS AND CREDIT LINES
Borrowings are denominated in a variety of currencies in which
adidas conducts its business. The largest portions of effective
gross borrowings (before liquidity swaps for cash management
purposes) as at December 31, 2017 are denominated in euros
(2017: 91%; 2016: 77%).
includes two Eurobonds amounting to
The above table
€ 1 billion in total issued on October 1, 2014. The seven-year
Eurobond of € 600 million matures on October 8, 2021 and has
a coupon of 1.25%. The twelve-year Eurobond of € 400 million
matures on October 8, 2026 and has a coupon of 2.25%. The
Eurobonds have denominations of € 1,000 each and were
priced with a spread of 68 basis points and 100 basis points,
respectively, above the corresponding euro mid-swap rate. The
issue price was fixed at 99.145% and 99.357%, respectively.
The weighted average interest rate on the Group’s gross
borrowings increased to 2.7% in 2017 (2016: 2.3%).
As at December 31, 2017, adidas had cash credit lines and
other long-term financing arrangements totaling € 3.3 billion
(2016: € 3.6 billion); thereof unused credit lines accounted for
In addition, as at
€ 2.1 billion
December 31, 2017, adidas had separate lines for the issuance
of letters of credit and guarantees
in an amount of
approximately € 0.2 billion (2016: € 0.2 billion).
(2016: € 2.0 billion).
In addition, gross borrowings include the outstanding portion of
the convertible bond for an aggregate nominal amount of
€ 31 million (2016: € 260 million) divided into denominations of
€ 200,000 which was issued on March 21, 2012. The bond has a
maximum maturity (including prolongation options) until
June 14, 2019. The coupon of the bond amounts to 0.25% and
is payable annually, commencing on June 14, 2013. The bond
is, at the option of the respective holder, convertible at any
time from and including May 21, 2012, up to and including
June 5, 2019, into up to 0.4 million new or existing adidas AG
shares (as at December 31, 2017). In 2017, the bondholders
converted an aggregate nominal amount of € 229 million of the
convertible bond into 2,814,470 adidas AG shares.
SEE NOTE 26
The convertible bond initially had a conversion premium of 40%
above the reference price of € 59.61, which resulted in an initial
conversion price of € 83.46 per share. As a consequence of
contractual provisions relating to dividend protection, the
conversion price was adjusted from € 81.57 to € 81.13 (2016:
€ 82.00 to € 81.57) per share. This adjustment became effective
on May 12, 2017. On June 14, 2017, the bondholders had the
right to call the bond from adidas AG at nominal value plus
interest accrued on the nominal amount. This option was not
utilized. adidas AG is entitled to redeem all remaining bonds as
a whole if, at any time, the aggregate principal amount of bonds
outstanding falls below 15% of the aggregate principal amount
of the bonds that were initially issued. Furthermore, as of
July 14, 2017, adidas AG is entitled to redeem all remaining
bonds as a whole if, on 20 of 30 consecutive trading days, the
adidas AG share price exceeds the current conversion price of
€ 81.13 by at least 30%.
According to IAS 32 ‘Financial Instruments: Presentation’, the
conversion right represented in the convertible bond constitutes
a financial instrument which at issuance is covered in the
capital reserve in an amount of € 55 million after deduction of the
issuance cost. The initial difference of € 59 million compared to
1
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NOTES
the nominal amount of € 500 million is accrued as interest
expense of the financial liability over the expected maturity of
the convertible bond using the ‘effective interest method’. As at
December 31, 2017, the
liability amounted to
€ 31 million (2016: € 257 million).
financial
Gross borrowings as at December 31, 2016 € in millions
For further information about currency options, forward
exchange contracts and commodity futures
SEE NOTE 30
For further information about finance lease obligations
SEE NOTE 29
Provisions for personnel mainly consist of provisions for
short- and long-term variable compensation components as
well as of provisions for social plans relating to restructuring
measures.
Bank borrowings incl. commercial paper
Eurobond
Convertible bond
Total
Up to
1 year
Between
1 and 3 years
Between
3 and 5 years
More than
5 years
379
–
257
636
–
–
–
–
–
595
–
595
–
387
–
387
Total
379
982
257
1,618
For further details on future cash outflows
SEE RISK AND
OPPORTUNITY REPORT, P. 131
20 » OTHER PROVISIONS
Other provisions consist of the following:
19 » OTHER CURRENT FINANCIAL LIABILITIES
Other current financial liabilities consist of the following:
Other provisions € in millions
Other current financial liabilities € in millions
Currency options
Forward exchange contracts
Finance lease obligations
Earn-out components
Sundry
Other current financial liabilities
Dec. 31,
2017
Dec. 31,
2016
3
271
0
21
67
362
1
109
3
7
81
201
Marketing
Personnel
Returns, allowances and warranty
Taxes, other than income taxes
Sundry
Other provisions
The line item ‘Sundry’ mainly relates to payables due to the
divestiture of operating segments and due to customs duties.
Marketing provisions mainly consist of provisions
for
promotion contracts, which are comprised of obligations to
clubs and athletes.
Provisions for returns, allowances and warranty primarily
arise due to bonus agreements with customers and the
obligation of fulfilling customer claims with regard to the
return of products sold by adidas. The amount of the provision
follows the historical development of returns, allowances and
warranty as well as current agreements.
Provisions for taxes other than income taxes mainly relate to
value added tax, real estate tax and motor vehicle tax.
Sundry provisions mainly include provisions for customs
risks, onerous contracts and provisions due to the divestiture
of operating segments.
Jan. 1,
2017
Currency
translation
differences
Usage
Reversals
Additions
Transfers
Dec. 31,
2017
Thereof
non-current
28
99
230
36
224
617
(3)
(10)
(16)
(4)
(11)
(45)
(17)
(56)
(187)
(14)
(78)
(351)
(0)
(1)
(2)
(0)
(14)
(18)
26
96
251
9
260
642
(7)
(11)
(16)
0
10
(24)
27
117
261
27
391
821
–
33
–
–
47
80
1
7
6
Management
from similar
follows past experience
transactions when assessing the recognition and the
measurement of other provisions; in particular external legal
opinions are considered for provisions for customs risks and
for litigation and other legal risks. All evidence from events
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until the preparation of the consolidated financial statements
is taken into account.
The transfers include reclassifications to ‘Liabilities classified
as held for sale’.
21 » ACCRUED LIABILITIES
Accrued liabilities consist of the following:
Accrued liabilities € in millions
Goods and services not yet invoiced
Marketing and sales
Personnel
Sundry
Accrued liabilities
Jan. 1,
2017
Currency
translation
differences
Usage
Reversals
Additions
Transfers
Dec. 31,
2017
Thereof
non-current
708
748
633
54
(44)
(35)
(31)
(4)
(530)
(516)
(439)
(26)
2,143
(113)
(1,511)
(22)
(18)
(4)
(5)
(49)
766
639
492
21
(46)
(11)
(57)
(10)
833
806
595
30
1,919
(124)
2,265
1
3
76
5
85
Accrued liabilities for marketing and sales mainly consist of
accruals for distribution, such as discounts, rebates and sales
commissions.
22 » OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
Other current liabilities € in millions
Accrued liabilities for personnel mainly consist of accruals for
outstanding salary payments, such as bonuses and overtime,
as well as outstanding vacation.
Sundry accrued liabilities mainly include accruals for interest
as well as for dismantling costs.
Tax liabilities other than income taxes
Liabilities due to personnel
Liabilities due to social security
Deferred income
Customers with credit balances
The transfers include reclassifications to ‘Liabilities classified
as held for sale’.
Sundry
Other current liabilities
Dec. 31,
2017
200
Dec. 31,
2016
131
65
22
53
54
78
473
65
24
43
85
86
434
The line item ‘Sundry’ mainly consists of liabilities relating to
franchise store openings and advance payments from customers.
23 » OTHER NON-CURRENT FINANCIAL
LIABILITIES
Other non-current financial liabilities consist of the following:
Other non-current financial liabilities € in millions
Currency options
Forward exchange contracts
Revaluation total return swap
Finance lease obligations
Earn-out components
Sundry
Other non-current financial liabilities
Dec. 31,
2017
Dec. 31,
2016
0
14
4
3
5
1
22
1
2
–
4
15
0
22
For further information about currency options and forward
exchange contracts
SEE NOTE 30
For further information about finance lease obligations
SEE NOTE 29
24 » PENSIONS AND SIMILAR OBLIGATIONS
adidas has recognized post-employment benefit obligations
arising from defined benefit plans. The benefits are provided
pursuant to the legal, fiscal and economic conditions in each
respective country and mainly depend on the employees’
years of service and remuneration.
Pensions and similar obligations € in millions
Liability arising from defined benefit pension
plans
Similar obligations
Pensions and similar obligations
1
7
7
Dec. 31,
2017
Dec. 31,
2016
295
2
298
338
17
355
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Defined contribution pension plans
The total expense for defined contribution plans amounted to
€ 67 million in 2017 (2016: € 66 million).
Defined benefit pension plans
Given the company’s diverse structure, different defined
benefit pension plans exist, comprising a variety of post-
employment benefit arrangements. The company’s major
defined benefit pension plans relate to adidas AG and its
subsidiaries in the UK and South Korea. The defined benefit
pension plans generally provide payments in case of death,
disability or retirement to former employees and their
survivors. The obligations arising from defined benefit
pension plans are partly covered by plan assets.
In Germany, adidas AG grants its employees contribution-
based and final salary defined benefit pension schemes,
which provide employees with entitlements in the event of
retirement, disability and death. German pension plans
operate under the legal framework of the German Company
Pensions Act (‘Betriebsrentengesetz’) and under general
German labor legislation. New employees are entitled to
benefits in accordance with the adidas Pension Plan or the
adidas Management Pension Plan. The adidas Pension Plan is
a matching contribution plan; the contributions to this pension
plan are partly paid by the employee and partly paid by the
employer. The contributions are transferred into benefit
components. The benefits are paid out in the form of a
pension, a lump sum or installments. The pension plans in
Germany are financed using book reserves, a contractual
trust arrangement (CTA) and a pension fund (‘Pensionsfonds’)
in
fund
(‘Unterstützungskasse’) for certain former members of the
Executive Board of adidas AG. Further details about the
pension entitlements of members of the Executive Board
of adidas AG are contained in the Compensation Report.
reinsured provident
combination with
a
SEE COMPENSATION REPORT, P. 39
The final salary defined benefit pension scheme in the UK is
closed to new entrants and to future accrual. The benefits are
mainly paid out in the form of pensions. The scheme operates
under UK trust law as well as under the jurisdiction of the UK
Pensions Regulator and therefore is subject to a minimum
funding requirement. The Trustee Board is responsible for
the
setting
contributions with the company and determining the
investment strategy of the scheme.
funding objective, agreeing
the scheme’s
Breakdown of the present value of the obligation arising from defined
benefit pension plans in the major countries € in millions
Active members
Former employees with vested rights
Pensioners
Total
In South Korea, adidas grants a final pay pension plan to
certain employees. This plan is closed to new entrants. The
benefits are paid out in the form of a lump sum. The pension
plan operates under the Employee Retirement Benefit
Security Act (ERSA). This regulation requires a minimum
funding amounting to 80% of the present value of the vested
benefit obligation. The annual contribution includes at least
the minimum amount
in order to meet the funding
requirements. The pension plan at TaylorMade South Korea
was derecognized due to the divestiture of the TaylorMade
business as at October 2, 2017.
SEE NOTE 04
Dec. 31, 2017
Dec. 31, 2016
Germany
UK
South Korea
Germany
UK
South Korea
203
106
77
386
–
52
7
59
18
–
–
18
211
76
86
375
–
69
4
73
17
–
–
17
The Group’s pension plans are subject to risks from changes in
actuarial assumptions, such as the discount rate, salary and
pension increase rates, and risks from changes in longevity. A
lower discount rate results in a higher defined benefit obligation
and/or in higher contributions to the pension funds. Lower than
expected performance of the plan assets could lead to an
increase in required contributions or to a decline of the funded
status.
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The following tables analyze the defined benefit plans, plan
assets, present values of the defined benefit pension plans,
expenses recognized in the consolidated income statement,
actuarial assumptions and further information.
Weighted average actuarial assumptions
in %
Amounts for defined benefit pension plans recognized in
the consolidated statement of financial position
€ in millions
Discount rate
Expected rate of salary increases
Expected pension increases
Dec. 31,
2017
Dec. 31,
2016
2.3
3.7
1.6
2.1
3.1
1.7
The weighted average actuarial assumptions as at the balance
sheet date are used to determine the defined benefit liability at
that date and the pension expense for the upcoming financial
year.
The actuarial assumptions for withdrawal and mortality rates
are based on statistical information available in the various
countries. In Germany, the Heubeck 2005 G mortality tables are
used. In the UK, assumptions are based on the S2PA base table
with modified improvement of the life expectancy mortality
tables. In South Korea, the KIDI 2015 tables from the Korean
Insurance Development Institute are used.
As in the previous year, the calculation of the pension liabilities
in Germany is based on a discount rate determined using the
‘Mercer Yield Curve (MYC)’ approach.
Present value of funded obligation from
defined benefit pension plans
Fair value of plan assets
Funded status
Present value of unfunded obligation from
defined benefit pension plans
Asset ceiling effect
Net defined benefit liability
Thereof: liability
Thereof: adidas AG
Thereof: asset
Thereof: adidas AG
Dec. 31,
2017
Dec. 31,
2016
482
(218)
264
31
0
295
295
248
(0)
–
485
(178)
307
31
0
338
338
275
(0)
–
The determination of assets and liabilities for defined benefit
plans is based upon statistical and actuarial valuations. In
particular, the present value of the defined benefit obligation is
driven by financial variables (such as the discount rates or
future increases in salaries) and demographic variables (such
as mortality and employee turnover). The actuarial assumptions
may differ significantly from the actual circumstances and
could lead to different cash flows.
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Remeasurements, such as gains or losses arising from
changes in the actuarial assumptions for defined benefit
pension plans during the financial year or a return on the plan
assets exceeding the
immediately
recognized outside the income statement as a change in other
reserves in the consolidated statement of comprehensive
income.
income, are
interest
Of the total pension expenses recorded in the consolidated
income statement, an amount of € 25 million (2016:
€ 16 million) relates to employees of adidas AG, € 0.6 million
(2016: € 0.2 million) relates to employees in the UK and
€ 2.8 million (2016: € 3 million) relates to employees
in
South Korea. The pension expense is mainly recorded within
other operating expenses. The production-related part of the
pension expenses is recognized within cost of sales.
Pension expenses for defined benefit pension plans
€ in millions
Present value of the defined benefit obligation
€ in millions
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
2017
2016
Current service cost
Net interest expense
Thereof: interest cost
Thereof: interest income
Past service cost/(credit)
Gain on plan settlements
Expenses for defined benefit pension plans
(recognized in the consolidated income
statement)
Actuarial (gains)/losses
Thereof: due to changes in financial
assumptions
Thereof: due to changes in demographic
assumptions
Thereof: due to experience adjustments
Return on plan assets (not included in net
interest income)
Asset ceiling effect
Remeasurements for defined benefit pension
plans (recognized as (increase)/decrease in
other reserves in the consolidated statement of
comprehensive income)
Total
27
7
11
(4)
1
(0)
34
(21)
(22)
(2)
2
(7)
(0)
(29)
5
17
6
11
(5)
(0)
(1)
23
89
70
(1)
21
(6)
(0)
84
106
Present value of the obligation from defined
benefit pension plans as at January 1
Currency translation differences
Current service cost
Interest cost
Contribution by plan participants
Pensions paid
Payments for plan settlements
Actuarial (gains)/losses
Thereof: due to changes in financial
assumptions
Thereof: due to changes in demographic
assumptions
Thereof: due to experience adjustments
Past service cost/(credit)
Gain on plan settlements
Business combinations/transfers/divestitures
Present value of the obligation from defined
benefit pension plans as at December 31
516
(7)
27
11
0
(11)
0
(21)
(22)
(2)
2
1
(0)
(2)
419
(8)
17
11
0
(11)
(2)
89
70
(1)
21
(0)
(1)
1
513
516
1
8
0
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In the following table, the effects of reasonably conceivable
changes in the actuarial assumptions on the present value of
the obligation from defined benefit pension plans are
analyzed. In addition, for Germany, the UK and South Korea
the average duration of the obligation is shown.
Approximately 93% (2016: 92%) of the total plan assets are
allocated to plan assets in the three major countries: Germany
(2017: 63%, 2016: 57%), UK (2017: 23%, 2016: 28%) and South
Korea (2017: 7%, 2016: 8%).
In the UK, the plan assets are held under trust within the
pension fund. The investment strategy is aligned with the
structure of the pension obligations in these countries. In the
rest of the world, the plan assets consist predominantly of
insurance contracts.
Sensitivity analysis of the obligation from defined benefit pension plans € in millions
Present value of the obligation from defined benefit pension plans
Increase in the discount rate by 0.5%
Reduction in the discount rate by 0.5%
Average duration of the obligations (in years)
Since many pension plans are closed to future accrual or are
not dependent on the salary, the salary trend plays a minor role
in determining pension obligations. Due to the fact that about
half of the benefits of the German pension plans are paid as
lump sums or installment payments, the pension increase rate
and the mortality assumption have significantly less impact
than the discount rate when calculating the pension obligations.
Fair value of plan assets € in millions
Fair value of plan assets at January 1
Currency translation differences
Pensions paid
Contributions by the employer
Contributions paid by plan participants
Interest income from plan assets
Return on plan assets (not included in net
interest income)
Settlement payments
Business combinations/transfers/divestitures
Fair value of plan assets at December 31
2017
178
(3)
(4)
36
0
4
7
–
(1)
218
2016
173
(7)
(3)
6
0
5
6
(1)
–
178
Dec. 31, 2017
Dec. 31, 2016
Germany
UK
South Korea
Germany
UK
South Korea
386
355
422
17
59
51
67
28
18
18
19
7
375
344
412
18
73
63
85
30
17
16
18
8
Part of the plan assets in Germany is held by a trustee under
a Contractual Trust Arrangement (CTA) for the purpose of
funding the pension obligations of adidas AG and insolvency
insurance with regard to part of the pension obligations of
adidas AG. The trustee is the registered association adidas
Pension Trust e.V. The investment committee of the adidas
Pension Trust determines the investment strategy with the
goal to match the pension liabilities as far as possible and to
generate a sustainable return. In August 2014, an amount of
€ 65 million in cash was transferred to the trustee. In addition,
in 2017, an amount of € 30 million in cash was transferred to
the trustee. The plan assets in the registered association are
mainly invested in real estate, equity index funds and hybrid
bonds. Another part of the plan assets in Germany is invested
in insurance contracts via pension funds or provident funds.
For this portion, an insurance entity is responsible for the
determination and the implementation of the investment
strategy.
The expected payments for the 2018 financial year amount to
€ 43 million. Thereof, € 6 million relates to benefits directly
paid to pensioners by the subsidiaries and € 37 million to
employer contributions paid into the plan assets. In 2017, the
actual return on plan assets (including interest income) was
€ 11 million (2016: € 10 million).
Composition of plan assets € in millions
Cash and cash equivalents
Equity instruments
Bonds
Real estate
Pension plan reinsurance
Investment funds
Insurance policies
Other assets
Dec. 31,
2017
Dec. 31,
2016
19
26
26
50
46
51
–
0
28
59
34
13
44
–
0
0
Fair value of plan assets
218
178
All equities and bonds are traded freely and have a quoted
market price in an active market.
At each balance sheet date, the company analyzes the over- or
underfunding and, where appropriate, adjusts the composition
of plan assets.
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25 » OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
Other non-current liabilities € in millions
Liabilities due to personnel
Deferred income
Sundry
Other non-current liabilities
Dec. 31,
2017
Dec. 31,
2016
2
51
0
53
5
41
0
46
26 » SHAREHOLDERS’ EQUITY
The nominal capital of adidas AG has remained unchanged
since December 31, 2016. As at the balance sheet date, and in
the period beyond, up to and including February 23, 2018, it
amounted to € 209,216,186 divided into 209,216,186 registered
no-par-value shares and is fully paid in.
Each share grants one vote and is entitled to dividends starting
from the beginning of the year it was issued. Treasury shares
held directly or indirectly are not entitled to dividend payment
in accordance with § 71b German Stock Corporation Act
(Aktiengesetz – AktG). As at the balance sheet date, adidas AG
held 5,354,952 treasury shares, corresponding to a notional
amount of € 5,354,952 in the nominal capital and consequently
2.56% of the nominal capital. As at February 23, 2018,
adidas AG holds 5,322,731 treasury shares, corresponding to
a notional amount of € 5,322,731 in the nominal capital and
consequently 2.54% of the nominal capital.
Authorized Capital
The Executive Board of adidas AG did not utilize the existing
amount of authorized capital of up to € 90 million in the 2017
financial year or in the period beyond the balance sheet date
up to and including February 23, 2018.
