OUR CORE BELIEF
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OUR MISSION
TO BE THE BEST SPORTS
COMPANY IN THE WORLD
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TARGETS – RESULTS – OUTLOOK 1
Targets 2018 2
Currency-neutral sales
increase at a rate around 10%
Results 2018
Currency-neutral sales
increase of 8%
Sales of
€ 21.915 billion
Gross margin
increase to a level of up to 50.7%
Gross margin
increase of 1.4pp to 51.8%
Operating margin
increase to a level between 10.3% and 10.5%
Operating margin
increase of 1.1pp to 10.8%
Outlook 2019
Currency-neutral sales
increase at a rate between 5% and 8%
Gross margin
increase to a level of around 52.0%
Operating margin
increase between 0.5pp and 0.7pp
to a level between 11.3% and 11.5%
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
Net income from continuing operations3
increase of 20% to € 1.709 billion
Net income from continuing operations 4
increase at a rate between 10% and 14%
to a level between € 1.880 billion and € 1.950 billion
Average operating working capital (in % of net sales)
around prior year level
Average operating working capital (in % of net sales)
decrease of 1.4pp to 19.0%
Average operating working capital (in % of net sales)
slight increase
Capital expenditure
around € 900 million
Capital expenditure
€ 794 million
Capital expenditure 5
increase to a level of up to € 900 million
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 14, 2018; the outlook was updated over the course of the year.
3 2017 excluding negative one-time tax impact of € 76 million.
4 2019 excluding negative impact from accounting change according to IFRS 16 of around € 35 million (based on lease contracts as at January 1, 2019); including this impact,
net income from continuing operations is currently expected to increase at a rate between 8% and 12% to a level between € 1.845 billion and € 1.915 billion.
5 2019 excluding acquisitions and finance leases.
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Financial Highlights 2018 (IFRS)
FINANCIAL HIGHLIGHTS 2018 (IFRS)
2018
2017
Change
Operating Highlights (€ in millions)
Net sales 1
Gross profit 1
Other operating expenses 1, 2
EBITDA 1
Operating profit 1
Net income from continuing operations 1, 3
Net income attributable to shareholders 3, 4
Key Ratios
Gross margin 1
Other operating expenses in % of net sales 1, 2
Operating margin 1
Effective tax rate 1, 3
Net income attributable to shareholders in % of net sales 3, 4
Average operating working capital in % of net sales 1
Equity ratio 5
Net borrowings/EBITDA 1
Financial leverage 5
Return on equity 4, 5
Balance Sheet and Cash Flow Data (€ in millions)
Total assets 5
Inventories
Receivables and other current assets
Operating working capital
Net cash
Shareholders’ equity 5
Capital expenditure 1
Net cash generated from operating activities 4
Per Share of Common Stock (€)
Basic earnings 1, 3
Diluted earnings 1, 3
Net cash generated from operating activities 4
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 Figures reflect the adjusted consolidated income statement structure introduced in 2018.
3 2017 excluding negative one-time tax impact of € 76 million.
4 Includes continuing and discontinued operations.
5 2017 restated according to IAS 8, see Note 03.
6 Subject to Annual General Meeting approval.
21,915
11,363
9,172
2,882
2,368
1,709
1,702
51.8%
41.9%
10.8%
28.1%
7.8%
19.0%
40.8%
(0.3)
(15.0%)
26.7%
15,612
3,445
3,734
3,563
959
6,377
794
2,646
8.46
8.45
13.11
3.35 6
182.40
21,218
10,703
8,766
2,511
2,070
1,430
1,173
50.4%
41.3%
9.8%
29.3%
5.5%
20.4%
43.0%
(0.2)
(8.0%)
18.2%
14,019
3,692
3,277
4,033
484
6,032
752
1,648
7.05
7.00
8.14
2.60
167.15
57,016
199,171,345
201,759,012
56,888
203,861,234
202,391,673
3%
6%
5%
15%
14%
20%
45%
1.4pp
0.5pp
1.1pp
(1.2pp)
2.2pp
(1.4pp)
(2.2pp)
n.a.
(7.0pp)
8.5pp
11%
(7%)
14%
(12%)
98%
6%
6%
61%
20%
21%
61%
29%
9%
0%
(2%)
0%
0
0
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ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
ABOUT THIS REPORT
With the Annual Report 2018, 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 2018
financial year.