The following overview of the existing amounts of authorized
capital refers to § 4 sections 2, 3, 4 and 5 of the Articles of
Association and consequently does not include the Authorized
Capitals 2013/I, 2013/III and 2015 canceled by the Annual
General Meeting on May 11, 2017, which had also not been
utilized up to May 11, 2017. The authorized capital of adidas AG
entitles the Executive Board, subject to Supervisory Board
approval, to increase the nominal capital
until June 7, 2022
— by issuing new shares against contributions in cash once or
several times by no more than € 50 million and, subject to
Supervisory Board approval, to exclude residual amounts
from shareholders’ subscription rights (Authorized Capital
2017/I);
until June 7, 2020
— by issuing new shares against contributions in kind once
or several times by no more than € 16 million and, subject
to Supervisory Board approval, to exclude shareholders’
subscription rights (Authorized Capital 2017/II);
until June 7, 2022
— by issuing new shares against contributions in cash
once or several times by no more than € 20 million and,
subject to Supervisory Board approval, to exclude residual
amounts from shareholders’ subscription rights and to
exclude shareholders’ subscription rights when issuing
the new shares at a value not essentially below the stock
market price of the adidas AG shares already listed on
the stock exchange at the point in time when the issue
price is ultimately determined, which should be as close
as possible to the placement of the shares; this exclusion
of subscription rights can also be associated with the
listing of the adidas AG shares on a foreign stock exchange
(Authorized Capital 2017/III). The authorization to exclude
subscription rights pursuant to the previous sentence may,
however, only be used to the extent that the pro rata amount
of the new shares in the nominal capital together with the
pro rata amount in the nominal capital of other shares
which have been issued by adidas AG since May 11, 2017,
subject to the exclusion of subscription rights pursuant to
or in accordance with § 186 section 3 sentence 4 AktG on the
basis of an authorized capital or following a repurchase, or
for which subscription or conversion rights or subscription
or conversion obligations have been granted since May 11,
2017, through the issuance of convertible bonds and/or
bonds with warrants, with subscription rights excluded in
accordance with § 186 section 3 sentence 4 AktG, does not
exceed 10% of the nominal capital existing on the date of
the entry of this authorization into the commercial register
or – if this amount is lower – as of the respective date on
which the resolution on utilization of the authorization is
adopted; the overall amount of shares issued based on
the Authorized Capital 2017/III and the Authorized Capital
2017/II must not exceed 10% of the nominal capital existing
on the date of the respective issuance;
until June 14, 2021
— by issuing up to 4,000,000 new shares against contributions
in cash once or several times by no more than € 4 million
and, subject to Supervisory Board approval, to determine the
further content of the rights embodied in the shares and the
terms and conditions of the share issuance. Shareholders’
subscription rights shall be excluded (Authorized Capital
2016). Any repurchased treasury shares of adidas AG which
are used by adidas AG for employee stock purchase plans
during the term of this authorization shall be attributed
to the maximum number of 4,000,000 shares. The new
shares may only be issued to (current or former) employees
of adidas AG and its affiliated companies as well as to
(current and former) members of management bodies of
the adidas AG’s affiliated companies.
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Contingent Capital
The following description of the Contingent Capital is based
on § 4 sections 6 and 7 of the Articles of Association of
adidas AG as well as on the underlying resolutions of the
Annual General Meetings held on May 6, 2010 and May 8, 2014.
Additional contingent capital does not exist.
Contingent Capital 2010 and Convertible Bond
The nominal capital of adidas AG is conditionally increased by
up to € 36 million (Contingent Capital 2010). The Contingent
Capital serves the purpose of granting holders or creditors of
bonds that were issued up to May 5, 2015 based on the
resolution of the Annual General Meeting on May 6, 2010
subscription or conversion rights relating to no more than
in compliance with the
a total of 36,000,000 shares
corresponding conditions of the bonds. The new shares shall
be issued at the respective option or conversion price to be
established
the aforementioned
authorization resolution. The new shares shall carry dividend
rights from the commencement of the financial year in which
the shares are issued.
in accordance with
share are convertible into 6,163,246 shares of adidas AG. The
conversion price currently amounts to € 81.13 per share. The
convertible bond bears an interest rate of 0.25% per annum.
Bondholders were entitled to demand early redemption of the
bonds as at June 14, 2017. Since July 14, 2017, adidas AG may
conduct an early redemption of the bond, if, on 20 of 30
consecutive trading days, the share price of adidas AG exceeds
the current conversion price of € 81.13 by at least 30%. The
bonds are listed on the Open Market segment of the Frankfurt
Stock Exchange. For details regarding the servicing of the
convertible bond with treasury shares
SEE REPURCHASE AND USE
OF TREASURY SHARES, P. 183
rights to choose to deliver adidas AG shares for the total
amount or a part amount instead of payment of the amount
due and insofar as no cash settlement, treasury shares or
shares of another publicly listed company are used to service
these rights. The new shares will be issued at the respective
option or conversion price to be established in accordance
with the aforementioned authorization resolution. The new
shares will carry dividend rights from the commencement of
the financial year in which the shares are issued. The Executive
Board is authorized, subject to Supervisory Board approval, to
stipulate any additional details concerning the implementation
of the contingent capital increase.
Moreover, the authorization to issue bonds with warrants and/
or convertible bonds granted on May 6, 2010 was canceled by
resolution of the Annual General Meeting on May 8, 2014.
The Executive Board of adidas AG did not issue shares from
the Contingent Capital 2010 up to the balance sheet date and
in the period beyond the balance sheet date up to and including
February 23, 2018.
On March 14, 2012, the Executive Board, with the approval of
the Supervisory Board, made partial use of the authorization
of the Annual General Meeting from May 6, 2010, and on
March 21, 2012 issued a convertible bond due on June 14, 2019
(including a prolongation option) in a nominal value of
€ 500 million via an offer to institutional investors outside the
USA excluding shareholders’ subscription rights. In principle,
the conversion rights are exercisable at any time between
May 21, 2012 and June 5, 2019, subject to lapsed conversion
rights as set out under § 6 section 3 or to the excluded periods
as defined by § 6 section 4 of the bond terms and conditions,
and (subject to an adjustment of the conversion ratio resulting
from the dilution adjustment regulations set out under § 10 or
a change of control in accordance with § 13 of the bond terms
and conditions) based on a conversion price of € 81.13 per
Contingent Capital 2014
At the balance sheet date, the nominal capital is conditionally
increased by up to € 12.5 million divided into not more than
12,500,000 shares (Contingent Capital 2014). The contingent
capital increase will be implemented only to the extent that
holders or creditors of option or conversion rights or the
persons obligated to exercise the option or conversion duties
based on bonds issued by adidas AG or a subordinated Group
company, pursuant to the authorization of the Executive Board
granted by the resolution adopted by the Annual General
Meeting on May 8, 2014 (Agenda Item 7), up to May 7, 2019 and
guaranteed by adidas AG, exercise their option or conversion
rights or, if they are obliged to exercise the option or conversion
duties, meet their obligations to exercise the warrant or
convert the bond, or to the extent that adidas AG exercises its
Up to the balance sheet date and in the period beyond the
balance sheet date up to and including February 23, 2018, the
Executive Board of adidas AG did not issue any bonds based
on the authorization granted on May 8, 2014 and consequently
did not issue any shares from the Contingent Capital 2014.
Repurchase and use of treasury shares
Against the background of the introduction of an employee
stock purchase plan, the Annual General Meeting of May 12, 2016
canceled the authorization of the Executive Board to repurchase
treasury shares granted on May 8, 2014, which was used in
2014 and 2015. At the same time, the Annual General Meeting
granted the Executive Board a new authorization to repurchase
treasury shares up to an amount totaling 10% of the nominal
capital until May 11, 2021. The authorization may be used by
adidas AG but also by its subordinated Group companies or by
third parties on account of adidas AG or its subordinated
Group companies or third parties assigned by adidas AG or
one of its subordinated Group companies.
Based on the authorization to repurchase treasury shares
granted by the Annual General Meeting on May 8, 2014, the
adidas AG Executive Board commenced a share buyback
program on November 7, 2014.
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NOTES
Under the granted authorization, adidas AG repurchased a
total of 4,889,142 shares for a total price of € 299,999,987
(excluding incidental purchasing costs), i.e. for an average price
of € 61.36 per share, in a first tranche between November 7,
2014 and December 12, 2014 inclusive. This corresponded to
a notional amount of € 4,889,142 in the nominal capital and
consequently to 2.34% of the nominal capital. The shares
were repurchased for cancelation (capital reduction) or
otherwise used to meet obligations arising from the potential
conversion of adidas AG’s € 500 million convertible bond.
Under the granted authorization, adidas AG repurchased a
total of 4,129,627 shares for a total price of € 299,999,992
(excluding incidental purchasing costs), i.e. for an average
price of € 72.65 per share, in a second tranche between
March 6, 2015 and June 15, 2015 inclusive. This corresponded
to a notional amount of € 4,129,627 in the nominal capital and
consequently to 1.97% of the nominal capital.
The shares were repurchased for cancelation (capital reduction)
or otherwise used to meet obligations arising from the potential
conversion of adidas AG’s € 500 million convertible bond.
Based on the authorization granted by the Annual General
Meeting on May 12, 2016, adidas AG repurchased a total of
2,128,200 shares for a total price of € 299,999,851 (excluding
incidental purchasing costs), i.e. for an average price of
€ 140.96 per share, in a third tranche between November 8,
2016 and January 31, 2017 inclusive. This corresponded to a
notional amount of € 2,128,200 in the nominal capital and
consequently to 1.02% of the nominal capital. The repurchased
shares were either canceled, thus reducing the nominal
capital, or used to meet obligations arising from the potential
conversion of adidas AG’s € 500 million convertible bond and
other admissible purposes under the authorization granted
by the Annual General Meeting on May 12, 2016. The share
buyback program expired on December 31, 2017.
For details
SEE DISCLOSURES PURSUANT TO § 315A SECTION 1 AND § 289A
SECTION 1 OF THE GERMAN COMMERCIAL CODE, P. 120
In the 2017 financial year, a total of 2,814,470 treasury shares
were used to meet obligations arising from the conversion of
adidas AG’s convertible bond. In the 2018 financial year and
up to and including February 23, 2018, a total of 9,861 treasury
shares were used to meet obligations arising from the
conversion of adidas AG’s convertible bond.
Moreover, in the 2017 financial year, 30,420 treasury shares
and in the period beyond up to and including February 23,
2018, another 22,360 treasury shares were used as
consideration, inter alia for the transfer or licensing of
intellectual property rights and intangible property rights due
to contractual obligations.
In the 2017 financial year and up to and including February 23,
2018, adidas AG used a total of 2,877,111 treasury shares.
Employee stock purchase plan
In the 2016 financial year, adidas AG introduced an employee
stock purchase plan in favor of employees of adidas AG and its
affiliated companies.
On January 6, 2017, adidas AG purchased 25,699 adidas AG
shares at an average price of € 144.41 in connection with the
employee stock purchase plan. This corresponded to a total
price of € 3,711,236 (excluding incidental purchasing costs)
with a pro rata amount or an amount in the nominal capital of
€ 25,699 or 0.01%. All shares purchased for this purpose on
January 6, 2017 were issued to eligible employees on January 9,
2017 and on January 10, 2017.
On April 7, 2017, adidas AG purchased 20,086 adidas AG
shares at an average price of € 176.16 in connection with the
employee stock purchase plan. This corresponded to a total
price of € 3,538,364 (excluding incidental purchasing costs)
with a pro rata amount or an amount in the nominal capital of
€ 20,086 or 0.009%. All shares purchased for this purpose on
April 7, 2017 were issued to eligible employees on April 11, 2017.
On July 7, 2017, adidas AG purchased 22,563 adidas AG shares
at an average price of € 175.61 in connection with the
employee stock purchase plan. This corresponded to a total
price of € 3,962,498 (excluding incidental purchasing costs)
with a pro rata amount or an amount in the nominal capital of
€ 22,563 or 0.01%. All shares purchased for this purpose on
July 7, 2017 were issued to eligible employees on July 11, 2017.
On October 9, 2017, adidas AG purchased 20,454 adidas AG
shares at an average price of € 194.40 in connection with the
employee stock purchase plan. This corresponded to a total
price of € 3,976,337 (excluding incidental purchasing costs)
with a pro rata amount or an amount in the nominal capital of
€ 20,454 or 0.009%. All shares purchased for this purpose
on October 9, 2017 were issued to eligible employees on
October 11, 2017.
On January 8, 2018, adidas AG purchased 25,672 adidas AG
shares at an average price of € 173.27 in connection with the
employee stock purchase plan. This corresponded to a total
price of € 4,448,258 (excluding incidental purchasing costs) with
a pro rata amount or an amount in the nominal capital of
€ 25,672 or 0.01%. At the same time, adidas AG purchased
another 3,642 adidas AG shares at an average price of € 173.27,
which were used as matching shares. This corresponded to a
total price of € 631,059 (excluding incidental purchasing costs)
with a pro rata amount or an amount in the nominal capital
of € 3,642 or 0.002%. All shares purchased for this purpose
on January 8, 2018 were issued to eligible employees on
January 10, 2018. For details on the employee stock purchase
plan
SECTION 1 OF THE GERMAN COMMERCIAL CODE, P. 120
SEE DISCLOSURES PURSUANT TO § 315A SECTION 1 HGB AND § 289A
SEE NOTES 02 AND 27
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
NOTES
Changes in the percentage of voting rights
Pursuant to § 160 section 1 no. 8 AktG, existing shareholdings
which have been notified to adidas AG in accordance with
§ 33 section 1 or section 2 (and until December 31, 2017,
§ 21 section 1 or section 1a) German Securities Trading Act
(Wertpapier handelsgesetz – WpHG) need to be disclosed.
The following table reflects reportable shareholdings in
adidas AG, Herzogenaurach, as at the balance sheet date and
up to and including February 23, 2018 which have each been
notified to adidas AG in written form. The respective details
are taken from the most recent voting rights notification
received by adidas AG. All voting rights notifications dis-
closed by adidas AG in the year under review and up to and
including February 23, 2018 are available on the adidas
website. ↗ ADIDAS-GROUP.COM/S/VOTING-RIGHTS-NOTIFICATIONS The details
on the percentage of shareholdings and voting rights may no
longer be up to date.
Capital management
The company’s policy is to maintain a strong capital base so
as to uphold investor, creditor and market confidence and to
sustain future development of the business.
adidas seeks to maintain a balance between a higher return
on equity that might be possible with higher levels of
borrowings and the advantages and security afforded by a
sound capital position. The company further aims to maintain
net debt below two times EBITDA over the long term.
Notified reportable shareholdings as at February 23, 2018
Notifying party
Albert Frère 2
Fidelity Mt. Vernon Street Trust, Boston, MA, USA 3
adidas AG, Herzogenaurach, Germany 4
BlackRock, Inc., Wilmington, DE, USA 5
Elian Corporate Trustee (Cayman) Limited, Grand Cayman,
Cayman Islands 6
Date of reaching,
exceeding or
falling below
December 28,
2017
December 13,
2017
November 28,
2017
November 14,
2017
December 16,
2016
Reporting
threshold
Exceeding 5%
Falling below
3%
Falling below
3%
Exceeding 5%
Exceeding 5%
Notification
obligations and
attributions in
accordance with
WpHG 1
§ 33
§ 21
§§ 22, 25 sec. 1
no. 1 and § 25
sec. 1 no. 2
§§ 22, 25 sec. 1
no. 2
FMR LLC, Wilmington, DE, USA 7
May 12, 2016
Exceeding 5%
§ 22
Capital Research and Management Company, Los Angeles,
CA, USA 8
July 22, 2015
Exceeding 3%
The Capital Group Companies, Inc., Los Angeles, CA, USA 9
July 22, 2015
Exceeding 3%
§ 22 sec. 1
sent. 1 no. 6
§ 22 sec. 1
sent. 1 no. 6
in conjunction
with § 22 sec. 1
sent. 2 and 3
Shareholdings
in %
Number of voting
rights
7.50
2.99
2.62
7.38
5.71
5.31
3.02
15,694,711
6,258,487
5,478,213
15,448,941
11,950,482
11,117,704
6,325,110
3.02
6,325,110
1 The provisions of the WpHG stated refer to the version applicable at the time of publication of the respective individual voting rights notification. Until December 31, 2017, the notification obligations and
attributions were regulated in §§ 21 et seq. WpHG and have been regulated in §§ 33 et seq. since January 1, 2018.
2 See adidas AG’s disclosure dated February 8, 2018.
3 See adidas AG’s disclosure dated December 20, 2017.
4 See adidas AG’s disclosure dated December 4, 2017.
5 See adidas AG’s disclosure dated November 20, 2017.
6 See adidas AG’s disclosure dated December 22, 2016.
7 See adidas AG’s disclosure dated May 19, 2016.
8 See adidas AG’s disclosure dated July 29, 2015.
9 See adidas AG’s disclosure dated July 28, 2015.
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5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
NOTES
Financial leverage amounts to negative 7.5% (2016: positive
1.6%) and is defined as the ratio between net borrowings
(short- and long-term borrowings less cash and cash
equivalents as well as short-term financial assets) in an
amount of negative € 484 million (2016: positive € 103 million)
and shareholders’ equity in an amount of € 6.450 billion (2016:
€ 6.472 billion). EBITDA (continuing operations) amounted to
€ 2.511 billion for the financial year ending December 31, 2017
(2016: € 1.953 billion). The ratio between net borrowings and
EBITDA (continuing operations) amounted to negative 0.2 for the
financial year ending December 31, 2017 (2016: positive 0.1).
Reserves
Reserves within shareholders’ equity are as follows:
— Capital reserve: primarily comprises the paid premium
for the issuance of share capital as well as the equity
component of the issued convertible bond.
— Cumulative currency translation differences: comprises
all foreign currency differences arising from the translation
of the financial statements of foreign operations.
— Hedging reserve: comprises the effective portion of the
cumulative net change in the fair value of cash flow hedges
related to hedged transactions that have not yet occurred as
well as of hedges of net investments in foreign subsidiaries.
— Other reserves: comprises the remeasurements of defined
benefit plans consisting of the cumulative net change of
actuarial gains or losses relating to the defined benefit
obligations, the return on plan assets (excluding interest
income) and the asset ceiling effect, expenses recognized
for share option plans, effects from the acquisition of
non-controlling interests, as well as reserves required
by law.
— Retained earnings: comprises both amounts which are
required by the Articles of Association and voluntary
amounts that have been set aside by adidas. The reserve
includes the unappropriated accumulated profits less
dividends paid and consideration paid for the repurchase
of treasury shares exceeding the nominal value. In addition,
the item includes the effects of the employee stock
purchase plan.
The capital reserve includes restricted capital in an amount of
€ 4 million. Furthermore, other reserves include additional
restricted capital in an amount of € 47 million.
Distributable profits and dividends
Profits distributable to shareholders are determined by
reference to the retained earnings of adidas AG and calculated
under German Commercial Law.
Based on the resolution of the 2017 Annual General Meeting,
the dividend for 2016 was € 2.00 per share (total amount:
€ 405 million). The Executive Board of adidas AG will propose
to use retained earnings of adidas AG in an amount of
€ 573 million as reported in the 2017 financial statements of
adidas AG for a dividend payment of € 2.60 per dividend-
entitled share for the year 2017 as at December 31, 2017 and
to carry forward the subsequent remaining amount.
As at December 31, 2017, 203,861,234 dividend-entitled
shares exist, resulting in a dividend payment of € 530 million.
27 » SHARE-BASED PAYMENT
Equity-settled share-based payment transactions with employees
In 2016, adidas announced the introduction of an open-ended
employee stock purchase plan (the ‘plan’). The plan is
operated on a quarterly basis, with each calendar quarter
referred to as an ‘investment quarter’. The investment shares
granted in the first investment quarter between October 1, 2016
and December 31, 2016 were issued to the eligible employees
on January 9, 2017 and January 10, 2017, respectively. The
investment shares granted in the second investment quarter
between January 1, 2017 and March 31, 2017 were issued to
the eligible employees on April 11, 2017. The investment
shares granted in the third investment quarter between
April 1, 2017 and June 30, 2017 were issued to the eligible
employees on July 11, 2017. The investment shares granted
in the fourth investment quarter between July 1, 2017 and
September 30, 2017 were issued to the eligible employees on
October 11, 2017.
The plan enables employees to purchase adidas AG shares
with a 15% discount (‘investment shares’) and to benefit from
free matching shares. Currently, eligible employees of
adidas AG and eleven other subsidiaries can participate in the
plan. Up to two weeks before the start of an investment
quarter each eligible employee can enroll for the plan. The
company accepts enrollment requests on the first day of the
relevant investment quarter. This is the grant date for the
investment and matching shares. The fair value at the vesting
date is equivalent to the fair value of the granted equity
instruments at this date. The employees invest an amount up
to 10% of their gross base salary per quarter in the plan. A few
days after the end of the investment quarter the shares are
purchased on the market at fair market value and transferred
to the employees. Thereby the amount invested during the
quarter plus the top-up from adidas is used. These shares can
be sold at any time by the employee. If the shares are held for
a period of one year after the last day of an investment quarter,
employees will receive one-time free matching shares (one
matching share for every six adidas AG shares acquired). This
plan currently constitutes an equity-settled share-based
payment for both elements. For the component of the
matching shares relating to the specific period of service an
appropriate discount is taken into account. The effects are
presented in the following table:
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
NOTES
Equity-settled share-based payment transactions with employees
As at December
31, 2016
As at December 31, 2017
1st investment
quarter
1st investment
quarter
2nd investment
quarter
3rd investment
quarter
4th investment
quarter
5th investment
quarter
Grant date
Oct. 1, 2016
Oct. 1, 2016
Jan. 2, 2017
April 3, 2017
July 3, 2017
Oct. 2, 2017
Share price at grant date (in €)
Share price at December 31 (in €)
Number of granted investment
shares based on the share price as
at December 31
Number of actually purchased investment
shares
Outstanding granted matching shares
based on the share price as at
December 31 or actually purchased
investment shares
Average remaining vesting period in
months as at December 31 (in months)
157.40
150.15
157.40
151.30
175.85
168.90
196.10
167.15
24,665
–
–
–
–
26,671
–
25,699
20,086
22,563
20,454
–
4,110
12
3,643
3,016
3,429
3,077
0
3
6
9
4,445
12
The number of forfeited matching shares during the period
amounted to 1,463 (2016: 0).
As at December 31, 2017, the total expenses recognized
relating to investment shares amounted to € 2.5 million (2016:
€ 0.6 million).
Expenses recognized relating to vesting of matching shares
amounted to € 1.4 million in 2017 (2016: € 0.1 million).
As at December 31, 2017, a total amount of € 4 million (2016:
€ 3 million) was invested by the participants in the stock
purchase plan and was not yet transferred into shares by the
end of December 2017. Therefore, this has been included in
‘Other current financial liabilities’.
SEE NOTE 19
Equity-settled share-based payment transactions with third parties
In 2016, adidas entered into a promotion and advertising
contract, which includes a share-based payment transaction
with third parties. The contract has a duration of five years
and will end in 2021.
The first part of the agreement grants a one-time transfer of
basic shares over five years which correspond to a value of
US $ 5 million each year. Based on the contractual terms, the
first transfer in 2017 equated to 30,420 shares. The shares
from the third tranche of repurchased shares with an average
price of € 140.96 per share were used as a consideration.
SEE NOTE 26
As at January 1, 2017 (grant date), an amount of € 5 million
was recognized as expenses for basic shares over the vesting
period of twelve months.
The second part of the agreement grants bonus shares of
US $ 5 million if certain conditions are fulfilled. This option can
be granted two times. As at December 31, 2017, it was likely
that the bonus shares will be issued. Therefore, expenses
recognized for bonus shares amounting to € 1.4 million were
accrued in 2017.
Cash-settled share-based payment transactions with employees
In 2017, adidas implemented a Long-Term Incentive (LTI)
plan, which is a share-based remuneration scheme with cash
settlement. RSUs (Restricted Stock Units) are granted on the
condition that the beneficiary is employed for three or four
years by adidas AG or one of its subsidiaries in a position
where he or she is not under notice during that period. This
minimum period of employment pertains to the calendar year
in which the RSUs are granted and the three subsequent
calendar years.
The total value of the cash remuneration payable to senior
management is recalculated on each reporting date and on
the settlement date, based on the fair value of the RSUs, and
recognized through an appropriate increase in the provision
as personnel expenses that are spread over the period of
service of the beneficiary. Furthermore, social security
contributions are considered in the calculation of the fair
value, if appropriate for the respective country regulations
and the seniority of the participants. All changes to the
subsequent measurement of this provision are reported
under personnel expenses.
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FINANCIAL REVIEW
STATEMENTS
NOTES
Due to the implementation of the new LTI, one tranche with a
three-year term and another with a four-year term were
issued in 2017. The number of RSUs granted depends on the
seniority of the beneficiaries. In addition, for the four-year
plan, the number of RSUs also depends on the achievement of
a target figure which is based on the growth of the diluted
earnings per share from continuing operations.
28 » NON-CONTROLLING INTERESTS
This line item within equity comprises the non-controlling
interests in subsidiaries which are not directly or indirectly
attributable to adidas AG.
Non-controlling interests are assigned to two subsidiaries as
at December 31, 2017 and 2016, respectively.
SEE ATTACHMENT II
TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEE SHAREHOLDINGS OF
The value of one RSU is the average price of the adidas AG
share as quoted for the first 20 stock exchange trading days in
January of the respective financial year.
ADIDAS AG, HERZOGENAURACH, P. 215 These subsidiaries were partly
acquired in connection with the acquisition of Reebok and
partly through purchases or foundations in the last years.
At December 31, 2017, the calculation of the provision is
based on a fair value of € 161.61 per RSU for the three-year
cycle and a fair value of € 157.91 per RSU for the four-year
cycle. The fair value is based on the closing price of the
adidas AG share on December 29, 2017, adjusted for future
dividend payments.
With respect to the consolidated financial statements of
adidas AG, on a single basis, no subsidiary has a material
non-controlling interest.
For the following subsidiaries with non-controlling interests
the main financial information is presented combined.
Financial information on subsidiaries with
non-controlling interests € in millions
Net sales (third parties)
Net income
Net income attributable to
non-controlling interests
Other comprehensive income
Total comprehensive income
Total comprehensive income attributable to
non-controlling interests
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Non-controlling interests
Dec. 31,
2017
Dec. 31,
2016
185
20
3
17
38
4
98
16
(63)
(1)
50
168
15
2
(1)
15
2
85
16
(55)
(1)
44
The average risk-free interest rate is based on German
government securities and is 0.71% for the three-year cycle
and 0.67% for the four-year cycle.
At December 31, 2017, the RSU Plan worldwide comprised
408,236 RSUs from the three-year tranche and 331,143 RSUs
from the four-year tranche. The RSUs for the three-year
tranche were issued in 2017. In 2017, this resulted in an expense
of € 31 million. The corresponding provision amounted to
€ 31 million.
Subsidiaries with non-controlling interests
Legal entity name
Principal
place of
business
Ownership interests held
by non-controlling interests
(in %)
Life Sport Ltd.
Reebok India Company
Israel
India
Dec. 31,
2017
15%
6.85%
Dec. 31,
2016
15%
6.85%
Net assets attributable to non-controlling
interests according to the consolidated
statement of financial position
(15)
(17)
Net cash generated from operating activities
Net cash used in investing activities
Net cash (used in)/generated from financing
activities
Net increase of cash and cash equivalents
Dividends paid to non-controlling interests
during the year 1
1 Included in net cash used in financing activities.
14
(3)
(6)
5
1
18
(8)
0
10
2
The following table presents the main financial information on
subsidiaries with non-controlling interests.
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FINANCIAL REVIEW
STATEMENTS
NOTES
29 » LEASING AND SERVICE ARRANGEMENTS
Operating leases
adidas leases primarily retail stores as well as offices,
warehouses and equipment. The contracts regarding these
leases with expiration dates of between one and 21 years
partly include renewal options and escalation clauses. Rent
expenses (continuing operations), which partly depend on net
sales, amounted to € 779 million and € 707 million for the
years ending December 31, 2017 and 2016, respectively.
Minimum lease payments for finance leases in 2017 include
land leases with a remaining lease term of 95 years. The
minimum lease payments under these contracts amount to
€ 11 million. The estimated amount representing interest is
€ 10 million and the present value amounts to € 2 million.
The net present values and the minimum lease payments
under these contracts over their remaining terms up to 2020
and the land leases with a remaining lease term of 95 years
are as follows:
Financial commitments for service arrangements
€ in millions
Within 1 year
Between 1 and 5 years
After 5 years
Total
Dec. 31,
2017
Dec. 31,
2016
181
255
0
437
134
233
0
366
Future minimum
durations on a nominal basis are as follows:
lease payments
for minimum
lease
Minimum lease payments for finance leases
€ in millions
Minimum lease payments for operating leases
€ in millions
Within 1 year
Between 1 and 5 years
After 5 years
Total
Dec. 31,
2017
Dec. 31,
2016
722
1,341
586
2,649
688
1,289
523
2,501
Finance leases
adidas also leases various premises for administration and
warehousing which are classified as finance leases.
The net carrying amount of these assets of € 5 million and
€ 8 million was included in property, plant and equipment as
at December 31, 2017 and 2016, respectively. For the year
ending December 31, 2017,
interest expenses (continuing
operations) were € 0 million (2016: € 0 million) and depreciation
expenses (continuing operations) were € 3 million (2016:
€ 4 million).
Dec. 31,
2017
Dec. 31,
2016
Lease payments falling due:
Within 1 year
Between 1 and 5 years
After 5 years
Total minimum lease payments
0
1
11
13
Less: estimated amount representing interest
(10)
Present value of minimum lease payments
Thereof falling due:
Within 1 year
Between 1 and 5 years
After 5 years
3
0
0
2
3
1
12
16
(10)
6
3
1
2
Service arrangements
adidas has outsourced certain logistics and information
technology functions, for which it has entered into long-term
contracts. Financial commitments under these contracts
mature as follows:
1
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FINANCIAL REVIEW
STATEMENTS
NOTES
30 » FINANCIAL INSTRUMENTS
Additional disclosures on financial instruments
Carrying amounts of financial instruments as at December 31, 2017, according to categories of IAS 39 and their fair values € in millions
Category according to
IAS 39
Carrying amount
Dec. 31, 2017
Amortized cost
Fair value recognized
in equity
Fair value recognized
in net income
Measurement
according to
IAS 17
Fair value
Dec. 31, 2017
Measurement according to IAS 39
Financial assets
Cash and cash equivalents
Short-term financial assets
Accounts receivable
Other current financial assets
Derivatives being part of a hedge
Derivatives not being part of a hedge
Other financial assets
Long-term financial assets
Other equity investments
Available-for-sale financial assets
Loans
Other non-current financial assets
Derivatives being part of a hedge
Derivatives not being part of a hedge
Promissory notes
Earn-out components
Other financial assets
1 Investments in other equity instruments are measured at cost less impairment losses
n. a.
FAHfT
LaR
n. a.
FAHfT
LaR
FAHfT
AfS
LaR
n. a.
FAHfT
AfS
AfS
LaR
1,598
5
2,315
82
28
283
82
145
9
1
14
118
19
67
1,598
2,315
283
56 1
9
67
82
89
1
5
28
82
14
118
19
1,598
5
2,315
82
28
283
82
145
9
1
14
118
19
67
1
9
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
NOTES
Carrying amounts of financial instruments as at December 31, 2017, according to categories of IAS 39 and their fair values € in millions
Category according to
IAS 39
Carrying amount
Dec. 31, 2017
Amortized cost
Fair value recognized
in equity
Fair value recognized
in net income
Measurement
according to
IAS 17
Fair value
Dec. 31, 2017
Measurement according to IAS 39
Financial liabilities
Short-term borrowings
Bank borrowings
Convertible bond
Accounts payable
Current accrued liabilities
Other current financial liabilities
Derivatives being part of a hedge
Derivatives not being part of a hedge
Earn-out components
Other financial liabilities
Finance lease obligations
Long-term borrowings
Eurobond
Convertible bond
Non-current accrued liabilities
Other non-current financial liabilities
Derivatives being part of a hedge
Derivatives not being part of a hedge
Earn-out components
Other financial liabilities
Finance lease obligations
Thereof: aggregated by category according to IAS 39
Financial assets at fair value through profit or loss
Thereof: designated as such upon initial recognition (Fair Value Option - FVO)
Thereof: Held for Trading (FAHfT)
Loans and Receivables (LaR)
Available-for-Sale Financial Assets (AfS)
Financial Liabilities Measured at Amortized Cost (FLAC)
Financial Liabilities at fair value through profit or loss Held for Trading (FLHfT)
1 Investments in other equity instruments are measured at cost less impairment losses
FLAC
FLAC
FLAC
FLAC
n. a.
FLHfT
n. a.
FLAC
n. a.
FLAC
FLAC
FLAC
n. a.
FLHfT
n. a.
FLAC
n. a.
106
31
1,975
837
250
24
21
67
0
983
–
1
9
5
5
1
3
129
−
129
2,674
282
4,001
29
106
31
1,975
837
67
983
–
1
1
250
9
24
21
5
5
106
63
1,975
837
250
24
21
67
0
1,035
–
1
9
5
5
1
3
0
3
1
9
1
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Carrying amounts of financial instruments as at December 31, 2016, according to categories of IAS 39 and their fair values € in millions
Category according to
IAS 39
Carrying amount
Dec. 31, 2016
Amortized cost
Fair value recognized
in equity
Fair value recognized
in net income
Measurement
according to
IAS 17
Fair value
Dec. 31, 2016
Measurement according to IAS 39
Financial assets
Cash and cash equivalents
Short-term financial assets
Accounts receivable
Other current financial assets
Derivatives being part of a hedge
Derivatives not being part of a hedge
Promissory notes
Other financial assets
Long-term financial assets
Other equity investments
Available-for-sale financial assets
Loans
Other non-current financial assets
Derivatives being part of a hedge
Derivatives not being part of a hedge
Promissory notes
Other financial assets
1 Investments in other equity instruments are measured at cost less impairment losses
n.a.
FAHfT
LaR
n.a.
FAHfT
AfS
LaR
FAHfT
AfS
LaR
n.a.
FAHfT
AfS
LaR
1,510
5
2,200
325
44
15
345
81
102
10
15
17
30
34
1,510
2,200
345
64 1
10
34
325
39
15
5
44
15
81
17
30
1,510
5
2,200
325
44
15
345
81
102
10
15
17
30
34
1
9
2
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Carrying amounts of financial instruments as at December 31, 2016, according to categories of IAS 39 and their fair values € in millions
Category according to
IAS 39
Carrying amount
Dec. 31, 2016
Amortized cost
Fair value recognized
in equity
Fair value recognized
in net income
Measurement
according to
IAS 17
Fair value
Dec. 31, 2016
Measurement according to IAS 39
Financial liabilities
Short-term borrowings
Bank borrowings
Convertible bond
Accounts payable
Current accrued liabilities
Other current financial liabilities
Derivatives being part of a hedge
Derivatives not being part of a hedge
Earn-out components
Other financial liabilities
Finance lease obligations
Long-term borrowings
Eurobond
Convertible bond
Non-current accrued liabilities
Other non-current financial liabilities
Derivatives being part of a hedge
Derivatives not being part of a hedge
Earn-out components
Other financial liabilities
Finance lease obligations
Thereof: aggregated by category according to IAS 39
Financial assets at fair value through profit or loss
Thereof: designated as such upon initial recognition (Fair Value Option – FVO)
Thereof: Held for Trading (FAHfT)
Loans and Receivables (LaR)
Available-for-Sale Financial Assets (AfS)
Financial Liabilities Measured at Amortized Cost (FLAC)
Financial Liabilities at fair value through profit or loss Held for Trading (FLHfT)
1 Investments in other equity instruments are measured at cost less impairment losses
FLAC
FLAC
FLAC
FLAC
n.a.
FLHfT
n.a.
FLAC
n.a.
FLAC
FLAC
FLAC
n.a.
FLHfT
n.a.
FLAC
n.a.
379
257
2,496
704
87
24
7
81
3
982
–
9
2
1
15
0
4
148
–
148
2,590
148
4,909
24
379
257
2,496
704
81
982
–
9
0
87
2
24
7
1
15
379
476
2,496
704
87
24
7
81
3
1,048
–
9
2
1
15
0
4
3
4
1
9
3
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Fair value hierarchy of financial instruments according to IFRS 13 as at December 31, 2017 € in millions
Short-term financial assets
Derivative financial instruments
Derivatives being part of a hedge
Derivatives not being part of a hedge
Long-term financial assets
Promissory notes
Earn-out components
Financial assets
Short-term borrowings
Derivative financial instruments
Derivatives being part of a hedge
Derivatives not being part of a hedge
Long-term borrowings
Earn-out components
Financial liabilities
1 Net gains in the amount of € 4 million and losses in the amount of € 3 million due to currency translation differences were recognized in equity in 2017.
Level 1 is based on quoted prices in active markets for identical assets or liabilities.
Level 2 is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Fair value
Dec. 31, 2017
Level 1
Level 2
Level 3
5
83
42
227
118
19
494
169
259
29
1,035
25
1,517
1,035
1,035
5
83
42
89 1
218
169
259
29
457
138
118
19
276
25
25
1
9
4
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Fair value hierarchy of financial instruments according to IFRS 13 as at December 31, 2016 € in millions
Short-term financial assets
Derivative financial instruments
Derivatives being part of a hedge
Derivatives not being part of a hedge
Long-term financial assets
Promissory notes
Financial assets
Short-term borrowings
Derivative financial instruments
Derivatives being part of a hedge
Derivatives not being part of a hedge
Long-term borrowings
Earn-out components
Financial liabilities
1 Net gains in the amount of € 2 million and gains in the amount of € 1 million due to currency translation differences were recognized in equity in 2016.
Level 1 is based on quoted prices in active markets for identical assets or liabilities.
Level 2 is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Fair value
Dec. 31, 2016
Level 1
Level 2
Level 3
5
339
62
184
45
636
855
89
24
1,048
22
2,039
1,048
1,048
5
339
62
39 1
445
855
89
24
969
145
45
190
22
22
1
9
5
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Reconciliation of fair value hierarchy level 3 in 2017 € in millions
Long-term financial
assets
This category relates to an 8.33% investment in FC Bayern München AG of
€ 82 million. Dividends are distributed by FC Bayern München AG instead
of regular interest payments. These dividends are recognized in other
financial income.
Promissory note
Promissory note
Promissory notes
Earn-out components
(assets)
On July 26, 2017, adidas signed a definitive agreement to sell the CCM Hockey
operating segment which was divested on September 1, 2017. The transaction
included a promissory note. The discounted cash flow method is applied. The
fair value adjustment is recognized in discontinued operations.
On May 10, 2017, adidas signed a definitive agreement to sell its TaylorMade
business including the brands TaylorMade, Adams Golf and Ashworth (together
TaylorMade) which was divested on October 2, 2017. The transaction included
a promissory note. The discounted cash flow method is applied. The fair value
adjustment is recognized in discontinued operations.
On January 23, 2015, adidas signed a definitive agreement to sell the Rockport
operating segment which was divested on July 31, 2015. The transaction
included contingent promissory notes. The discounted cash flow method is
applied. The fair value adjustment is recognized in discontinued operations.
On May 10, 2017, adidas signed a definitive agreement to sell its TaylorMade
business including the brands TaylorMade, Adams Golf and Ashworth (together
TaylorMade). The transaction included earn-out components which are
measured based on the Monte Carlo method. The earn-out components are
dependent on the achievement of certain performance measures over the first
five years. The fair value adjustment is recognized in discontinued operations
Investments in other
equity instruments
The change in fair value refers to recognized impairment losses resulting from
one or more events where objective evidence of an impairment was identified,
considering expectations regarding future business development. The
impairment is recognized in other financial result.
Earn-out components
(liabilities)
The aquisition of Runtastic includes earn-out components which are measured
based on the discounted cash flow method. The earn-out components are
dependent on retention of the Runtastic management as well as on the
achievement of certain performance measures over the first three years after
the acquisition. The fair value adjustment refers to accretion and is recognized
in interest result.
Fair value
Jan. 1, 2017
Additions
Disposals
Gains
Losses
Currency
translation
Fair value
Dec. 31, 2017
81
–
–
45
–
64
22
–
36
86
–
19
26
–
–
–
–
–
(14)
–
(2)
1
–
–
–
–
–
–
–
(1)
(0)
(40)
–
(20)
5
–
–
(3)
(5)
–
–
–
82
35
83
–
19
56
25
1
9
6
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Reconciliation of fair value hierarchy level 3 in 2016 € in millions
Long-term financial
assets
This category relates to an 8.33% investment in FC Bayern München AG of
€ 81 million. Dividends are distributed by FC Bayern München AG instead
of regular interest payments. These dividends are recognized in other
financial income.
Promissory notes
On January 23, 2015, adidas signed a definitive agreement to sell the Rockport
operating segment which was divested on July 31, 2015. The transaction
included contingent promissory notes. The discounted cash flow method is
applied. The fair value adjustment is recognized in discontinued operations.
Investments in other
equity instruments
The change in fair value refers to recognized impairment losses resulting from
one or more events where objective evidence of an impairment was identified,
considering expectations regarding future business development. The
impairment is recognized in other financial result.
Earn-out components
(liabilities)
The aquisition of Runtastic includes earn-out components which are measured
based on the discounted cash flow method. The earn-out components are
dependent on retention of the Runtastic management as well as on the
achievement of certain performance measures over the first three years after
the acquisition. The fair value adjustment refers to accretion and is recognized
in interest result.
Fair value
Jan. 1, 2016
Additions
Disposals
Gains
Losses
Currency
translation
Fair value
Dec. 31, 2016
81
42
22
21
–
–
47
–
–
–
–
–
1
2
–
–
–
–
(5)
1
–
1
–
–
81
45
64
22
Due to the short-term maturities of cash and cash equivalents,
short-term financial assets, accounts receivable and payable
as well as other current financial receivables and payables,
their respective fair values equal their carrying amount.
The fair values of non-current financial assets and liabilities
are estimated by discounting expected future cash flows using
current interest rates for debt of similar terms and remaining
maturities and adjusted by a company-specific credit risk
premium.
Fair values of long-term financial assets classified as
‘Available-for-sale’ are based on quoted market prices in an
active market or are calculated as present values of expected
future cash flows.
The fair values of currency options, forward exchange
contracts and commodity futures are determined on the basis
of market conditions at the balance sheet date. The fair value
of a currency option is determined using generally accepted
models to calculate option prices. The fair market value of an
option is influenced not only by the remaining term of the
option, but also by other determining factors such as the
actual foreign exchange rate and the volatility of the underlying
foreign currency base.
In accordance with IFRS 13, the following tables show the
valuation methods used in measuring Level 1, Level 2 and
Level 3 fair values, as well as the significant unobservable
inputs used.
1
9
7
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Financial instruments Level 1 not measured at fair value
Type
Convertible bond
Eurobond
Valuation method
The fair value is based on the market price of the convertible bond as at December 31, 2017.
The fair value is based on the market price of the Eurobond as at December 31, 2017.
Significant
unobservable inputs
Not applicable
Not applicable
Category
FLAC
FLAC
Financial instruments Level 2 measured at fair value
Type
Valuation method
Short-term financial assets
The discounted cash flow method is applied, which considers the present value of expected payments, discounted using
a risk-adjusted discount rate. Due to their short-term maturities, it is assumed that their respective fair value is equal to
the notional amount.
Available-for-sale financial assets
The fair value is based on the market price of the assets as at December 31, 2017.
Forward exchange contracts
In 2017, adidas applied the par method (forward NPV) for all currency pairs to calculate the fair value, implying actively
traded forward curves.
Currency options
Commodity futures
adidas applies the Garman-Kohlhagen model, which is an extended version of the Black-Scholes model.
The fair value is determined based on commodity forward curves, discounted by deposit and swap interest rates.
Significant
unobservable inputs
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Total return swap (for own shares)
The fair value is based on the market price of the adidas AG share as at December 31, 2017, minus accrued interest.