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 2018
PDF
ADIDAS ANNUAL REPORT 2018,
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 2018 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. 101
DATA AND FINANCIAL REPORTING STANDARDS
The reporting period is the financial year from January 1 to
December 31, 2018. To ensure this report is as current as
possible, it includes all relevant information available up to
the date of the Responsibility Statement, February 27, 2019.
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. 232
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. 101 The assurance
was conducted using the International Standard on Assurance
Engagements ISAE 3000 (Revised).
ASSURANCE REPORT, P. 232 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) Standards ‘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 OUTLOOK, P. 128
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ADIDAS ANNUAL REPORT 2018
ADIDAS ANNUAL REPORT 2018
TO OUR
SHAREHOLDERS
GROUP MANAGEMENT REPORT
FINANCIAL REVIEW
CONSOLIDATED FINANCIAL
STATEMENTS
Best of 2018
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
008
Internal Management System
103
Consolidated Statement of Financial Position
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
Europe
North America
Asia-Pacific
Russia/CIS
Latin America
Emerging Markets
Outlook
Risk and Opportunity Report
Illustration of Risks
Illustration of Opportunities
Management Assessment of Performance,
Risks and Opportunities, and Outlook
106
106
107
111
115
118
120
125
125
125
126
126
127
127
128
131
136
142
144
018
021
025
028
035
041
057
062
067
070
072
074
078
081
088
101
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
Ten-Year Overview
Glossary
Declaration of Support
Financial Calendar
148
150
151
152
153
155
171
211
217
224
226
231
232
237
240
243
246
247
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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.
Best of 2018
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
018
021
025
028
035
041
057
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1 TO OUR SHAREHOLDERS
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STATEMENTS
BEST OF 2018
BEST OF 2018
ORIGINALS GOES
PUBLIC TRANSPORT:
EQT SUPPORT 93/BERLIN
AND OYSTER CLUB PACK
adidas Originals presents the EQT Support 93/Berlin in
cooperation with public transport company Berliner
Verkehrsbetriebe (BVG). The pattern of the BVG seat
covers serves as a design element of the sneaker and
makes it a collector’s item. In addition, an annual ticket
is incorporated into the tongue of the shoe which
makes the EQT Support 93/Berlin a valid ticket for all
BVG vehicles. Later in 2018, adidas Originals presents
another three limited-edition sneakers – this time in
partnership with Transport for London. The exclusive
1,500 pairs form the ‘Oyster Club Pack’ and come with
a prepaid Oyster Card to the value of £ 80.
YOUTUBE
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BEST OF 2018
747 WAREHOUSE ST. –
A CELEBRATION
OF BASKETBALL AND
STREET CULTURE
adidas rolls out a line-up of events at 747 Warehouse
St. in Los Angeles to celebrate basketball and creative
culture. Bringing together basketball fans and those
passionate about design, sneakers and streetwear, the
747 Warehouse St. space embodies the belief that
basket ball is more than a game – it is creativity, inno-
vative ingenuity, and a community built on sport, music
and style. More than 20,000 people visit the two-day
event and experience exclusive product drops, concerts,
a speaker panel of adidas athletes and ambassadors
such as Pharrell Williams, Alexander Wang and Karlie
Kloss, as well as an East-vs.-West all-star basketball
game coached by rappers Snoop Dogg and 2 Chainz.
Athletes such as James Harden, Zach Lavine, Candace
Parker and Von Miller also make appearances.
#747WAREHOUSEST, @ADIDASORIGINALS,
@ADIDAS, @ADIDASHOOPS
FIVE YEARS
OF BOOST!
In 2013, adidas started to revolutionize the running
market with BOOST, the lightweight cushioning tech-
nology that stores energy at each step and returns it to
the runner. Back then, the brand had kicked off the
BOOST collection with the launch of Energy BOOST.
Five years later, to celebrate the anniversary, the Energy
BOOST makes its comeback and is complemented by
two further silhouettes: the Energy BOOST OG and
UltraBOOST LTD.
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BEST OF 2018
REEBOK GETS
‘LIQUIFIED’
Reebok introduces Liquid Floatride Run, a performance
running shoe that applies Reebok’s Liquid Factory
technology to its award-winning Floatride Run sneaker.
It is the first application of the Liquid Factory technique
on an existing Reebok model. The process makes the
shoe 20% lighter and adds two new component
features: liquid lace and liquid grip. The Reebok Liquid
Factory concept debuted in late 2016. The manufac-
turing technique is based on 3D drawing, where a
proprietary liquid material, created for Reebok by
BASF, is used to draw shoe componentry cleanly,
precisely and in three-dimensional layers.