Not applicable
Category
FAHfT
AfS
n.a./FAHfT
n.a./FAHfT
n.a./FAHfT
n.a./FLHfT
1
9
8
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Financial instruments Level 3 measured at fair value
Type
Valuation method
Investment in
FC Bayern München AG
Earn-out components (assets)
This equity security does not have a quoted market price in an active market.
Existing contractual arrangements (based on the externally observable dividend
policy of FC Bayern München AG) are used in order to calculate the fair value as
at December 31, 2017.
The valuation follows an option price model based on the ‘Monte Carlo
method’ to simulate future EBITDA values. The derived earn-out payments are
discounted using a risk-adjusted discount rate.
Promissory notes
Investments in other equity
instruments
The discounted cash flow method is applied which considers the present value
of expected payments, discounted using a risk-adjusted discount rate. The
expected payments are determined by considering the possible scenarios of
expected dividends, the amount to be paid under each scenario and the proba-
bility of each scenario.
These equity instruments do not have a quoted market price in an active
market. Existing contractual arrangements are used in order to calculate the
fair value as at December 31, 2017.
Significant
unobservable inputs
See column ‘Valuation method’
Inter-relationship between signif-
icant unobservable inputs and fair value
measurement
Risk-adjusted maturity-specific
discount rate
(2.1% – 4.9%)
EBITDA values, confidence level
Risk-adjusted maturity-specific
discount rate
(2.0% – 3.2%)
See column ‘Valuation method’
The estimated fair value would increase
(decrease) if the dividends were higher
(lower) or the risk-adjusted discount
rate was lower (higher).
The estimated fair value would increase
(decrease) if the dividends were higher
(lower) or the risk-adjusted discount
rate was lower (higher).
Earn-out components (liabilities)
The discounted cash flow method is applied, which considers the present value
of expected payments, discounted using a risk-adjusted discount rate.
Risk-adjusted discount rate
(1.75%)
The estimated fair value would increase
(decrease) if EBITDA were higher
(lower) or the risk-adjusted discount
rate were lower (higher).
Category
FAHfT
AfS
AfS
AfS
n.a.
Net gains/(losses) on financial instruments recognized
in the consolidated income statement
€ in millions
Financial assets or financial liabilities at fair
value through profit or loss
Thereof: designated as such upon initial
recognition
Thereof: classified as held for trading
Loans and receivables
Available-for-sale financial assets
Financial liabilities measured at
amortized cost
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
1
–
1
(60)
(56)
22
1
–
1
(35)
(3)
15
for trading
Net gains or losses on financial assets or financial liabilities
fair value
include the effects
held
measurements of the derivatives that are not part of a hedging
relationship, and changes in the fair value of other financial
instruments as well as interest expenses.
from
Net losses on available-for-sale financial assets mainly refer
to an adjustment to the fair value of the contingent
considerations in connection with the sale of the Rockport
operating segment in July 2015.
Net gains or losses on loans and receivables comprise mainly
impairment losses and reversals.
During the course of 2017, significant unobservable inputs
have not significantly changed with the exception of inputs for
the promissory note related to the agreement for the sale of
the Rockport operating segment. The dividend underlying the
determination of future cash flows is no longer expected. A
change in the discount rate by 1 percentage point or a
reduction of simulated future EBITDA values by 10% would
result in a reduction of fair values of 5% and approximately
10%, respectively.
Net gains or losses on financial liabilities measured at
amortized cost include effects from early settlement and
reversals of accrued liabilities.
1
9
9
The disclosures required by IFRS 7 ‘Financial Instruments:
Disclosures’, paragraphs 13A to 13F (‘Offsetting financial assets
and financial liabilities’) as well as 31 to 42 (‘Nature and Extent
of Risks arising from Financial Instruments’) can be found in
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NOTES
these Notes and in the Group Management Report.
SEE NOTE 07
SEE RISK AND OPPORTUNITY REPORT, P. 131
Notional amounts of all outstanding currency hedging
instruments € in millions
Financial instruments for the hedging of foreign exchange risk
adidas uses natural hedges and arranges forward exchange
contracts, currency options and currency swaps to protect
against foreign exchange risk. As at December 31, 2017,
adidas had outstanding currency options with premiums paid
totaling an amount of € 12 million (2016: € 15 million). The
effective part of the currency hedges is directly recognized in
hedging reserves and as part of the acquisition costs of
inventories, respectively, and posted
income
statement at the same time as the underlying secured
transaction is recorded. An amount of positive € 2 million
after taxes (2016: positive € 9 million) for currency options
and an amount of negative € 144 million after taxes (2016:
positive € 226 million) for forward exchange contracts were
recorded in hedging reserves. Currency option premiums
impacted net income in the amount of € 6 million in 2017
(2016: € 2 million).
into
the
The total time value of the currency options not being part of
a hedge in an amount of positive € 6 million (2016: positive
€ 7 million) was recorded in the income statement in 2017. In
2017, due to a change in the exposure, some of the currency
hedges were terminated and consequently an amount of
€ 1 million was reclassified from hedging reserves to the
income statement.
In the years ending December 31, 2017 and 2016, hedging
instruments related to product sourcing were bought to hedge
a total net amount of US $ 6.6 billion and US $ 6.5 billion,
respectively.
Forward exchange contracts
Currency options
Total
Dec. 31,
2017
11,327
565
11,892
Dec. 31,
2016
11,750
459
12,209
The comparatively high amount of forward exchange contracts
is primarily due to currency swaps for liquidity management
purposes and hedging transactions.
Of the total amount of outstanding hedges, the following
contracts related to the US dollar (i.e. the biggest single
exposure of product sourcing):
Notional amounts of outstanding US dollar hedging
instruments € in millions
Forward exchange contracts
Currency options
Total
Dec. 31,
2017
Dec. 31,
2016
5,201
453
5,654
6,156
405
6,561
The fair value of all outstanding currency hedging instruments
is as follows:
Fair values € in millions
Dec. 31, 2017
Dec. 31, 2016
Positive
fair value
Negative
fair value
Positive
fair value
Negative
fair value
The notional amounts of all outstanding currency hedging
instruments, which are mainly related to cash flow hedges,
are summarized in the following table:
Forward exchange
contracts
Currency options
Total
101
25
126
(280)
(3)
(283)
362
19
381
(112)
(1)
(113)
A total net fair value of negative € 178 million (2016: positive
€ 240 million) for forward exchange contracts related to
hedging instruments falling under hedge accounting as per
definition of IAS 39 ‘Financial Instruments: Recognition and
Measurement’ was recorded in the hedging reserve. The
remaining net fair value of negative € 2 million (2016: positive
€ 18 million), mainly related to currency swaps for liquidity
management purposes and to forward exchange contracts
hedging intercompany dividend receivables, was recorded in
the income statement. The total fair value of positive
€ 8 million (2016: positive € 18 million) for outstanding
currency options related to cash flow hedges. This consists of
a positive time value of € 7 million (2016: positive € 9 million)
and of a negative time value of negative € 1 million (2016:
negative € 1 million) and furthermore includes an intrinsic
value of the options in an amount of € 2 million.
The fair value adjustments of outstanding cash flow hedges
for future sales are reported in the income statement when
the planned sales transactions are recorded. The vast majority
of these transactions are expected to occur in 2018. In 2017, a
gain from hedges for sales transactions in an amount of € 60
million was realized (2016: € 26 million). At the balance sheet
date,
inventories were adjusted without affecting the
consolidated income statement by positive € 64 million (2016:
negative € 12 million) which will be recognized
in the
consolidated income statement at the expected realization of
the hedged item in 2018.
In the hedging reserve, a negative amount of € 90 million
(2016: negative € 92 million) is included for hedging the
currency risk of net investments in foreign entities, mainly for
the subsidiaries LLC ‘ adidas, Ltd.’ and adidas Sports (China)
Co. Ltd. This reserve will remain until the investment in the
foreign entity has been sold. As at December 31, 2017, no
ineffective part of the hedges was recorded in the income
statement.
2
0
0
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In order to determine the fair values of its derivatives that are
not publicly
adidas uses generally accepted
quantitative financial models based on market conditions
prevailing at the balance sheet date.
traded,
The fair values of derivatives were determined applying the
‘par method’ (forward NPV), which uses actively traded
forward rates.
NOTES TO THE CONSOLIDATED INCOME
STATEMENT
All figures related to the 2017 and 2016 financial years in the
‘Notes to the consolidated income statement’ refer to the
company’s continuing operations unless otherwise stated.
31 » OTHER OPERATING INCOME
Other operating income consists of the following:
Other operating income € in millions
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
Income from release of accrued liabilities and
other provisions
Income from accounts receivable previously
written off
Gains from disposal of fixed assets
Reversals of impairment losses for intangible
and tangible assets
Income from the early termination of
promotion contracts
Income from the divestiture of the Mitchell &
Ness business
Sundry income
Other operating income
60
2
3
1
2
0
65
133
54
3
3
2
69
39
92
262
For further information about the line item ‘Income from the
divestiture of the Mitchell & Ness business’
SEE NOTE 04
Income from government grants is reported as a deduction
from the related expenses and amounted to € 24 million in
2017 (2016: € 23 million).
income mainly relates
Sundry
reimbursements and from sub-licensing of trademarks.
income
to
from cost
32 » OTHER OPERATING EXPENSES
Other operating expenses
include expenses for sales,
marketing, research and development, as well as for logistics
and central administration less any income from government
grants, if applicable. In addition, other operating expenses
include impairment losses as well as depreciation of tangible
assets and amortization of intangible assets (except goodwill
impairment losses), with the exception of depreciation and
amortization which is included in the cost of sales.
investments
investments
for marketing
Expenditure
is a material
component of other operating expenses. The expenditure for
consists of promotion and
marketing
communication spending such as promotion contracts,
advertising, events and other communication activities.
However, it does not include marketing overhead expenses,
which are presented in marketing overheads. In 2017,
expenditure for marketing investments accounted for 24%
(2016: 24%) of the total other operating expenses.
Expenses for central administration include the functions IT,
Finance, Legal, Human Resources, Facilities & Services as
well as General Management.
Depreciation and amortization expense for tangible and
intangible assets (except goodwill impairment losses) and
impairment losses were € 453 million and € 370 million for
the years ending December 31, 2017 and 2016, respectively.
Thereof, amounts of € 2 million and € 2 million, respectively,
were recorded within the cost of sales as they are directly
assigned to the production costs.
Other operating expenses € in millions
Expenditure for marketing investments
Expenditure for point-of-sale investments
Marketing overhead 1
Sales force 1
Logistics 1
Research and development 1
Central administration 1
Other operating expenses
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
2,141
592
748
2,352
1,098
187
1,765
8,882
1,889
521
642
2,146
932
149
1,605
7,885
Thereof: depreciation, amortization and
impairment losses
451
369
1 Including personnel and administration expenses.
In 2017, the total sales and distribution costs amounted to
€ 6,930 million (2016: € 6,131 million).
33 » COST BY NATURE
Expenses are presented by function according to the ‘cost of
sales method’ in the income statement. Supplementary
information on the expenses by nature is detailed below.
Cost of materials
The total cost of materials relating to the amount of inventories
the period was
recognized as an expense during
€ 10.454 billion and € 9.324 billion for the years ending
December 31, 2017 and 2016, respectively.
2
0
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NOTES
regarding
Information
investments,
borrowings and financial instruments is also included in these
Notes.
available-for-sale
SEE NOTES 06, 15, 18 AND 30
35 » INCOME TAXES
adidas AG and its German subsidiaries are subject to German
corporate and trade taxes. For the years ending December 31,
2017 and 2016, the statutory corporate income tax rate of 15%
plus a surcharge of 5.5% thereon is applied to earnings. The
municipal trade tax is approximately 11.4% of taxable income.
For non-German subsidiaries, deferred taxes are calculated
based on tax rates that have been enacted or substantively
enacted by the closing date.
Deferred tax assets and liabilities
Deferred tax assets and liabilities are offset if they relate to
the same fiscal authority. The following deferred tax assets
and liabilities, determined after appropriate offsetting, are
presented in the consolidated statement of financial position:
Deferred tax assets/liabilities € in millions
Personnel expenses
Personnel expenses were as follows:
Personnel expenses € in millions
Wages and salaries
Social security contributions
Pension expenses
Personnel expenses
Financial expenses € in millions
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
2,234
214
101
2,549
2,091
197
84
2,373
Interest expense on financial instruments
measured at amortized cost
Interest expense on financial instruments at
fair value through profit or loss
Interest expense on other provisions and
non-financial liabilities
Other
Financial expenses
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
62
0
0
31
93
70
0
0
4
74
Personnel expenses are primarily included within other
operating expenses. Personnel expenses which are directly
attributable to the production costs of goods are included
within the cost of sales.
Interest income from financial instruments, measured at
amortized cost, mainly consists of interest income from bank
deposits and loans.
34 » FINANCIAL INCOME/FINANCIAL EXPENSES
Financial result consists of the following:
Financial income € in millions
Interest income from financial instruments
measured at amortized cost
Interest income from financial instruments at
fair value through profit or loss
Interest income from non-financial assets
Net foreign exchange gains
Other
Financial income
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
23
0
2
19
1
46
21
0
0
5
1
28
Interest income/expense from financial instruments at fair
value through profit or loss mainly includes interest payments
from investment funds as well as net interest payments from
interest derivatives not being part of a hedging relationship.
Unrealized gains/losses from fair value measurement of such
financial assets are shown in other financial income or
expenses.
Interest expense on financial instruments measured at
amortized cost mainly includes interest on borrowings and
effects from using the ‘effective interest method’.
Deferred tax assets
Deferred tax liabilities
Deferred tax assets, net
Interest expense on other provisions and non-financial
liabilities particularly includes effects from measurement of
other provisions at present value and interest on non-financial
liabilities such as tax payables.
Other financial expenses include impairment losses on other
financial assets amounting to € 31 million for the year ending
December 31, 2017 (2016: € 4 million).
Dec. 31,
2017
Dec. 31,
2016
630
(275)
355
732
(387)
345
2
0
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NOTES
Tax expenses
Tax expenses are split as follows:
Income tax expenses € in millions
Current tax expenses
Deferred tax expenses/(income)
Income tax expenses
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
649
19
668
482
(56)
426
The current tax expenses include interest and penalties in
respect of income tax.
The deferred tax income includes tax income of € 80 million in
total (2016: € 29 million) related to the origination and reversal
of temporary differences.
The movement of deferred taxes is as follows:
Movement of deferred taxes € in millions
Deferred tax assets, net as at January 1
Deferred tax (expense)/income
Change in consolidated companies 1
Change in deferred taxes attributable to
remeasurements of defined benefit plans
recorded in other comprehensive income 2
Change in deferred taxes attributable to the
change in the effective portion of the fair value
of qualifying hedging instruments recorded in
other comprehensive income 3
Currency translation differences
Deferred tax assets, net as at December 31
1 See Note 04.
2 See Note 24.
3 See Note 30.
2017
345
(19)
(17)
2016
269
56
1
(7)
21
68
(15)
355
(2)
0
345
Gross company deferred tax assets and liabilities after
valuation allowances, but before appropriate offsettings, are
attributable to the items detailed in the table below:
Deferred taxes € in millions
Non-current assets
Current assets
Accrued liabilities and provisions
Accumulated tax loss carry-forwards
Deferred tax assets
Non-current assets
Current assets
Accrued liabilities and provisions
Deferred tax liabilities
Deferred tax assets, net
Dec. 31,
2017
Dec. 31,
2016
150
219
302
30
702
255
69
23
347
355
202
193
334
76
805
346
68
46
460
345
Deferred tax assets are recognized only to the extent that the
realization of the related benefit
is probable. For the
assessment of probability, in addition to past performance
and the respective prospects for the foreseeable future,
appropriate tax structuring measures are also taken into
consideration.
Deferred tax assets for which the realization of the related tax
benefits is not probable decreased from € 731 million to
€ 518 million for the year ending December 31, 2017. These
amounts mainly relate to tax losses carried forward and
unused foreign tax credits of the US tax group, which begin to
expire in 2026. The remaining unrecognized deferred tax
assets relate to subsidiaries operating in markets where the
realization of the related tax benefit is not considered
probable.
The divestiture of TaylorMade has been reflected as a share
transaction in the US. Under US law, the buyer has the option
to elect to treat the transaction as an asset acquisition for
income tax purposes. In the event that the buyer chooses this
option, the deferred tax assets and liabilities in this regard
may change.
adidas does not recognize deferred tax
liabilities for
unremitted earnings of non-German subsidiaries to the extent
that they are expected to be permanently invested in
international operations. These earnings, the amount of
which cannot be practicably computed, could become subject
to additional tax if they were remitted as dividends or if the
company were to sell its shareholdings in the subsidiaries.
2
0
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NOTES
The company’s effective tax rate differs from an assumed tax
rate of 30% for the year ending December 31, 2017 as follows:
Tax rate reconciliation
Year ending Dec. 31, 2017
Year ending Dec. 31, 2016
€ in
millions
in %
€ in
millions
in %
607
30.0
434
30.0
(215)
(10.6)
(160)
(11.0)
44
2.2
48
3.3
37
87
2
563
105
668
1.8
4.3
0.1
27.8
5.2
33.0
51
(8)
0
365
61
426
3.5
(0.5)
0.0
25.3
4.2
29.5
Expected income
tax expenses
Tax rate
differentials
Non-deductible
expenses
Losses for which
benefits were
not recognizable
and changes
in valuation
allowances
Changes in tax
rates
Other, net
Withholding tax
expenses
Income tax
expenses
In 2017, the effective tax rate of 33.0% was affected by the US
tax reform. The one-time non-cash effect of € 76 million is
reflected in 2017 in the line item ‘Changes in tax rates’.
Excluding the effect of the US tax reform, the effective tax rate
in 2017 was 29.3%.
For 2016 and 2017, the line item ‘Losses for which benefits
were not recognizable and changes in valuation allowances’
mainly related to changes in valuation allowances for Brazil.
For 2017, the line item ‘Changes in tax rates’ mainly reflects
tax rate reductions in the US. For 2016, this line item mainly
reflected a UK tax rate reduction.
36 » EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the net
income
to
shareholders by the weighted average number of shares
outstanding during the year, excluding ordinary shares
purchased by adidas and held as treasury shares.
from continuing operations attributable
It is necessary to include 1.8 million and 6.0 million potential
dilutive shares arising from the convertible bond issuance in
March 2012 in the calculation of diluted earnings per share
in 2017 and 2016, respectively, as due to the potential dilutive
shares a dilutive effect resulted as at the balance sheet date.
SEE NOTE 18 The average share price reached € 176.02 per
share during 2017 and thus exceeded the conversion price of
€ 81.13 per share. As a consequence of contractual provisions
relating to dividend protection, the conversion price was
adjusted from € 81.57 to € 81.13 per share. This adjustment
became effective on May 12, 2017.
The bonus shares vested under the equity-settled share-based
payment program with third parties were not considered in the
calculation of the diluted earnings per share because the
conditions have not yet been met.
SEE NOTE 27
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NOTES
Earnings per share
Continuing operations
Discontinued operations
Total
Year ending
Dec. 31, 2017
Year ending
Dec. 31, 2016
Year ending
Dec. 31, 2017
Year ending
Dec. 31, 2016
Year ending
Dec. 31, 2017
Year ending
Dec. 31, 2016
Net income from continuing
operations (€ in millions)
Net income attributable to
non-controlling interests (€ in
millions)
Net income attributable to
shareholders (€ in millions)
Weighted average number of
shares
1,354
1,082
3
1,352
2
1,079
–
–
–
–
–
–
–
–
(254)
(62)
1,097
1,017
202,391,673
200,188,276
202,391,673
200,188,276
202,391,673
200,188,276
Basic earnings per share (in €)
6.68
5.39
(1.26)
(0.31)
5.42
5.08
Net income attributable to
shareholders (€ in millions)
Interest expense on convertible
bond, net of taxes (€ in
millions)
Net income used to determine
diluted earnings per share (€ in
millions)
Weighted average number of
shares
Weighted assumed conversion
of the convertible bond
Dilutive effect of share-based
payments
Weighted average number of
shares for diluted earnings per
share
1,352
1,079
(254)
1
12
–
1,353
1,091
(254)
(62)
–
(62)
1,097
1,017
1
12
1,099
1,029
202,391,673
200,188,276
202,391,673
200,188,276
202,391,673
200,188,276
1,846,245
5,958,632
1,846,245
5,958,632
1,846,245
5,958,632
2,712
–
2,712
–
2,712
–
204,240,629
206,146,908
204,240,629
206,146,908
204,240,629
206,146,908
Diluted earnings per share (in €)
6.63
5.29
(1.26)
(0.31)
5.38
4.99
For further information on basic and diluted earnings per
share from discontinued operations
SEE NOTE 03
ADDITIONAL INFORMATION
37 » SEGMENTAL INFORMATION
adidas operates predominantly in one industry segment –
the design, distribution and marketing of athletic and sports
lifestyle products.
As at December 31, 2017, following the company’s internal
management reporting by markets and in accordance with
the definition of IFRS 8 ‘Operating Segments’, 13 operating
segments were identified: Western Europe, North America
(excluding USA Reebok), USA Reebok, Greater China, Russia/
CIS, Latin America, Japan, Middle East, South Korea,
Southeast Asia/Pacific, adidas Golf, Runtastic and Other
centrally managed businesses. Due to the completed
divestitures of the former TaylorMade and CCM Hockey
operating segments on October 2, 2017 and September 1,
2017, respectively, income and expenses of the former
TaylorMade and CCM Hockey operating segments were
reported as discontinued operations as at December 31,
2017.
SEE NOTE 03 In 2017, the former operating segment
North America was split into two operating segments: North
America (excluding USA Reebok) and USA Reebok. The
operating segments Middle East, South Korea and Southeast
Asia/Pacific were aggregated to MEAA (’Middle East, Africa
and other Asian markets’). The operating segments North
America (excluding USA Reebok) and USA Reebok were
aggregated to North America. Furthermore, the former
operating segment TaylorMade- adidas Golf was split into
the operating segments TaylorMade and
adidas Golf.
According to the criteria of IFRS 8 for reportable segments,
the operating segments Western Europe, North America,
Greater China, Russia/CIS, Latin America, Japan and MEAA
are reported separately. The remaining operating segments
are aggregated under Other Businesses due to their only
subordinate materiality. Historic and estimated future
economic indicators that have been assessed in determining
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0
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that the aggregated operating segments share similar
characteristics were profitability characteristics on net
margin and contribution level, gross domestic product (GDP)
growth rates as well as consumer price inflation.
There are no intersegment sales between the reportable
segments. Accounting and valuation policies applied for
reporting segmental information are the same as those used
for adidas.
SEE NOTE 02
Each market comprises all wholesale, retail and e-commerce
business activities relating to the distribution and sale of
products of the adidas and Reebok brands to retail customers
and end consumers.
adidas Golf comprises the distribution and sale of adidas
Golf branded products.
The results of the operating segments are reported in the
line item ‘Segmental operating profit’. This is defined as
gross profit minus other operating expenses plus royalty and
commission income and other operating income attributable
to the segment or group of segments, however without
considering headquarter costs and central expenditure for
marketing investments.
Runtastic operates in the digital health and fitness space.
The company provides a comprehensive ecosystem for
tracking and managing health and fitness data.
Other centrally managed businesses primarily includes the
business activities of the Y-3 label.
Certain centralized corporate functions do not meet the
definition of IFRS 8 for an operating segment. This includes,
in particular, functions such as Global Brands and Global
Sales (central brand and distribution management for the
adidas and Reebok brands), central treasury, global sourcing
as well as other headquarter functions. Assets, liabilities,
income and expenses relating to these corporate functions
are presented in the reconciliations.
The chief operating decision maker for adidas has been
defined as the entire Executive Board of adidas AG.
impairment
Segmental assets include accounts receivable as well as
inventories. Only these items are reported to the chief
operating decision maker on a regular basis. Depreciation,
amortization, impairment losses (except for goodwill) and
reversals of
losses as well as capital
expenditures for tangible and intangible assets are part of
the segmental reporting, even though segmental assets do
not contain tangible and intangible assets. Depreciation and
amortization as well as impairment losses and reversals
of impairment losses not directly attributable to a segment
or a group of segments are presented under HQ and
Consolidation in the reconciliations.
Segmental liabilities only contain accounts payable from
operating activities as there are no other liability items
reported regularly to the chief operating decision maker.
Interest income and interest expenses as well as income
taxes are not allocated to the reportable segments and are
not reported separately to the chief operating decision
maker.
2
0
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NOTES
Segmental information I € in millions
Net sales
(third parties) 1
Segmental
operating profit 1
Segmental
assets 2
Segmental
liabilities 2
2017
2016
2017
2016
2017
2016
2017
2016
Western Europe
North America
Greater China
Russia/CIS
Latin America
Japan
MEAA
5,883
4,275
3,789
660
1,907
1,056
2,907
5,291
3,412
3,010
679
1,731
1,007
2,685
1,178
468
1,342
136
268
266
847
951
214
1,060
105
227
207
722
1,728
1,500
627
216
724
236
715
1,595
1,273
507
284
757
218
751
Reportable segments
20,479
17,816
4,504
3,485
5,747
5,385
Other Businesses (continuing operations)
Other Businesses (discontinued operations)
Other Businesses
Total
1 Year ending December 31.
2 At December 31.
739
667
1,405
21,885
667
808
1,475
19,291
68
26
95
52
(66)
(14)
306
–
306
594
–
594
4,599
3,471
6,053
5,978
129
77
153
7
66
44
88
563
26
–
26
589
200
117
167
6
73
38
90
691
143
–
143
834
Reconciliations
The following tables include reconciliations of segmental
information to the aggregate numbers of the consolidated
financial statements, taking into account items which are not
directly attributable to a segment or a group of segments.
Net sales (third parties) € in millions
Reportable segments
Other Businesses
Reclassification to discontinued operations
Total
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
20,479
1,405
(667)
21,218
17,816
1,475
(808)
18,483
Segmental information II € in millions
Operating profit € in millions
Western Europe
North America
Greater China
Russia/CIS
Latin America
Japan
MEAA
Reportable segments
Other Businesses (continuing operations)
Other Businesses (discontinued operations)
Other Businesses
Total
1 Year ending December 31.
75
62
120
38
29
20
41
385
9
7
16
401
76
87
97
47
48
14
60
430
5
7
12
442
50
32
71
27
28
14
36
258
10
7
17
275
40
21
52
21
22
13
31
199
12
14
26
225
1
4
2
1
1
0
2
11
13
7
20
30
1
2
2
0
0
1
1
7
(1)
2
1
8
Capital
expenditure 1
Depreciation and
amortization 1
Impairment losses
and reversals of
impairment losses 1
2017
2016
2017
2016
2017
2016
Operating profit for reportable segments
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
4,504
95
4,599
(26)
3,485
(14)
3,471
66
Operating profit for Other Businesses
Segmental operating profit
Reclassification to discontinued operations
HQ
(1,623)
(1,327)
Central expenditure for marketing
investments
Consolidation
Operating profit
Financial income
Financial expenses
Income before taxes
(842)
(38)
2,070
46
(93)
2,023
(703)
74
1,582
28
(74)
1,536
2
0
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NOTES
Capital expenditure € in millions
Assets € in millions
Net sales (third parties) € in millions
Accounts receivable and inventories of
reportable segments
Accounts receivable and inventories of Other
Businesses
Segmental assets
Non-segmental accounts receivable and
inventories
Current financial assets
Other current assets
Non-current assets
Total
Liabilities € in millions
Accounts payable of reportable segments
Accounts payable of Other Businesses
Segmental liabilities
Non-segmental accounts payable
Current financial liabilities
Other current liabilities
Non-current liabilities
Total
Dec. 31,
2017
Dec. 31,
2016
5,747
5,385
306
6,053
(45)
1,996
641
5,877
14,522
594
5,978
(15)
2,245
678
6,290
15,176
Dec. 31,
2017
Dec. 31,
2016
563
26
589
1,386
499
3,817
1,796
8,087
691
143
834
1,662
837
3,432
1,957
8,721
Reportable segments
Other Businesses
Reclassification to discontinued operations
HQ
Consolidation
Total
Depreciation and amortization € in millions
Reportable segments
Other Businesses
Reclassification to discontinued operations
HQ
Consolidation
Total
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
385
16
(7)
357
–
752
430
12
(7)
207
–
642
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
258
17
(7)
145
–
413
199
26
(14)
141
–
353
Impairment losses and reversals of impairment losses
€ in millions
Reportable segments
Other Businesses
Reclassification to discontinued operations
HQ
Consolidation
Total
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
11
20
(7)
1
14
38
7
1
(2)
(0)
10
15
Footwear
Apparel
Hardware
Reclassification to discontinued operations
Total
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
12,428
10,135
7,779
1,679
(667)
7,476
1,681
(808)
21,218
18,483
Geographical information
Net sales (third parties) are shown in the geographic market
in which the net sales are realized. Non-current assets are
allocated to the geographic market based on the domicile of
the respective subsidiary independent of the segmental
structure and consist of tangible assets, goodwill, trademarks,
other intangible assets and other non-current assets.
Geographical information € in millions
Net sales (third parties)
Non-current assets
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
6,352
4,882
3,812
660
1,917
1,231
3,030
5,728
4,131
3,028
680
1,741
1,187
2,795
Dec. 31,
2017
2,138
803
532
359
217
225
518
Dec. 31,
2016
2,056
1,197
515
369
288
280
563
(667)
21,218
(808)
18,483
–
4,792
–
5,268
Western Europe
North America
Greater China
Russia/CIS
Latin America
Japan
MEAA
Reclassification
to discontinued
operations
Total
2
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NOTES
(continuing operations) amounting
With regard to Germany, Western Europe contains net sales
(third parties)
to
€ 1,226 million and € 1,092 million as well as non-current
assets amounting to € 1,082 million and € 1,015 million for
the years 2017 and 2016, respectively. With regard to the USA,
North America contains net sales (third parties) (continuing
operations) amounting to € 4,092 million and € 3,253 million
as well as non-current assets amounting to € 695 million and
€ 1,062 million for the years 2017 and 2016, respectively.
38 » ADDITIONAL CASH FLOW INFORMATION
In 2017, the increase in cash generated from operating
activities compared to the prior year was primarily due to an
increase in income before taxes which was partly offset by
higher operating working capital requirements and an
increase in income taxes paid.
Net cash used in investing activities in 2017 mainly related to
spending for property, plant and equipment such as
investments in the furnishing and fitting of own-retail stores,
in new office buildings and IT systems and the purchase of
financial assets and other long-term assets. This was partly
offset by proceeds from the disposal of discontinued
operations.
Impact of divestiture on items in the consolidated statement of
financial position € in millions
Net cash generated from discontinued operations
€ in millions
Cash and cash equivalents
Current assets
Non-current assets
Liabilities
Net assets
Consideration received in cash
Less: cash and cash equivalents disposed of
Net cash inflow
October 2,
2017
(11)
(234)
(93)
153
(185)
131
(11)
119
Net cash generated from operating activities
Net cash (used in) investing activities
Net cash (used in) financing activities
Net cash generated from discontinued
operations
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
6
(4)
(0)
2
39
(9)
(9)
22
In 2017, the following changes in financial liabilities impacted
the net cash used in financing activities:
As of September 1, 2017, the CCM Hockey operating segment
was divested. The following assets and liabilities were
consequently derecognized from the consolidated statement
of financial position as of September 1, 2017:
Impact of divestiture on items in the consolidated statement of
financial position € in millions
Net cash used in financing activities mainly related to the
dividend paid to shareholders of adidas AG, the repayment of
short-term borrowings and the repurchase of treasury
shares.
Cash and cash equivalents
Current assets
Non-current assets
Liabilities
Net assets
As of October 2, 2017, the TaylorMade operating segment was
divested. The following assets and liabilities were consequently
derecognized from the consolidated statement of financial
position as of October 2, 2017:
Consideration received in cash
Less: cash and cash equivalents disposed of
Net cash inflow
September 1,
2017
(10)
(138)
0
55
(94)
65
(10)
55
2
0
9
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Impact of change in financial liabilities on net cash used in financing activities € in millions
Short-term borrowings
Lease obligations
Total
Jan. 1, 2017
Payments in
this period
New lease
obligations
636
6
643
(297)
(2)
(299)
–
0
0
Decrease in
companies
consolidated
–
(0)
(0)
Non-cash effects
Effect of
exchange
rates
24
(0)
23
Other
(227)
0
(227)
Dec. 31,
2017
137
4
140
As of June 30, 2016, the company formally completed the
SEE NOTE 04 The
divestiture of the Mitchell & Ness business.
following assets and
consequently
liabilities were
derecognized from the consolidated statement of financial
position:
39 » OTHER FINANCIAL COMMITMENTS AND
CONTINGENCIES
Other financial commitments
(continuing
adidas has other
operations) for promotion and advertising contracts, which
mature as follows:
financial commitments
Impact of divestiture on items in the consolidated statement of
financial position € in millions
Financial commitments for promotion and advertising
€ in millions
Cash and cash equivalents
Current assets
Non-current assets
Liabilities
Net assets
Consideration received in cash
Less: cash and cash equivalents disposed of
Net cash inflow
June 30,
2016
(2)
(22)
(8)
7
(25)
31
(2)
29
Within 1 year
Between 1 and 5 years
After 5 years
Total
Dec. 31,
2017
Dec. 31,
2016
893
2,600
1,762
5,255
988
2,585
2,070
5,643
Commitments with respect to promotion and advertising
contracts maturing after five years have remaining terms of
up to 13 years from December 31, 2017.
Compared to December 31, 2016, commitments for promotion
and advertising contracts decreased as there were no new
significant long-term commitments in the 2017 financial year.
Information regarding commitments under lease and service
contracts is also included in these Notes.
SEE NOTE 29
Litigation and other legal risks
The company is currently engaged in various lawsuits
resulting from the normal course of business, mainly in
connection with distribution agreements as well as intellectual
property rights. The risks regarding these lawsuits are
covered by provisions when a reliable estimate of the amount
of the obligation can be made.
SEE NOTE 20 In the opinion of
Management, the ultimate liabilities resulting from such
claims will not materially affect the assets, liabilities, financial
position and profit or loss of the Group.
In connection with the financial irregularities at Reebok India
Company in 2012, various legal uncertainties were identified.
The respective remaining risks cannot be assessed
conclusively. However, based on legal opinions and internal
assessments, Management assumes that the effects will not
have any material influence on the assets, liabilities, financial
position and profit or loss of the company.
In September 2017, an employee of the company’s US
subsidiary was charged with criminal violations relating to
alleged unlawful payments to certain high school basketball
players or their families. The company’s US subsidiary, with
the full support of the company, is cooperating with the
prosecutors and actively working
the
allegations, which includes an internal investigation with the
assistance of outside counsel. While Management currently
believes that the effects will not have any material influence
on the assets, liabilities, financial position and profit or loss of
the company, the risks related to this case cannot be assessed
conclusively at this point in time.
to understand
1
2
0
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40 » RELATED PARTY DISCLOSURES
According to the definitions of IAS 24 ‘Related Party Disclosures’,
the Supervisory Board and the Executive Board of adidas AG
have been identified as related parties who solely receive
remuneration in connection with their function as key
management personnel. For
the
remuneration of the Supervisory Board and the Executive
Board of adidas AG
information about
SEE COMPENSATION REPORT, P. 39
SEE NOTE 41
In addition, adidas Pension Trust e.V., a registered association,
is regarded as a related party. Based on a Contractual Trust
Arrangement, adidas Pension Trust e.V. manages the plan
assets in the form of an administrative trust to fund and protect
part of the pension obligations of adidas AG.
Employees, senior executives and members of the Executive
Board of adidas AG can be members of the registered
association. adidas AG has the right to claim a refund of pension
payments from adidas Pension Trust e.V. under specific
contractually agreed conditions.
SEE NOTE 24
41 » OTHER INFORMATION
Employees
The average numbers of employees (continuing operations)
are as follows:
Employees
Own retail
Sales
Logistics
Marketing
Central administration
Production
Research and development
Information technology
Total
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
32,349
33,307
3,981
5,914
5,717
5,114
1,241
1,059
1,204
3,778
5,876
4,959
4,840
1,150
967
1,169
56,577
56,046
Accountant service fees for the auditor of the financial statements
The expenses for the audit fees comprise the expenses of
adidas AG, Herzogenaurach, as well as all German
subsidiaries of adidas AG. In 2017, the expenses for the
professional audit service fees for the auditor KPMG AG
Wirtschafts prüfungsgesellschaft amounted to € 1.6 million
(2016: € 1.3 million).
Expenses for tax consultancy services provided by the auditor,
for other confirmation services provided by the auditor and for
other services provided by the auditor amounted to € 0.1 million
(2016: € 0.1 million), € 0.1 million (2016: € 0.0 million) and
€ 0.0 million (2016: € 0.1 million), respectively.
Expenses for the audit fees of KPMG AG Wirtschafts-
prüfungsgesellschaft were mainly related to the audits of
both the consolidated financial statements and the financial
statements of adidas AG, as well as the audit of the financial
statements of its subsidiary, adidas CDC Immobilieninvest
GmbH. Integrated IT project audits were also conducted.
Other confirmation services consist of audits which are either
required by law or contractually agreed, such as European
Market Infrastructure Regulation (EMIR) audits according to
§ 20 WpHG, audits according to the German Packaging
Ordinance (Verpackungsverordnung – VerpackV), audits of the
utilization of funds, and other contractually agreed-upon
confirmation services.
The tax consultancy services include support services for
transfer pricing and consulting for sales taxes on a case-by-
case basis.
2
1
1
Other services provided by the auditor consist of supporting
services to ensure the quality of sales transactions and of
legal consultancy services.
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NOTES
Remuneration of the Supervisory Board and the Executive Board of
adidas AG
Supervisory Board
Pursuant to the Articles of Association, the Supervisory Board
members’ fixed annual payment amounted to € 1.8 million
(2016: € 1.3 million).
Members of the Supervisory Board were not granted any
loans or advance payments in 2017.
Executive Board
In 2017, the overall compensation of the members of the
Executive Board totaled € 23.3 million (2016: € 21.2 million),
€ 23.3 million thereof relates to short-term benefits (2016:
€ 11.3 million) and € 0.0 million to long-term benefits (2016:
€ 9.9 million). Post-employment benefits (costs for accrued
pension entitlements for members of the Executive Board as
well as follow-up bonuses for resigned members of the
Executive Board) totaled € 4.9 million (2016: € 4.8 million).
42 » INFORMATION RELATING TO THE GERMAN
CORPORATE GOVERNANCE CODE
Information pursuant to § 161 German Stock Corporation Act
(Aktiengesetz – AktG)
In February 2018, the Executive Board and Supervisory Board
of adidas AG issued an updated Declaration of Compliance in
accordance with § 161 AktG and made it permanently available
to the shareholders. The full text of the Declaration of
Compliance is available on the company’s corporate website.
In 2017, former members of the Executive Board and their
survivors received pension payments totaling € 3.7 million
(2016: € 3.6 million).
Pension obligations relating to former members of the
Executive Board and their survivors amount in total to
€ 84.7 million (2016: € 75.3 million).
Benefits confirmed to former members of the Executive Board
in 2017 due to the termination of their Executive Board
mandates were recognized
income
statement and amounted to € 1.4 million (2016: € 2.6 million).
in the consolidated
43 » EVENTS AFTER THE BALANCE SHEET DATE
Company-specific subsequent events
No company-specific subsequent events are known which
might have a material influence on the assets, liabilities,
financial position and profit or loss of the company.
Date of preparation
The Executive Board of adidas AG prepared and approved the
consolidated financial statements for submission to the
Supervisory Board on February 23, 2018. It is the Supervisory
Board’s task to examine the consolidated financial statements
and give their approval and authorization for issue.
Current members of the Executive Board were not granted any
loans or advance payments in 2017.
Herzogenaurach, February 23, 2018
The Executive Board of adidas AG
Advance payments were made to a former member of the
Executive Board with regard to the Performance Bonus for
2017 and prorated for 2018, as well as with regard to the LTIP
2015/2017.
Further information on disclosures according to § 314 section
1 no. 6a HGB is provided in the Compensation Report.
Kasper Rorsted
Roland Auschel
Eric Liedtke
1
2
2
SEE COMPENSATION REPORT, P. 39
Harm Ohlmeyer
Karen Parkin
Gil Steyaert
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STATEMENT OF MOVEMENTS OF
INTANGIBLE AND TANGIBLE ASSETS
STATEMENT OF MOVEMENTS OF INTANGIBLE AND TANGIBLE ASSETS
Statement of Movements of Intangible and Tangible Assets € in millions
Attachment 1
Acquisition cost
January 1, 2016
Currency effect
Additions
Transfers to assets held for sale
Transfers
Disposals
December 31, 2016/January 1, 2017
Currency effect
Additions
Transfers to assets held for sale
Decrease in companies consolidated
Transfers
Disposals
December 31, 2017
Goodwill
Trademarks
Software,
patents and
concessions
Internally
generated
software
Total intangible
assets
Land, land
leases, buildings
and leasehold
improvements
Technical
equipment and
machinery
Other
equipment,
furniture and
fixtures
Construction in
progress
Total tangible
assets
1,879
29
–
–
–
(0)
1,908
(119)
–
(113)
(0)
–
–
1,628
53
–
–
0
–
1,681
(197)
–
(152)
–
–
–
1,675
1,332
865
12
65
(6)
(2)
(29)
904
(40)
74
(101)
(0)
(2)
(17)
819
20
–
–
–
–
–
20
–
–
–
–
–
–
20
4,392
1,319
93
65
(6)
(2)
(29)
4,513
(356)
74
(366)
(0)
(2)
(17)
3,846
28
87
(0)
(8)
(31)
1,395
(83)
89
(156)
(0)
48
(52)
1,242
300
10
27
(0)
13
(25)
325
(20)
27
(31)
0
6
(18)
288
1,502
33
272
(1)
79
(175)
1,710
(118)
300
(66)
0
36
(142)
1,721
100
1
201
–
(82)
(2)
218
(10)
266
(4)
0
(89)
(3)
378
3,221
73
586
(1)
2
(233)
3,648
(231)
681
(256)
(0)
1
(215)
3,629
1
2
3
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STATEMENT OF MOVEMENTS OF
INTANGIBLE AND TANGIBLE ASSETS
Statement of Movements of Intangible and Tangible Assets € in millions
Attachment 1
Accumulated depreciation, amortization and
impairment
January 1, 2016
Currency effect
Additions
Impairment losses
Reversals of impairment losses
Transfers to assets held for sale
Transfers
Disposals
December 31, 2016/January 1, 2017
Currency effect
Additions
Impairment losses
Reversals of impairment losses
Transfers to assets held for sale
Decrease in companies consolidated
Transfers
Disposals
December 31, 2017
Net carrying amount
January 1, 2016
December 31, 2016
December 31, 2017
Goodwill
Trademarks
Software,
patents and
concessions
Internally
generated
software
Total intangible
assets
Land, land
leases, buildings
and leasehold
improvements
Technical
equipment and
machinery
Other
equipment,
furniture and
fixtures
Construction in
progress
Total tangible
assets
487
9
–
–
–
–
–
(0)
496
(41)
–
–
–
–
–
–
–
454
1,392
1,412
1,220
0
0
0
–
–
–
–
–
1
(0)
0
23
–
(1)
0
0
–
23
1,628
1,680
1,309
691
13
64
10
(0)
(1)
(4)
(25)
748
(36)
59
10
(0)
(94)
(0)
0
(16)
671
173
157
148
5
–
5
–
–
–
–
–
10
–
4
–
–
–
–
–
–
14
15
10
6
1,184
22
70
10
(0)
(1)
(4)
(25)
1,255
(78)
63
34
(0)
(95)
(0)
0
(16)
1,163
3,208
3,259
2,683
389
6
56
2
(1)
(0)
(1)
(26)
425
(29)
66
2
(1)
(67)
(0)
11
(45)
362
930
970
880
155
8
35
0
–
(0)
6
(23)
180
(16)
31
0
–
(25)
0
0
(16)
154
145
145
134
1,039
28
213
8
(1)
(0)
0
(158)
1,128
(88)
261
11
(0)
(57)
0
(11)
(132)
1,112
463
582
609
0
(0)
–
–
–
–
–
–
0
(0)
–
0
–
–
–
–
–
0
100
218
378
1,583
42
303
10
(2)
(0)
4
(207)
1,733
(133)
358
13
(1)
(149)
(0)
(0)
(193)
1,628
1,638
1,915
2,000
1
2
4
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SHAREHOLDINGS
SHAREHOLDINGS
Shareholdings of adidas AG, Herzogenaurach at December 31, 2017
Company and Domicile
Germany
adidas Insurance & Risk Consultants GmbH 2
adidas Beteiligungsgesellschaft mbH 2
adidas CDC Immobilieninvest GmbH
adidas Verwaltungsgesellschaft mbH 3
adidas anticipation GmbH 2
Europe (incl. Middle East and Africa)
adidas sport gmbh
adidas Austria GmbH
runtastic GmbH
adidas France S.a.r.l.