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ADIDAS EXTENDS
PARTNERSHIPS WITH
UEFA AND DFB
adidas announces the continuation of its support for
the UEFA Champions League through to 2021, as well
as the UEFA Super Cup, UEFA Youth League and UEFA
Futsal Champions League. The company has been the
Official Match Ball Supplier since 2001 and is proud to
remain a leading sporting partner in the world’s premier
club football event. Later in the year, the extension of
another successful partnership is announced: adidas
and the German Football Association (DFB) declare
that adidas will remain the Official Supplier of the
world’s largest sports federation until 2026.
READ PRESS RELEASE (UEFA)
READ PRESS RELEASE (DFB)
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SOLARBOOST –
ROCKET SCIENCE
FOR THE RUN
SolarBOOST is inspired by NASA engineering and
designed for pure function. The silhouette is a high-
performance, lightweight running shoe featuring
data- driven ‘Tailored Fiber Placement’ technology.
This technology lays down fibers, which feature Parley
Ocean Plastic, so that every single millimeter of the
shoe is precisely stitched and constructed. The result is
superior comfort, fit and support in a lightweight form.
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BEST OF 2018
CONTINENTAL 80 –
A TENNIS LOOK FROM THE
1980S RETURNS IN FRESH
STYLE
Steeped in nostalgia and harking back to adidas’
legacy of iconic court-style leather silhouettes, the
Continental 80 captures the retro look of indoor
sneakers from the early 1980s. The leather shoes
feature a swooping two-tone stripe and a distinctive
split rubber cupsole that is built for a comfortable,
flexible feel. Continental 80 is defined by its versatility,
embodying the notion that sometimes simplicity can
be the boldest attitude.
#CONTINENTAL80
RUN FOR THE
OCEANS
Kicked off on June 8, World Oceans Day, adidas and
Parley for the Oceans initiate the second Run for the
Oceans. Athletes, creators and adidas Runners are
mobilized to join the movement, inspiring their followers
to run as many kilometers as possible, tracking their
progress with the Runtastic and Joyrun apps. Together,
nearly 1 million runners from across the world cover a
total distance of more than 12.4 million kilometers,
harnessing the power of sport to generate awareness
for marine plastic pollution and the state of the oceans.
#RUNFORTHEOCEANS, #ADIDASPARLEY,
#ULTRABOOST
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BEST OF 2018
BACK TO THE 90S –
FALCON AND YUNG 1
Translating 90s design into a modern context, adidas
Originals presents the Falcon for women and the
Yung 1 for men. Both are inspired by the maximalist
design language of classic 90s running models. The
Falcon features panels that accentuate the shoe’s bold
lines and aggressive profile, and steps out in striking
colorways. Also echoing true 90s style, the Yung 1
offers an authentic, creative take on retro nostalgia in
a layered look.
#FALCON, #YUNG1
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BEST OF 2018
REEBOK PRESENTS
PUREMOVE BRA
With PureMove Bra, Reebok unveils a technologically
advanced sports bra that uniquely responds and adapts
to movement to provide women with a customized
amount of control and support. It uses the brand’s new
proprietary Motion Sense Technology, which is the result
of treating a performance-based fabric with ‘Sheer
Thickening Fluid’, a gel-like solution that takes a liquid
form when in a still or slow-moving state and stiffens
and solidifies when moving at higher velocities.
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LAUNCH OF REEBOK X
VICTORIA BECKHAM
COLLECTION
Reebok releases its first-ever collection with fashion
designer Victoria Beckham, after having announced
the partnership in late 2017. The collection capsule
celebrates the 90s basketball culture and is inspired
by an icon of the era: basketball star Shaquille O’Neal.
The limited-edition range includes a hoodie, T-shirt,
and socks in black and white colorways with the
Reebok and O’Neal’s ‘dunkman’ logos accented.
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BEST OF 2018
OVERALL INDUSTRY
LEADER IN DJSI –
ADIDAS GAINS
TOP POSITION IN
ITS SECTOR
For the 19th 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 as Industry Leader in cor-
porate economic, environmental and social dimensions.
READ PRESS RELEASE
SPEEDFACTORY –
CONTINUATION OF
AM4 SERIES AND
SPECIAL EDITIONS
The year 2018 sees the launch of several new Speed-
factory products, including the key city editions for
Los Angeles (AM4LA), New York (AM4NYC), Paris
( AM4PAR), Shanghai (AM4SHA), London (AM4LDN)
and Tokyo (AM4TKY). In addition, adidas releases
limited editions throughout the year, such as the
AM4BJK. Inspired by legendary female tennis player
Billie Jean King, this advanced performance shoe is
built and assembled at the Speedfactory in Atlanta,
USA, and was launched to mark the start of the 2018
U.S. Open. At the end of the year, the series is comple-
mented by running shoes resulting from a collaboration
with local L.A. and NYC creators such as celebrity
stylist Kwasi Kessie and the Brooklyn Ballet.