1
2
3
4
5
6
7
8
9
10
adidas International B.V.
11
12
13
14
15
16
adidas International Trading B.V.
adidas International Marketing B.V.
adidas International Finance B.V.
adidas International Property Holding B.V.
adidas Infrastructure Holding B.V.
adidas Benelux B.V.
17 Hydra Ventures B.V.
18
adidas (UK) Limited
19 Reebok International Limited 5
20
Trafford Park DC Limited
21 Reebok Pensions Management Limited 3, 5
22 Reebok Europe Holdings
1 The number refers to the number of the company.
2 Profit and loss transfer agreement.
3 Company with no active business.
4 Sub-group Reebok International Ltd.
5 Sub-group Reebok International Limited.
6 Sub-group adidas Indy, LLC (formerly: Sports Licensed Division of the adidas Group, LLC).
Herzogenaurach (Germany)
Herzogenaurach (Germany)
Herzogenaurach (Germany)
Herzogenaurach (Germany)
Herzogenaurach (Germany)
Cham (Switzerland)
Klagenfurt (Austria)
Pasching (Austria)
Landersheim (France)
Amsterdam (Netherlands)
Amsterdam (Netherlands)
Amsterdam (Netherlands)
Amsterdam (Netherlands)
Amsterdam (Netherlands)
Amsterdam (Netherlands)
Amsterdam (Netherlands)
Amsterdam (Netherlands)
Stockport (Great Britain)
London (Great Britain)
London (Great Britain)
London (Great Britain)
London (Great Britain)
Currency
Equity
(currency units
in thousands)
Share in capital
held by 1
EUR
EUR
EUR
EUR
EUR
CHF
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
GBP
EUR
GBP
GBP
GBP
26
681,990
8,702
4,303
25
6,721
6,926
999
200,297
6,832,931
1,626,127
54,009
46,191
50,955
(23)
4,663
(17,979)
30,907
340,383
1,089
–
26,493
directly
directly
14
76
directly
directly
directly
6
10
directly
directly
9
10
10
10
86
10
directly
10
10
76
15
19
19
in %
100
100
100
100
100
100
95.89
4.11
100
100
93.97
6.03
100
100
100
100
100
100
100
100
100
100
100
100
1
2
5
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Shareholdings of adidas AG, Herzogenaurach at December 31, 2017
Company and Domicile
Luta Limited 3, 5
adidas (Ireland) Limited
adidas International Re DAC
23
24
25
26 Reebok Ireland Limited 3
27
28
29
Five Ten Europe NV 3
adidas España S.A.U.
adidas Finance Spain S.A.U.
30 Global Merchandising, S.L.
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
adidas Italy S.p.A.
adidas Portugal – Artigos de Desporto, S.A.
adidas Business Services Lda.
adidas Norge AS
adidas Sverige AB
adidas Finance Sverige AB
adidas Suomi Oy
adidas Danmark A/S
adidas CR s.r.o.
adidas Budapest Kft.
adidas Bulgaria EAD
LLC ‘adidas, Ltd.’
adidas Poland Sp.z o.o.
adidas Finance Poland S.A.
adidas Romania S.R.L.
adidas Baltics SIA
adidas Slovakia s.r.o.
adidas Trgovina d.o.o.
SC ‘adidas-Ukraine’
adidas LLP
adidas Serbia d.o.o.
adidas Croatia d.o.o.
adidas Hellas A.E.
1 The number refers to the number of the company.
2 Profit and loss transfer agreement.
3 Company with no active business.
4 Sub-group Reebok International Ltd.
5 Sub-group Reebok International Limited.
6 Sub-group adidas Indy, LLC (formerly: Sports Licensed Division of the adidas Group, LLC).
London (Great Britain)
Dublin (Ireland)
Dublin (Ireland)
Dublin (Ireland)
Lasne (Belgium)
Zaragoza (Spain)
Zaragoza (Spain)
Madrid (Spain)
Monza (Italy)
Lisbon (Portugal)
Morea de Maia (Portugal)
Oslo (Norway)
Solna (Sweden)
Solna (Sweden)
Helsinki (Finland)
Copenhagen (Denmark)
Prague (Czech Republic)
Budapest (Hungary)
Sofia (Bulgaria)
Moscow (Russia)
Warsaw (Poland)
Warsaw (Poland)
Bucharest (Romania)
Riga (Latvia)
Bratislava (Slovak Republic)
Ljubljana (Slovenia)
Kiev (Ukraine)
Almaty (Republic of Kazakhstan)
Belgrade (Serbia)
Zagreb (Croatia)
Athens (Greece)
Currency
Equity
(currency units
in thousands)
Share in capital
held by 1
GBP
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
NOK
SEK
SEK
EUR
DKK
CZK
HUF
BGN
RUB
PLN
PLN
RON
EUR
EUR
EUR
UAH
KZT
RSD
HRK
EUR
–
2,806
21,872
56
(271)
41,286
36,390
8,022
55,813
6,440
1,263
29,357
45,222
272,188
1,620
20,635
148,054
462,671
8,431
26,357,060
62,031
98,837
24,762
1,163
1,464
538
954,714
4,751,216
532,183
39,998
19,307
19
10
10
24
78
2
76
10
10
10
10
directly
directly
directly
76
10
10
directly
directly
directly
7
directly
76
10
10
directly
directly
directly
directly
10
10
directly
in %
100
100
100
100
100
100
100
100
100
100
98
2
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1
2
6
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Shareholdings of adidas AG, Herzogenaurach at December 31, 2017
Company and Domicile
adidas (Cyprus) Limited
adidas Spor Malzemeleri Satis ve Pazarlama A.S.
adidas Emerging Markets L.L.C
adidas Emerging Markets FZE
adidas Levant Limited
adidas Levant Limited – Jordan
adidas Imports & Exports Ltd.
adidas Sporting Goods Ltd.
54
55
56
57
58
59
60
61
62
adidas Egypt Ltd. 3
63 Reebok Israel Ltd.
64
65
66
67
68
69
70
71
Life Sport Ltd.
adidas Morocco LLC
adidas (South Africa) (Pty) Ltd.
North America
adidas North America, Inc.
adidas America, Inc.
adidas International, Inc.
adidas Team, Inc. 3
The Reebok Worldwide Trading Company, LLC
72 Reebok Securities Holdings LLC 3, 4
73
Textronics, Inc.
74 Onfield Apparel Group, LLC 3, 6
75 Reebok Onfield, LLC 3, 6
76 Reebok International Ltd. 4
Nicosia (Cyprus)
Istanbul (Turkey)
Dubai (United Arab Emirates)
Dubai (United Arab Emirates)
Dubai (United Arab Emirates)
Amman (Jordan)
Cairo (Egypt)
Cairo (Egypt)
Cairo (Egypt)
Holon (Israel)
Holon (Israel)
Casablanca (Morocco)
Cape Town (South Africa)
Portland, Oregon (USA)
Portland, Oregon (USA)
Portland, Oregon (USA)
Des Moines, Iowa (USA)
Wilmington, Delaware (USA)
Wilmington, Delaware (USA)
Wilmington, Delaware (USA)
Dover, Delaware (USA)
Dover, Delaware (USA)
Canton, Massachusetts (USA)
77
adidas Indy, LLC6 (formerly: Sports Licensed Division of the adidas Group, LLC)
Wilmington, Delaware (USA)
78
79
Stone Age Equipment, Inc.
Spartanburg DC, Inc.
1 The number refers to the number of the company.
2 Profit and loss transfer agreement.
3 Company with no active business.
4 Sub-group Reebok International Ltd.
5 Sub-group Reebok International Limited.
6 Sub-group adidas Indy, LLC (formerly: Sports Licensed Division of the adidas Group, LLC).
Redlands, California (USA)
Spartanburg, South Carolina (USA)
Currency
Equity
(currency units
in thousands)
EUR
TRY
USD
USD
JOD
JOD
EGP
EGP
USD
ILS
ILS
MAD
ZAR
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
923
316,405
18,958
119,681
2,956
1,720
(34,455)
263,559
(1,831)
15,839
128,827
(57,870)
320,376
4,775,256
221,944
88,314
(1,013)
17,918
–
12,389
–
–
(1,263,280)
33,560
(512)
12,661
Share in capital
held by 1
directly
10
indirectly
9
10
57
58
61
10
11
directly
directly
10
directly
directly
10
67
67
67
76
76
69
76
75
76
67
76
72
68
68
in %
100
100
51
49
100
100
100
100
90
10
100
100
85
100
100
100
100
100
100
100
100
100
99
1
100
100
99
1
100
100
2
7
1
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SHAREHOLDINGS
Shareholdings of adidas AG, Herzogenaurach at December 31, 2017
Company and Domicile
80
adidas Canada Ltd.
Asia
81
82
83
adidas Sourcing Limited
adidas Services Limited
adidas Hong Kong Limited
84 Reebok Trading (Far East) Limited
85
86
87
88
adidas (Suzhou) Co. Ltd.
adidas Sports (China) Co. Ltd.
adidas (China) Ltd.
adidas Sports Goods (Shanghai) Co., Ltd
89 Runtastic Software Technology (Shanghai) Co., Ltd.
90
91
92
93
94
95
96
Zhuhai adidas Technical Services Limited
adidas Logistics (Tianjin) Co., Ltd.
adidas Business Services (Dalian) Limited
adidas Japan K.K.
adidas Korea LLC.
adidas Korea Technical Services Limited
adidas India Private Limited
97
adidas India Marketing Private Limited
98
adidas Technical Services Private Limited
99 Reebok India Company
100 PT adidas Indonesia
101 adidas (Malaysia) Sdn. Bhd.
102 adidas Philippines Inc.
103 adidas Singapore Pte. Ltd.
104 adidas Taiwan Limited
1 The number refers to the number of the company.
2 Profit and loss transfer agreement.
3 Company with no active business.
4 Sub-group Reebok International Ltd.
5 Sub-group Reebok International Limited.
6 Sub-group adidas Indy, LLC (formerly: Sports Licensed Division of the adidas Group, LLC).
Woodbridge, Ontario (Canada)
Currency
CAD
Equity
(currency units
in thousands)
122,500
Hong Kong (China)
Hong Kong (China)
Hong Kong (China)
Hong Kong (China)
Suzhou (China)
Suzhou (China)
Shanghai (China)
Shanghai (China)
Shanghai (China)
Zhuhai (China)
Tianjin (China)
Dalian (China)
Tokyo (Japan)
Seoul (Korea)
Pusan (Korea)
New Delhi (India)
New Delhi (India)
New Delhi (India)
New Delhi (India)
Jakarta (Indonesia)
Petaling Jaya (Malaysia)
Pasig City (Philippines)
Singapore (Singapore)
Taipei (Taiwan)
USD
USD
HKD
USD
CNY
CNY
CNY
CNY
CNY
CNY
CNY
CNY
JPY
KRW
KRW
INR
INR
USD
INR
IDR
MYR
PHP
SGD
TWD
548,652
13,414
380,686
31,406
230,058
9,647,843
987,565
–
–
42,458
151,388
9,439
15,943,471
203,106,999
3,894,309
4,636,148
6,042,126
3,407
(21,851,375)
383,423,936
58,014
822,484
9,062
1,774,204
Share in capital
held by 1
10
11
10
2
76
2
2
10
87
10
81
15
10
10
directly
81
directly
10
96
10
directly
81
109
10
directly
directly
10
directly
directly
10
in %
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
10.67
89.33
98.62
1.00
0.37
100
93.15
99
1
60
40
100
100
100
1
2
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SHAREHOLDINGS
Shareholdings of adidas AG, Herzogenaurach at December 31, 2017
Company and Domicile
105 adidas (Thailand) Co., Ltd.
106 adidas Australia Pty Limited
107 adidas New Zealand Limited
108 adidas Vietnam Company Limited
109 Reebok (Mauritius) Company Limited
Latin America
110 adidas Argentina S.A.
111 Reebok Argentina S.A. 3
112 adidas do Brasil Ltda.
113 adidas Franchise Brasil Servicos Ltda.
114 Reebok Produtos Esportivos Brasil Ltda. 3
115 adidas Chile Limitada
116 adidas Colombia Ltda.
117 adidas Perú S.A.C.
118 adidas de Mexico, S.A. de C.V.
119 adidas Industrial, S.A. de C.V.
120 Reebok de Mexico, S.A. de C.V. 3
121 adidas Latin America, S.A.
122 Concept Sport, S.A.
123 adidas Market LAM, S.A. 3
124 3 Stripes S.A. (adidas Uruguay) 3
125 Tafibal S.A.
126 Raelit S.A.
Bangkok (Thailand)
Mulgrave (Australia)
Auckland (New Zealand)
Ho Chi Minh City (Vietnam)
Port Louis (Mauritius)
Buenos Aires (Argentina)
Buenos Aires (Argentina)
São Paulo (Brazil)
São Paulo (Brazil)
Jundiaí (Brazil)
Santiago de Chile (Chile)
Bogotá (Colombia)
Lima (Peru)
Mexico City (Mexico)
Mexico City (Mexico)
Mexico City (Mexico)
Panama City (Panama)
Panama City (Panama)
Panama City (Panama)
Montevideo (Uruguay)
Montevideo (Uruguay)
Montevideo (Uruguay)
127 Reebok Central America S.A. 4
San Pedro Sula (Honduras)
128 adidas Corporation de Venezuela, S.A. 3
129 adisport Corporation
1 The number refers to the number of the company.
2 Profit and loss transfer agreement.
3 Company with no active business.
4 Sub-group Reebok International Ltd.
5 Sub-group Reebok International Limited.
6 Sub-group adidas Indy, LLC (formerly: Sports Licensed Division of the adidas Group, LLC).
Caracas (Venezuela)
San Juan (Puerto Rico)
Currency
THB
AUD
NZD
VND
USD
ARS
ARS
BRL
BRL
BRL
CLP
COP
PEN
MXN
MXN
MXN
USD
USD
USD
UYU
UYU
UYU
HNL
VEF
USD
Equity
(currency units
in thousands)
1,419,989
88,584
6,115
224,561,408
(154)
1,280,248
89,365
571,730
36,088
10,469
116,551,782
(45,422,402)
95,948
1,346,420
362,084
(1,260,310)
(72,607)
1,988
(2,782)
(436)
37,568
48,959
–
(17)
(2,605)
Share in capital
held by 1
directly
10
directly
10
76
71
10
2
11
10
2
112
10
directly
1
directly
directly
115
directly
directly
directly
directly
10
10
directly
directly
directly
76
71
directly
10
in %
100
100
100
100
99
1
76.96
23.04
96.25
3.75
100
100
100
99
1
100
99.21
0.79
100
100
100
100
100
100
100
100
100
99.60
0.40
100
100
1
2
9
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
RESPONSIBILITY STATEMENT
RESPONSIBILITY STATEMENT
To the best of our knowledge, and in accordance with the applicable reporting principles, the
consolidated financial statements give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Group, and the Group Management Report, which has been
combined with the Management Report of adidas AG, includes a fair review of the development
and performance of the business and the position of the Group, together with a description of
the material opportunities and risks associated with the expected development of the Group.
Herzogenaurach, February 23, 2018
KASPER RORSTED
CEO
ROLAND AUSCHEL
GLOBAL SALES
ERIC LIEDTKE
GLOBAL BRANDS
HARM OHLMEYER
CFO
KAREN PARKIN
GLOBAL HUMAN RESOURCES
GIL STEYAERT
GLOBAL OPERATIONS
2
2
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2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
INDEPENDENT AUDITOR’S REPORT
Note: This is a translation of the German original. Solely the
original text in German language is authoritative.
In our opinion, on the basis of the knowledge obtained in
the audit,
INDEPENDENT AUDITOR’S
REPORT
REPORT ON THE AUDIT OF THE
CONSOLIDATED FINANCIAL
STATEMENTS AND OF THE GROUP
MANAGEMENT REPORT
OPINIONS
We have audited the consolidated financial statements of
adidas AG, Herzogenaurach and its subsidiaries (the Group),
which comprise the consolidated statement of financial
position as at December 31, 2017, and the consolidated
income statement, the consolidated statement of profit
and loss and other comprehensive income, consolidated
statement of changes in equity and consolidated statement of
cash flows for the financial year from January 1, 2017 to
December 31, 2017, and notes to the consolidated financial
statements, including a summary of significant accounting
policies. In addition, we have audited the report on the position
of the Company and the Group (“group management report”)
of adidas AG, Herzogenaurach for the financial year from
January 1, 2017 to December 31, 2017. In accordance with the
German legal requirements we have not audited the content
of the non-financial statement, as such included in the group
management report, and the corporate governance state-
ment as well as the corporate governance report which are
included in section ”Corporate Governance Report including
the Declaration on Corporate Governance” of the group
management report.
— the accompanying consolidated financial statements
comply, in all material respects, with the IFRSs as
adopted by the EU, and the additional requirements of
German commercial law pursuant to Section 315e (1) HGB
[Handelsgesetzbuch: German Commercial Code] and, in
compliance with these requirements, give a true and fair
view of the assets, liabilities, and financial position of
the Group as at December 31, 2017, and of its financial
performance for the financial year from January 1, 2017
to December 31, 2017, and
— the accompanying group management report as a whole
provides an appropriate view of the Group’s position. In
all material respects, this group management report is
consistent with the consolidated financial statements,
complies with German legal requirements and appropri-
ately presents the opportunities and risks of future devel-
opment. Our opinion on the group management report
does not cover the content of the non-financial statement,
the corporate governance statement and the corporate
governance report mentioned above.
Pursuant to Section 322 (3) sentence 1 HGB, we declare that
our audit has not led to any reservations relating to the legal
compliance of the consolidated financial statements and of
the group management report.
BASIS FOR THE OPINIONS
We conducted our audit of the consolidated financial
statements and of the group management report
in
accordance with Section 317 HGB and the EU Audit Regulation
No. 537/2014 (referred to subsequently as “EU Audit
Regulation”) and in compliance with German Generally
Accepted Standards
for Financial Statement Audits
promulgated by the Institut der Wirtschaftsprüfer [Institute of
Public Auditors in Germany] (IDW). Our responsibilities under
those requirements and principles are further described in
the “Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements and of the Group Management Report”
section of our auditor’s report. We are independent of the
group entities in accordance with the requirements of
European law and German commercial and professional
law, and we have fulfilled our other German professional
responsibilities in accordance with these requirements. In
addition, in accordance with Article 10 (2) point (f) of the EU
Audit Regulation, we declare that we have not provided non-
audit services prohibited under Article 5 (1) of the EU Audit
Regulation. We believe that the evidence we have obtained is
sufficient and appropriate to provide a basis for our opinions
on the consolidated financial statements and on the group
management report.
KEY AUDIT MATTERS IN THE AUDIT OF THE
CONSOLIDATED FINANCIAL STATEMENTS
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements for the financial year from
January 1, 2017 to December 31, 2017. These matters were
addressed in the context of our audit of the consolidated
financial statements as a whole, and in forming our opinion
thereon, we do not provide a separate opinion on these matters.
VALUATION AND PRESENTATION OF THE DISPOSAL GROUPS TAYLORMADE UND CCM
HOCKEY IN ACCORDANCE WITH IFRS 5
For information on the accounting and valuation methods used,
as well as management’s judgements and sources of estimation
uncertainty, please refer to Note 02 in the consolidated financial
statements. For the disclosures on Discontinued Operations and
Disposal of subsidiaries as well as assets and liabilities, please
refer to Notes 3 and 4, respectively, in the consolidated Financial
Statements.
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
INDEPENDENT AUDITOR’S REPORT
THE RISK TO THE CONSOLIDATED FINANCIAL STATEMENTS
After the Supervisory Board passed resolutions for the
disposals of TaylorMade and CCM Hockey in May 2017 and
June 2017, respectively, adidas entered into contracts dated
May 10, 2017 and July 26, 2017, respectively, to dispose of the
two business segments. The disposals of the two discontinued
operations were completed so that they were both
deconsolidated during the financial year. For the fiscal year
2017, adidas reported a loss from discontinued operations,
after tax, of EUR 254 million. The sales contracts include,
among other things, variable purchase price components,
payment for which will become due in the future and whose
amount depends on the achievement of certain future
performance goals for the buyer. Promissory notes and earn-
out components were therefore recognized as other non-
current financial assets in the amount of EUR 137 million.
The classification and reporting of the two business segments
TaylorMade and CCM Hockey as discontinued operations in
accordance with IFRS 5 is complex and requires judgement.
The assumptions underlying the valuation of the financial assets
related to the variable purchase price components contained
in the sales contracts are subject to judgement. In addition,
the disclosures in the notes to the consolidated financial
statements related to discontinued operations are complex.
There exists a risk to the consolidated financial statements
that the discontinued operations were inappropriately identified
as such and that the disclosure as discontinued operations in
the consolidated income statement is therefore incorrect. In
addition, there is a risk that the valuation of the financial
assets for the variable purchase price components contained
in the sales contracts is not appropriate. There also exists a
risk that the disclosures for discontinued operations in the
notes to the consolidated financial statements are not sufficient.
OUR AUDIT APPROACH
We first assessed whether the classification of the two
disposal groups TaylorMade and CCM Hockey as discontinued
operations in accordance with IFRS 5 was appropriate. We
inquired of corporate accounting and reviewed the minutes of
the Supervisory Board’s meetings. In addition, amongst
others we reviewed internal and external communications to
assess whether the criteria for classification as discontinued
operations were met.
With the assistance of KPMG valuation specialists, we also
assessed the valuation of the variable purchase price
components included in the contracts, which are accounted
for as other non-current financial assets.
In addition, we assessed whether the discontinued operations
disclosures are sufficiently detailed and appropriate.
OUR CONCLUSIONS
The disclosure of the disposal groups TaylorMade and
CCM Hockey as discontinued operations is in accordance with
IFRS 5. The valuation of the financial assets related to the
variable purchase price components contained in the sales
is appropriate. The discontinued operations
contracts
disclosures
in the notes are sufficiently detailed and
appropriate.
THE VALUATION AND ACCURACY OF STOCK-BASED COMPENSATION PROGRAMS
for executives and
THE RISK TO THE CONSOLIDATED FINANCIAL STATEMENTS
In 2017, adidas AG launched a new share-based compensation
introduced an employee
program
participation program as of October 1, 2016. In addition, a
share-based compensation program was agreed to for an
artist and a designer (non-employees), with a contract date of
19 May 2016 for the years 2017 to 2021. The respective
programs contain various vesting conditions, which are linked
to grants of equity instruments or a cash settlement. As of
December 31, 2017, adidas has accrued stock-based
compensation expense in equity, as well as short- and long-
term sales and personnel provisions.
The interpretation of the contractual agreements and thus the
in
classification of share-based payment programs
accordance with IFRS 2 are complex. Furthermore, assessing
the likelihood of achieving the vesting conditions as of the
balance sheet date and during the vesting period involves
judgement.
There is a risk to the consolidated financial statements that
the criteria for classification as share-based payment
programs under IFRS 2 are not met, or that the classification
as equity-settled or cash-settled share-based payment in
accordance with IFRS 2 was incorrect. There is also the risk
that the fair values of the equity instruments granted or the
respective liability were not measured in accordance with
IFRS 2.
For information on the accounting and valuation methods used,
as well as management’s judgements and sources of estimation
uncertainty, please refer to Note 02 in the consolidated financial
statements. For
information on the share-based payment
programs, please refer to Note 27 in the consolidated financial
statements.
OUR AUDIT APPROACH
We first assessed whether the criteria for classification as
share-based payment programs under IFRS 2 were met. We
analyzed the contractual obligations of the respective programs
in detail and evaluated whether the share-based payments are
equity or cash-settled in accordance with IFRS 2.
2
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2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
INDEPENDENT AUDITOR’S REPORT
the assumptions used
Among other things, we assessed the valuation model and the
reasonableness of
for vesting
conditions (employee turnover) and performance conditions
(stock price at the end of the vesting period). In doing so, we
compared assumptions used for vesting conditions with
historical employee turnover, and compared projections for
future share prices with actuarial valuation models.
By examining the respective contracts and the related
accounting treatment, we ensured that the underlying
assumptions regarding the likelihood of achieving vesting
conditions were reasonable as of the reporting date, and that
the accounting for the share-based programs was appropriate.
OUR CONCLUSIONS
The share-based compensation programs have been appro-
priately classified in accordance with IFRS 2. The valuation
methods used are appropriate, and the assumptions underly-
ing the valuation regarding the achievement of vesting condi-
tions as of the reporting date have been reasonably estimated.
THE VALUATION OF RISKS FROM TAX AUDITS
For information on the accounting and valuation methods used,
as well as management’s judgements and sources of estimation
uncertainty, please refer to Note 02 in the consolidated financial
statements. For disclosures on income taxes, please see Note 35
in the consolidated financial statements.
THE RISK TO THE CONSOLIDATED FINANCIAL STATEMENTS
adidas conducts business in various tax jurisdictions. As of
December 31, 2017, income tax liabilities include provisions
for risks from tax audits in the amount of EUR 424 million. The
application of local tax legislation and tax relief is complex
and involves various risks.
The assessment of provisions for tax obligations requires that
adidas exercise judgement in the assessment of tax matters
and make estimates regarding tax risks.
— the remaining parts of the annual report, with the exception
of the audited consolidated financial statements and group
management report and our auditor’s report.
There exists a risk to the consolidated financial statements
that the provisions for tax obligations arising from tax audits
are either over- or undervalued.
Our opinions on the consolidated financial statements and on
the group management report do not cover the other
information, and consequently we do not express an opinion
or any other form of assurance conclusion thereon.
OUR AUDIT APPROACH
adidas regularly appoints external experts to substantiate its
own risk assessment with tax expert opinions. Among other
things, we involved KPMG local and international tax
specialists in the audit team to review both adidas’s risk
assessment and tax expert opinions. KPMG specialists
reviewed the correspondence with the relevant tax authorities,
and they also analyzed and examined the assumptions used in
determining tax provisions based on their knowledge and
experience of the current application of the relevant legislation
by public authorities and courts. With our international
network, we have also included tax specialists with the
relevant knowledge of the respective local legal systems and
regulations, who reported the results of their assessment to us.
OUR CONCLUSIONS
The judgement used by adidas in determining the amounts to
be recognized as provisions for tax obligations arising from
tax audits is appropriate.
OTHER INFORMATION
Management is responsible for the other information. The
other information comprises:
— the non-financial statement,
— the corporate governance statement,
— the Corporate Governance Report in accordance with
Nr. 3.10 of German Corporate Governance Code, and
In connection with our audit, our responsibility is to read the
other information and, in so doing, to consider whether the
other information
— is materially inconsistent with the consolidated financial
statements, with the group management report or our
knowledge obtained in the audit, or
— otherwise appears to be materially misstated.
We were engaged to perform a separate independent limited
assurance engagement on the non-financial statement. With
regards to content, scope and results of this independent
limited assurance engagement we refer to our report hereon
from February, 23, 2018.
RESPONSIBILITIES OF MANAGEMENT AND THE
SUPERVISORY BOARD FOR THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE GROUP
MANAGEMENT REPORT
Management is responsible for the preparation of the
consolidated financial statements that comply, in all material
respects, with IFRSs as adopted by the EU and the additional
requirements of German commercial law pursuant to Section
315e (1) HGB and that the consolidated financial statements,
in compliance with these requirements, give a true and fair
view of the assets, liabilities, financial position, and financial
performance of the Group. In addition, management is
responsible for such internal controls as they have determined
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2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
INDEPENDENT AUDITOR’S REPORT
necessary to enable the preparation of consolidated financial
statements that are free from material misstatement,
whether due to fraud or error.
the consolidated
In preparing
financial statements,
management is responsible for assessing the Group’s ability
to continue as a going concern. They also have the
responsibility for disclosing, as applicable, matters related to
going concern. In addition, they are responsible for financial
reporting based on the going concern basis of accounting
unless there is an intention to liquidate the Group or to cease
operations, or there is no realistic alternative but to do so.
the consolidated
Furthermore, management is responsible for the preparation
of the group management report that, as a whole, provides an
appropriate view of the Group’s position and is, in all material
respects, consistent with
financial
statements, complies with German legal requirements, and
appropriately presents the opportunities and risks of future
development. In addition, management is responsible for
such arrangements and measures (systems) as they have
considered necessary to enable the preparation of a group
management report that is in accordance with the applicable
German legal requirements, and to be able to provide
sufficient appropriate evidence for the assertions in the group
management report.
The supervisory board is responsible for overseeing the
Group’s financial reporting process for the preparation of the
consolidated financial statements and of the group manage-
ment report.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF
THE CONSOLIDATED FINANCIAL STATEMENTS AND
OF THE GROUP MANAGEMENT REPORT
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole are
free from material misstatement, whether due to fraud or
error, and whether the group management report as a whole
provides an appropriate view of the Group’s position and, in all
material respects, is consistent with the consolidated financial
statements and the knowledge obtained in the audit, complies
with the German legal requirements and appropriately
presents the opportunities and risks of future development,
as well as to issue an auditor’s report that includes our
opinions on the consolidated financial statements and on the
group management report.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with Section 317 HGB and the EU Audit Regulation and in
compliance with German Generally Accepted Standards for
Financial Statement Audits promulgated by the Institut der
Wirtschaftsprüfer (IDW) will always detect a material
misstatement. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated
financial statements and this group management report.
We exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
— Identify and assess the risks of material misstatement of
the consolidated financial statements and of the group
management report, whether due to fraud or error, design
and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinions. The risk of not detecting
a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal controls.
— Obtain an understanding of internal controls relevant to
the audit of the consolidated financial statements and of
arrangements and measures (systems) relevant to the
audit of the group management report in order to design
audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the
effectiveness of these systems.
— Evaluate the appropriateness of accounting policies used
by management and the reasonableness of estimates made
by management and related disclosures.
— Conclude on the appropriateness of management’s use of
the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists,
we are required to draw attention in the auditor’s report
to the related disclosures in the consolidated financial
statements and in the group management report or, if
such disclosures are inadequate, to modify our respective
opinions. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group to cease
to be able to continue as a going concern.
— Evaluate the overall presentation, structure and content
of the consolidated financial statements, including the
disclosures, and whether the consolidated financial
statements present the underlying transactions and events
in a manner that the consolidated financial statements
give a true and fair view of the assets, liabilities, financial
position and financial performance of the Group in
compliance with IFRSs as adopted by the EU and the
additional requirements of German commercial law
pursuant to Section 315e (1) HGB.
2
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
INDEPENDENT AUDITOR’S REPORT
— Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities
within the Group to express opinions on the consolidated
financial statements and on the group management
report. We are responsible for the direction, supervision
and performance of the group audit. We remain solely
responsible for our opinions.
— Evaluate the consistency of the group management report
with the consolidated financial statements, its conformity
with [German] law, and the view of the Group’s position it
provides.
— Perform audit procedures on the prospective information
presented by management in the group management
report. On the basis of sufficient appropriate audit evidence
we evaluate, in particular, the significant assumptions used
by management as a basis for the prospective information,
and evaluate the proper derivation of the prospective
information from these assumptions. We do not express
a separate opinion on the prospective information and on
the assumptions used as a basis. There is a substantial
unavoidable risk that future events will differ materially
from the prospective information.
We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any
significant deficiencies in internal controls that we identify
during our audit.
that we have complied with
We also provide those charged with governance with a
the relevant
statement
independence requirements, and communicate with them all
relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable,
the related safeguards.
GERMAN PUBLIC AUDITOR
RESPONSIBLE FOR THE ENGAGEMENT
The German Public Auditor responsible for the engagement is
Haiko Schmidt.
Munich, February 23, 2018
KPMG AG
Wirtschaftsprüfungsgesellschaft
[Original German version signed by:]
Karl Braun
Wirtschaftsprüfer
[German Public Auditor]
Haiko Schmidt
Wirtschaftsprüfer
[German Public Auditor]
From the matters communicated with those charged with
governance, we determine those matters that were of most
in the audit of the consolidated financial
significance
statements of the current period and are therefore the key
audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure
about the matter.
OTHER LEGAL AND REGULATORY
REQUIREMENTS
FURTHER INFORMATION PURSUANT TO ARTICLE 10
OF THE EU AUDIT REGULATION
We were elected as auditor by the annual general meeting on
May 11, 2017. We were engaged by the supervisory board on
October 13, 2017. We have been the auditor of the adidas AG
as a listed entity since 1995 without interruption.
We declare that the opinions expressed in this auditor’s report
are consistent with the additional report to the audit committee
pursuant to Article 11 of the EU Audit Regulation (long-form
audit report).
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ADIDAS ANNUAL REPORT 2017
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
INDEPENDENT AUDITOR’S
ASSURANCE REPORT
LIMITED ASSURANCE
REPORT OF THE
INDEPENDENT AUDITOR
REGARDING THE
COMBINED NON-
FINANCIAL STATEMENT
To the Supervisory Board of adidas AG, Herzogenaurach
We have performed an independent limited assurance
engagement on the Combined Non-Financial Statement of
adidas AG, Herzogenaurach, (further the “Company” or
“ adidas”) and the adidas Group according to §§ 315b, 315c
German Commercial Code (HGB) in conjunction with §§ 289b
to 289e HGB (further the “Report“) for the year from January 1
to December 31, 2017.
MANAGEMENT’S RESPONSIBILITY
The management board of adidas is responsible for the
preparation of the Report in accordance with §§ 315b, 315c HGB
in conjunction with §§ 289b to 289e HGB.
This responsibility of the management board includes the
selection and application of appropriate methods to prepare
the Report and the use of assumptions and estimates for
individual disclosures which are reasonable under the given
circumstances. Furthermore, the responsibility includes
designing,
implementing and maintaining systems and
processes relevant for the preparation of the Report in a way
that is free of – intended or unintended – material misstatements.
INDEPENDENCE AND QUALITY ASSURANCE ON
THE PART OF THE AUDITING FIRM
We are independent from the Company in accordance with the
requirements of independence and quality assurance set out
in legal provisions and professional pronouncements and
have fulfilled our additional professional obligations in
accordance with these requirements.
Our audit firm applies the legal provisions and professional
pronouncements for quality assurance, in particular the
professional code for German Public Auditors and Chartered
Accountants (in Germany) and the quality assurance standard
of the German Institute of Public Auditors (Institut der Wirtschafts-
prüfer, IDW) regarding quality assurance requirements in
audit practice (IDW QS 1).
PRACTITIONER’S RESPONSIBILITY
Our responsibility is to express a conclusion based on our
work performed of the Report within a limited assurance
engagement.
We conducted our work in accordance with the International
Standard on Assurance Engagements (ISAE) 3000 (Revised):
“Assurance Engagements other than Audits or Reviews of
Historical Financial Information” published by IAASB. This
Standard requires that we plan and perform the assurance
engagement to obtain limited assurance whether any matters
have come to our attention that cause us to believe that the
Report for the period from January 1 to December 31, 2017,
has not been prepared, in all material respects in accordance
with §§ 315b, 315c HGB in conjunction with §§ 289b to 289e HGB.
We do not, however, issue a separate conclusion for each
disclosure. In a limited assurance engagement the evidence
gathering procedures are more limited than in a reasonable
assurance engagement and therefore less assurance is obtained
than in a reasonable assurance engagement. The choice of
audit procedures is subject to the auditor’s own judgement.
Within the scope of our engagement, we performed amongst
others the following procedures:
— Inquiries of personnel on group level who are responsible
for the materiality analysis to get an understanding of the
process for identifying material topics and respective report
boundaries for adidas
— A risk assessment, including a media research, of relevant
information about the sustainability performance of adidas
in the reporting period
— Evaluation of the design and implementation of systems
and processes for the collection, processing and monitoring
of disclosures on environmental, employee and social
matters, human rights, corruption and bribery, including
data consolidation
— Inquiries of personnel on group level who are responsible
for determining disclosures on concepts, due diligence
processes, results and risks, the conduction of internal
controls and consolidation of the disclosures
— Evaluation of selected internal and external documents
— Analytical evaluation of data and trends of quantitative
disclosures which are reported by all sites on group level
— Assessment of local data collection and reporting processes
and reliability of reported data via a sampling survey in
Herzogenaurach (Germany) and a video conference with
Sports Licensed Division Indianapolis (USA)
— Assessment of the overall presentation of the disclosures
As described in the section “Our Performance (Supply Chain)”
in the Report, 1,015 social compliance and environmental
audits at suppliers were performed by in-house technical
staff as well as external third-party monitors commissioned
by adidas business entities and licensees. The reasonableness
and accuracy of the conclusions from the performed audit
work were not part of our limited assurance engagement.
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
INDEPENDENT AUDITOR’S
ASSURANCE REPORT
CONCLUSION
Based on the procedures performed and the evidence received
to obtain assurance, nothing has come to our attention that
causes us to believe that the Report of adidas for the business
year from January 1 to December 31, 2017 is not prepared, in
all material respects, in accordance with §§ 315b, 315c HGB
in conjunction with §§ 289b to 289e HGB.
RESTRICTION OF USE/CLAUSE ON GENERAL
ENGAGEMENT TERMS
This report is issued for purposes of the Supervisory Board of
adidas AG, Herzogenaurach, only. We assume no responsibility
with regard to any third parties.
Our assignment for the Supervisory Board of adidas AG,
Herzogenaurach, and professional liability is governed by
the General Engagement Terms for Wirtschaftsprüfer and
Wirtschaftsprüfungsgesellschaften
(Allgemeine Auftrags-
bedingungen für Wirtschaftsprüfer und Wirtschaftsprüfungs-
gesellschaften) in the version dated January 1, 2017 (HTTPS://
WWW.KPMG.DE/BESCHEINIGUNGEN/LIB/AAB_ENGLISH.PDF). By reading and
using the information contained in this report, each recipient
confirms notice of provisions of the General Engagement
Terms (including the limitation of our liability for negligence
to EUR 4 million as stipulated in No. 9) and accepts the validity
of the General Engagement Terms with respect to us.
Munich, February 23, 2018
KPMG AG
Wirtschaftsprüfungsgesellschaft
[Original German version signed by:]
Laue
Wirtschaftsprüfer
[German Public Auditor]
ppa. Auer
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ADIDAS ANNUAL REPORT 2017
A D D I T I O N A L
I N F O R M A T I O N
7
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
S
A
D
D
A
I
Ten-Year Overview
Glossary
Declaration of Support
Financial Calendar
229
232
236
237
2
2
8
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
TEN-YEAR OVERVIEW
TEN-YEAR OVERVIEW
Ten-year overview
Income Statement Data (€ in millions)
Net sales 2, 3
Gross profit 2, 3
Royalty and commission income 2, 3
Other operating income 2, 3
Other operating expenses 2, 3
EBITDA 2, 3
Operating profit 2, 3, 4, 5, 6, 7
Net financial result
Income before taxes 2, 3, 4, 5, 6, 7
Income taxes 2, 3, 8
Net income attributable to non-controlling interests
Net income attributable to shareholders 4, 5, 6, 7, 8, 9
Income Statement Ratios
Gross margin 2, 3
Operating margin 2, 3, 4, 5, 6, 7
Interest coverage 2, 3
Effective tax rate 2, 3, 4, 5, 6, 7, 8
Net income attributable to shareholders in % of net sales 4, 5, 6, 7, 8, 9
Net Sales by Brand (€ in millions)
adidas brand
Reebok brand
2017
2016
2015
2014
2013
2012
2011 1
2010
2009
2008
21,218
10,703
18,483
9,100
16,915
8,168
115
133
8,882
2,511
2,070
(47)
2,023
593
3
1,173
50.4%
9.8%
55.6
29.3%
5.5%
105
262
7,885
1,953
1,582
(46)
1,536
454
2
1,017
49.2%
8.6%
32.7
29.6%
5.5%
119
96
7,289
1,475
1,094
(21)
1,073
353
6
668
48.3%
6.5%
23.8
32.9%
4.0%
14,534
6,924
102
138
6,203
1,283
961
(48)
913
271
6
568
47.6%
6.6%
19.3
29.7%
3.9%
14,203
7,001
14,883
7,103
103
142
6,013
1,496
1,233
(68)
1,165
340
3
839
49.3%
8.7%
24.0
29.2%
5.9%
105
127
6,150
1,445
1,185
(69)
1,116
327
(2)
791
47.7%
8.0%
14.6
29.3%
5.3%
18,993
1,843
16,334
1,770
13,939
1,751
11,774
1,578
11,059
1,599
11,344
1,667
13,322
6,329
93
98
5,567
1,199
953
(84)
869
261
(5)
613
47.5%
7.2%
12.2
30.0%
4.6%
9,867
1,940
11,990
5,730
100
110
5,046
1,159
894
(88)
806
238
(1)
567
47.8%
7.5%
10.1
29.5%
4.7%
8,714
1,913
10,381
4,712
10,799
5,256
86
100
4,390
780
508
(150)
358
113
0
245
45.4%
4.9%
3.9
31.5%
2.4%
7,520
1,603
89
103
4,378
1,280
1,070
(166)
904
260
(2)
642
48.7%
9.9%
7.4
28.8%
5.9%
7,821
1,717
1 2011 restated according to IAS 8 in the 2012 consolidated financial statements.
2 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
3 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the Rockport business.
4 2015 excluding goodwill impairment of € 34 million.
5 2014 excluding goodwill impairment of € 78 million.
6 2013 excluding goodwill impairment of € 52 million.
7 2012 excluding goodwill impairment of € 265 million.
8 2017 excluding negative one-time tax impact of € 76 million.
9 Includes continuing and discontinued operations.
10 Subject to Annual General Meeting approval.
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
TEN-YEAR OVERVIEW
Ten-year overview
Net Sales by Product Category (€ in millions)
Footwear 2, 3
Apparel 2, 3
Hardware 2, 3
Balance Sheet Data (€ in millions)
Total assets
Inventories
Receivables and other current assets
Working capital
Net cash/(net borrowings)
Shareholders’ equity
Balance Sheet Ratios
Net borrowings/EBITDA 2, 3
Average operating working capital in % of net sales 2, 3
Financial leverage
Equity ratio
Equity-to-fixed-assets ratio
Asset coverage I
Asset coverage II
Fixed asset intensity of investments
Current asset intensity of investments
Liquidity I
Liquidity II
Liquidity III
Working capital turnover 2, 3
Return on equity 9
Return on capital employed 9
2017
2016
2015
2014
2013
2012
2011 1
2010
2009
2008
12,427
7,747
1,044
10,132
7,352
999
8,360
6,970
1,585
6,658
6,279
1,597
6,587
5,811
1,806
6,922
6,290
1,671
6,242
5,733
1,347
5,389
5,380
1,221
14,522
15,176
13,343
12,417
11,599
11,651
11,237
10,618
3,692
3,277
2,354
484
6,450
(0.2)
20.4%
(7.5%)
44.4%
109.7%
140.3%
86.2%
40.5%
59.5%
25.5%
62.3%
3,763
3,607
2,121
(103)
6,472
0.1
21.1%
1.6%
42.6%
102.9%
134.0%
83.8%
41.4%
58.6%
22.4%
54.9%
3,113
3,003
2,133
(460)
5,666
0.3
20.5%
8.1%
42.5%
96.9%
136.8%
89.3%
43.8%
56.2%
25.5%
63.7%
2,526
2,861
2,970
(185)
5,624
0.1
22.4%
3.3%
45.3%
110.9%
158.7%
105.9%
40.8%
59.2%
38.6%
83.0%
2,634
2,583
2,125
295
5,489
(0.2)
21.3%
(5.4%)
47.3%
115.8%
145.0%
93.2%
40.9%
59.1%
34.4%
72.6%
2,486
2,444
2,504
448
5,304
(0.3)
20.0%
(8.5%)
45.5%
111.1%
152.7%
100.4%
41.0%
59.0%
44.3%
82.9%
2,502
2,431
1,990
90
5,137
(0.1)
20.4%
(1.8%)
45.7%
104.6%
140.7%
93.2%
43.7%
56.3%
31.6%
68.3%
2,119
2,324
1,972
(221)
4,616
0.2
20.8%
4.8%
43.5%
97.4%
141.5%
97.7%
44.6%
55.4%
35.5%
78.2%
4,642
4,663
1,076
8,875
1,471
2,038
1,649
(917)
3,771
1.2
24.3%
24.3%
42.5%
85.9%
137.4%
102.9%
49.5%
50.5%
30.0%
80.4%
4,919
4,775
1,105
9,533
1,995
2,523
1,290
(2,189)
3,386
1.7
24.5%
64.6%
35.5%
73.6%
127.7%
89.1%
48.2%
51.8%
10.5%
55.1%
121.0%
110.6%
121.8%
140.7%
128.3%
139.7%
126.0%
132.4%
132.2%
109.8%
9.0
17.0%
39.8%
8.7
15.7%
24.2%
7.9
11.2%
16.5%
4.9
8.7%
13.8%
6.7
14.3%
23.6%
5.9
9.9%
19.3%
6.7
11.9%
19.9%
6.1
12.3%
20.2%
6.3
6.5%
11.3%
8.4
18.9%
19.8%
1 2011 restated according to IAS 8 in the 2012 consolidated financial statements.
2 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
3 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the Rockport business.
4 2015 excluding goodwill impairment of € 34 million.
5 2014 excluding goodwill impairment of € 78 million.
6 2013 excluding goodwill impairment of € 52 million.
7 2012 excluding goodwill impairment of € 265 million.
8 2017 excluding negative one-time tax impact of € 76 million.
9 Includes continuing and discontinued operations.
10 Subject to Annual General Meeting approval.
2
3
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ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
TEN-YEAR OVERVIEW
Ten-year overview
Data per Share
Share price at year-end (in €)
Basic earnings 2, 3, 4, 5, 6, 7, 8 (in €)
Diluted earnings 2, 3, 4, 5, 6, 7, 8 (in €)
Price/earnings ratio at year-end 2, 3, 4, 5, 6, 7, 8
Market capitalization at year-end (€ in millions)
Net cash generated from operating activities 9 (in €)
Dividend (in €)
2017
2016
2015
2014
2013
2012
2011 1
2010
2009
2008
167.15
150.15
7.05
7.00
23.7
34,075
8.14
2.60 10
5.39
5.29
27.8
89.91
3.54
3.54
25.4
57.62
3.05
3.05
18.9
92.64
3.93
3.93
23.6
67.33
3.78
3.78
17.8
50.26
2.93
2.93
17.1
48.89
2.71
2.71
18.0
30,254
18,000
11,773
19,382
14,087
10,515
10,229
6.73
2.00
5.41
1.60
3.36
1.50
3.03
1.50
4.50
1.35
3.86
1.00
4.28
0.80
37.77
1.25
1.22
30.2
7,902
6.11
0.35
27.14
3.25
3.07
8.4
5,252
2.52
0.50
Number of shares outstanding at year-end (in thousands)
203,861
201,489
200,197
204,327
209,216
209,216
209,216
209,216
209,216
193,516
Employees
Number of employees at year-end 2, 3
Personnel expenses 2, 3 (€ in millions)
56,888
2,549
58,902
2,373
55,555
2,184
53,731
1,842
49,808
1,833
46,306
1,872
46,824
1,646
42,541
1,521
39,596
1,352
38,982
1,283
1 2011 restated according to IAS 8 in the 2012 consolidated financial statements.
2 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
3 2015, 2014 and 2013 figures reflect continuing operations as a result of the divestiture of the Rockport business.
4 2015 excluding goodwill impairment of € 34 million.
5 2014 excluding goodwill impairment of € 78 million.
6 2013 excluding goodwill impairment of € 52 million.
7 2012 excluding goodwill impairment of € 265 million.
8 2017 excluding negative one-time tax impact of € 76 million.
9 Includes continuing and discontinued operations.
10 Subject to Annual General Meeting approval.
2
3
1
ADIDAS ANNUAL REPORT 2017 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
GLOSSARY
/ A
ATHLEISURE
The term is composed of the words athletic and leisure. It
describes a fashion trend of sportswear no longer being just
meant for training but increasingly shaping everyday clothing.
/ B
BACKLOGS
Also called order backlogs. The value of orders received for
future delivery. Most retailers’ orders are received six to nine
months in advance.
BRAND LEADERSHIP
adidas’ operating model that aims at providing an organizational
structure which enables a ‘consumer-obsessed’ culture that
can act with speed, agility and empowerment.
CASH POOLING
A cash management technique for physical concentration of
cash. Cash pooling allows adidas to combine credit and debit
positions from various accounts and several subsidiaries into
one central account. This technique supports our in-house
bank concept where advantage is taken of any surplus funds
of subsidiaries to cover cash requirements of other
subsidiaries, thus reducing external financing needs and
optimizing our net interest expenses.
CONTROLLED SPACE
Includes own-retail business, mono-branded
franchise
stores, shop-in-shops, joint ventures with retail partners and
co-branded stores. Controlled space offers a high level of
brand control and ensures optimal product offering and
presentation according to brand requirements.
CONVERSION RATE
A key ratio in retail business describing the number of buying
customers compared to those who entered the store without
buying something; i.e. a 25% conversion rate means that 100
persons entered a store with 25 of them buying something.
/ C
/ D
CAPITAL EXPENDITURE
Total cash expenditure used for the purchase of tangible and
intangible assets, excluding acquisitions and finance leases.
DROP RATE
Share of articles that are dropped because they do not meet the
demand or strategic direction for a given season, despite being
created initially. These articles are excluded from the range, do
not go into serial production and are not sold to customers.
GLOSSARY
/ F
FITHUB
FitHub is Reebok’s new own-retail store concept, inspired by
CrossFit gyms and fitness studios. Each FitHub offers a
selection of Reebok’s best product assortment, from footwear
to apparel and accessories. Also, it inspires people to move, to
train, to get fit and have fun doing it with innovative fitness
products, trusted advice from trained staff and community-
based events.
/ G
GENDERDAX
An industry- and science-based gender and diversity project,
including a ranking of German companies which are
committed to actively supporting highly qualified and career-
oriented women within their human resource and diversity
management.
GOODWILL
Intangible asset that quantifies the price that a buyer of a
company has paid for the reputation, know-how and market
position of the acquired company. Goodwill is the excess of the
amount paid over the fair value of the net assets acquired at
the purchase date. It is stated at cost and tested for impairment
annually or on such other occasions that events or changes in
circumstances indicate that it might be impaired.
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GLOSSARY
/ H
/ M
HARDWARE
A product category which comprises equipment that is used
rather than worn by the consumer, such as bags, balls, fitness
equipment, golf clubs and hockey sticks.
/ L
LEED
Leadership in Energy and Environmental Design (LEED)
certification is an internationally recognized green building
certification system, providing third-party verification that a
building was designed and built using strategies aimed at
improvements in the following areas: energy savings, water
efficiency, CO2 emission reduction, indoor environmental quality
and stewardship of resources and sensitivity to their impacts.
investments
MARKETING EXPENDITURE
Expenditures that relate to point-of-sale and marketing
investments. While point-of-sale
include
expenses for advertising and promotion initiatives at the point
of sale as well as store fittings and furniture, marketing
investments relate to sponsorship contracts with teams and
individual athletes as well as to advertising, events and other
communication activities. Marketing overhead expenses are
not included in marketing expenditure.
/ N
NEIGHBOURHOOD
Neighbourhood is adidas Originals’ premium own-retail store
concept which brings the style and spirit of sport to the
streets. The aim is to turn Originals stores into a local cultural
epicenter. The store environment takes its inspiration from
the neighborhood, which is at the heart of Originals.
NET CASH/NET BORROWINGS
Net cash is when the sum of cash and short-term financial
assets exceeds gross borrowings. Net borrowings is the
portion of gross borrowings not covered by the sum of cash
and short-term financial assets.
Net cash/net borrowings
=
cash and cash equivalents
+ short-term financial assets
– short-term borrowings
– long-term borrowings
NET PROMOTER SCORE (NPS)
A survey-based measure of how likely people are to
recommend a brand. The survey is based on one single
question to consumers: ‘How likely are you to recommend this
brand to your friends?’, which can be answered within a scale
from 0 to 10. Promoters are consumers giving the brand a 9 or
10 rating, while detractors are those between a 0 and 6 rating.
The NPS is the difference between promoters and detractors
measured in percentage points.
NON-CONTROLLING INTERESTS
Part of net income or equity which is not attributable to the
shareholders of the reporting company as it relates to outside
ownership interests in subsidiaries that are consolidated with
the parent company for financial reporting purposes.
NON-TRADE PROCUREMENT ACTIVITIES
Non-trade procurement is the sourcing of goods and services
which are not linked or indirectly linked to regular trade
products sold to customers. The goods and services are
classified as consumption by internal stakeholders and
include things such as repairing equipment and purchasing
office supplies.
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/ O
OMNI-CHANNEL SALES APPROACH
Describes the ambition to achieve a globally consistent
product offer, brand communication, availability and service
across all sales channels (wholesale, retail and e-commerce)
and consumer touchpoints.
OPERATING CASH FLOW
Comprises operating profit, change in operating working
capital and net investments.
operating profit
+/– change in operating working
Operating cash flow
=
capital
+/– net investments
(capital expenditure less
depreciation)
OPERATING OVERHEAD EXPENSES
Expenses which are not directly attributable to the products
or services sold, such as costs for distribution, marketing
overhead costs, logistics, research and development, as well
as general and administrative costs, but not including costs
for promotion, advertising and communication.
OPERATING WORKING CAPITAL
A company’s short-term disposable capital which is used to
finance its day-to-day business. In comparison to working
capital, operating working capital does not include non-
operational items such as financial assets and taxes.
Operating working capital
=
accounts receivable
+ inventories
– accounts payable
/ P
PARLEY FOR THE OCEANS
Parley for the Oceans is the network and space where
creators, thinkers and leaders raise awareness for the beauty
and fragility of the oceans and collaborate on projects that can
end their destruction. As a founding member since 2015,
adidas supports Parley for the Oceans in its education and
communication efforts and commits to the Parley A.I.R.
(Avoid, Intercept, Redesign) strategy.
PARLEY OCEAN PLASTIC
Parley Ocean Plastic is a material created from upcycled
plastic waste that is intercepted before it reaches beaches
and coastal communities. Parley for the Oceans works with its
partners to collect, sort and transport the recovered raw
material (mainly PET bottles) to our supplier who produces
the yarn, which is legally trademarked.
PERFORMANCE PRODUCTS
In the sporting goods industry, performance products relate to
technical footwear and apparel used primarily in doing sports.
PRICE POINTS
Specific selling prices, normally using ‘psychological’ numbers,
e. g. a product price of US $ 99.99 instead of US $ 100.
PROMOTION PARTNERSHIPS
Partnerships with events, associations, leagues, clubs and
individual athletes. In exchange for the services of promoting
the company’s brands, the party is provided with products
and/or cash and/or promotional materials.
/ R
ROLLING FORECAST
A projection about the future that is updated at regular
intervals, keeping the forecasting period constant (e. g. twelve
months).
/ S
SHARE TURNOVER
The total value of all shares traded in the share price currency
over a specific period of time (normally daily). It is calculated
by multiplying the number of shares traded by the respective
price.
SINGLE-SOURCING MODEL
Supply chain activities limited to one specific supplier. Due to
the dependency on only one supplier, a company can face
disadvantages during the sourcing process.
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VERTICAL RETAILER
A retail company that (vertically) controls the entire design,
production and distribution processes of its products.
/ W
WET PROCESSES
Wet processes are defined as water-intense processes, such
as dyeing and finishing of materials.
SPEEDFACTORY
adidas Speedfactory is a digitally automated, hyper-flexible
shoe factory that can be placed anywhere in the world. It
enables us to combine speed in manufacturing with the
flexibility to rethink conventional processes, and give the
consumers what they want, when they want it. Speedfactory
provides greater precision, athlete data-driven design
opportunities, and high performance. It also enables
accelerated speed to market – three times faster than the
standard production times – allowing for quicker response
time to trends and shifts in the marketplace. There are
currently two Speedfactory locations in the world: one in
Ansbach, Germany and the other in Atlanta, USA.
STADIUM
Stadium is a new own-retail store concept for the adidas
brand, inspired by high school stadiums. It aims at creating a
sports stadium-like atmosphere to enhance the in-store
experience, such as a tunnel entrance, stands for live-game
viewing on big screens, locker rooms instead of dressing
rooms and track and field areas where consumers can test
and experience products.
SUSTAINABLE COTTON
For adidas, sustainable cotton means certified organic cotton
or any other form of sustainably produced cotton that is
currently available or might be in future, and Better Cotton.
/ T
TOP AND BOTTOM LINE
A company’s bottom line is its net income attributable to
shareholders. More specifically, the bottom line is a company’s
income after all expenses have been deducted from revenues.
The top line refers to a company’s sales or revenues.
TOP-DOWN, BOTTOM-UP
A specific concept for information and knowledge processing.
In a first step, information and empowerment of management
decisions is delegated from top to bottom. After going into
more detail on the bottom level, the final information and
decision are then transported back to the top.
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DECLARATION OF SUPPORT
DECLARATION
OF SUPPORT
adidas AG declares support, except in the case of political
risk, that the below-mentioned companies are able to meet
their contractual liabilities. This declaration replaces the
declaration dated February 17, 2017, which is no longer valid.
The declaration of support automatically ceases from the
time that a company no longer is a subsidiary of adidas AG.
adidas (China) Ltd., Shanghai, China
adidas (Cyprus) Limited, Nicosia, Cyprus
adidas (Ireland) Limited, Dublin, Ireland
adidas (Malaysia) Sdn. Bhd., Petaling Jaya, Malaysia
adidas (South Africa) (Pty) Ltd., Cape Town, South Africa
adidas (Suzhou) Co. Ltd., Suzhou, China
adidas (Thailand) Co., Ltd., Bangkok, Thailand
adidas (UK) Limited, Stockport, Great Britain
adidas America, Inc., Portland, Oregon, USA
adidas anticipation GmbH, Herzogenaurach, Germany
adidas Argentina S.A., Buenos Aires, Argentina
adidas Australia Pty Limited, Mulgrave, Australia
adidas Austria GmbH, Klagenfurt, Austria
adidas Baltics SIA, Riga, Latvia
adidas Benelux B.V., Amsterdam, Netherlands
adidas Budapest Kft., Budapest, Hungary
adidas Bulgaria EAD, Sofia, Bulgaria
adidas Business Services (Dalian) Limited, Dalian, China
adidas Business Services Lda., Morea de Maia, Portugal
adidas Canada Ltd., Woodbridge, Ontario, Canada
adidas CDC Immobilieninvest GmbH, Herzogenaurach,
Germany
adidas Chile Limitada, Santiago de Chile, Chile
adidas Colombia Ltda., Bogotá, Colombia
adidas CR s.r.o., Prague, Czech Republic
adidas Croatia d.o.o., Zagreb, Croatia
adidas Danmark A/S, Copenhagen, Denmark
adidas de Mexico, S.A. de C.V., Mexico City, Mexico
adidas do Brasil Ltda., São Paulo, Brazil
adidas Emerging Markets FZE, Dubai, United Arab Emirates
adidas Emerging Markets L.L.C, Dubai, United Arab Emirates
adidas España S.A.U., Zaragoza, Spain
adidas France S.a.r.l., Landersheim, France
adidas Hellas A.E., Athens, Greece
adidas Hong Kong Limited, Hong Kong, China
adidas Imports & Exports Ltd., Cairo, Egypt
adidas India Marketing Private Limited, New Delhi, India
adidas Industrial, S.A. de C.V., Mexico City, Mexico
adidas Indy, LLC (formerly: Sports Licensed Division of the
adidas Group, LLC), Wilmington, Delaware, USA
adidas Insurance & Risk Consultants GmbH,
Herzogenaurach, Germany
adidas International B.V., Amsterdam, Netherlands
adidas International Finance B.V., Amsterdam, Netherlands
adidas International Marketing B.V., Amsterdam, Netherlands
adidas International Property Holding B.V., Amsterdam,
Netherlands
adidas International Re DAC, Dublin, Ireland
adidas International Trading B.V., Amsterdam, Netherlands
adidas International, Inc., Portland, Oregon, USA
adidas Italy S.p.A., Monza, Italy
adidas Japan K.K., Tokyo, Japan
adidas Korea LLC., Seoul, Korea
adidas Latin America, S.A., Panama City, Panama
adidas LLP, Almaty, Republic of Kazakhstan
adidas Logistics (Tianjin) Co., Ltd., Tianjin, China
adidas Morocco LLC, Casablanca, Morocco
adidas New Zealand Limited, Auckland, New Zealand
adidas Norge AS, Oslo, Norway
adidas North America, Inc., Portland, Oregon, USA
adidas Perú S.A.C., Lima, Peru
adidas Philippines Inc., Pasig City, Philippines
adidas Poland Sp.z o.o., Warsaw, Poland
adidas Portugal - Artigos de Desporto, S.A., Lisbon, Portugal
adidas Romania S.R.L., Bucharest, Romania
adidas Serbia d.o.o., Belgrade, Serbia
adidas Services Limited, Hong Kong, China
adidas Singapore Pte. Ltd., Singapore, Singapore
adidas Slovakia s.r.o., Bratislava, Slovak Republic
adidas Sourcing Limited, Hong Kong, China
adidas Spor Malzemeleri Satis ve Pazarlama A.S., Istanbul,
Turkey
adidas sport gmbh, Cham, Switzerland
adidas Sporting Goods Ltd., Cairo, Egypt
adidas Sports Goods (Shanghai) Co., Ltd., Shanghai, China
adidas Sports (China) Co. Ltd., Suzhou, China
adidas Suomi Oy, Helsinki, Finland
adidas Sverige AB, Solna, Sweden
adidas Taiwan Limited, Taipei, Taiwan
adidas Trgovina d.o.o., Ljubljana, Slovenia
adidas Vietnam Company Limited, Ho Chi Minh City, Vietnam
adisport Corporation, San Juan, Puerto Rico
Concept Sport, S.A., Panama City, Panama
Global Merchandising, S.L., Madrid, Spain
Hydra Ventures B.V., Amsterdam, Netherlands
LLC ‘adidas, Ltd.’, Moscow, Russia
PT adidas Indonesia, Jakarta, Indonesia
Raelit S.A., Montevideo, Uruguay
Reebok Argentina S.A., Buenos Aires, Argentina
Reebok International Limited, London, Great Britain
Reebok International Ltd., Canton, Massachusetts, USA
Reebok Produtos Esportivos Brasil Ltda., Jundiaí, Brazil
Reebok Israel Ltd., Holon, Israel
SC ‘adidas-Ukraine’, Kiev, Ukraine
Spartanburg DC, Inc., Spartanburg, South Carolina, USA
Stone Age Equipment, Inc., Redlands, California, USA
Tafibal S.A., Montevideo, Uruguay
Textronics, Inc., Wilmington, Delaware, USA
Trafford Park DC Limited, London, Great Britain
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FULL YEAR 2017 RESULTS
Press Conference in Herzogenaurach, Germany /
Press Release / Conference Call and Webcast /
Publication of 2017 Annual Report
FIRST QUARTER 2018 RESULTS
Press Release / Conference
Call and Webcast
ANNUAL GENERAL MEETING
Fuerth (Bavaria),
Germany / Webcast
DIVIDEND PAYMENT
(subject to Annual General
Meeting approval)
FIRST HALF 2018 RESULTS
Press Release / Conference Call and Webcast /
Publication of First Half Report
NINE MONTHS 2018 RESULTS
Press Release / Conference Call
and Webcast
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ADI-DASSLER-STR. 1
INVESTOR RELATIONS
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