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‘CREATIVITY IS THE
ANSWER’ – 2018 FIFA
WORLD CUP CAMPAIGN
Using the world’s biggest moment in sport as the
backdrop, adidas re-engineers the traditional campaign
model through personal storytelling. The ‘Creativity is
the Answer’ campaign brings together 56 of the most
influential creators across sports culture, including
Lionel Messi, Gabriel Jesus, Mo Salah, Zinédine Zidane
and Pharrell Williams. ‘Creativity is the Answer’ is the
brand’s most personal campaign to date.
#HERETOCREATE
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BEST OF 2018
YEEZY BOOST 350
V2 TRIPLE WHITE –
BIGGEST DIGITAL RELEASE
TO DATE
In September, our partnership with Kanye West sees
its largest digital drop of a Yeezy model to date. With
the aspiration to democratize the Yeezy brand while
preserving the Yeezy hype, adidas Originals releases
Yeezy BOOST 350 V2 Triple White. The launch is a major
commercial success and significantly contributes to
driving e-commerce traffic by creating millions of visits
on adidas.com. Also, media mentions and search inter-
est surpass past Yeezy releases.
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REEBOK LAUNCHES
AZTREK
Twenty-five years after its original launch in 1993,
Reebok reintroduces the Aztrek: an off-road runner
that perfectly embraces the heart of 1990s sneaker
style with its futuristic layers and chunky design. To
celebrate this return, Reebok launches a campaign
featuring six 90s-raised tastemakers for a content
series titled ‘Aztrek: 90s Re-Run’ .
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BEST OF 2018
RUNNING REDEFINED:
ALPHAEDGE 4D
In November, the Alphaedge 4D, engineered with the
adidas 4D midsole for controlled energy return and
breathable cushioning during intensive training runs,
becomes available in larger quantities for the first
time worldwide. The midsole of the silhouette started
out as a conceptual Futurecraft innovation, which
had not only allowed adidas to completely re-think
manufacturing processes, but to create a data-driven
experience that breaks new ground in performance
capability and comfort. The adidas 4D midsole is
printed with light and oxygen, using Digital Light
Synthesis. This technology, pioneered by Carbon, uses
digital light projection, oxygen-permeable optics and
programmable liquid resins to print high-performance,
durable polymeric products.
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ADIDAS ATHLETES
AT THE TOP OF
THEIR GAME
In May, Real Madrid wins the Champions League for
the third time in a row. The team beats Liverpool F.C.
3-1. Real’s goals are scored by adidas assets Karim
Benzema and Gareth Bale. In November, Kenyan
runner Mary Keitany wins the New York City Marathon
for the fourth time. She finishes in 2:22:48 – the
second-fastest women’s time for the course in history.
In the course of 2018, adidas scores many successes
in tennis, e.g. with Angelique Kerber winning the
Wimbledon Final, defeating seven-times Wimbledon
champion Serena Williams in two sets, and Alexander
Zverev beating world number one Novak Djokovic in
the ATP Finals, earning the 21-year-old the biggest
win in his career so far.
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BEST OF 2018
ADIDAS KICKS OFF
INITIATIVE TO BREAK
DOWN BARRIERS FACED
BY WOMEN AND GIRLS
IN SPORT
As a continuation of the commitment to remove barriers
in sport, adidas announces the ‘She Breaks Barriers’
initiative. Expanding on the #creatorsunite conversation
launched earlier in the year, the multi- faceted initiative
is designed to inspire, enable and support the next
generation of female athletes, creators and leaders.
The ‘She Breaks Barriers’ campaign film highlights the
barriers girls and women are facing in sport and invites
everyone to level the playing field and co-create the
future of women’s sport.
#CREATORSUNITE
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OPENING OF SHANGHAI
BRAND CENTER
In November, adidas opens its newest and largest
Asia-Pacific Brand Center in Shanghai with a spectac-
ular opening ceremony. Executives from adidas and
Bailian Group, brand ambassadors Zinédine Zidane,
Eason Chan and Angelababy as well as creators and
consumers from across China gather at the location on
Nanjing East Road to celebrate this milestone in
adidas’ planned expansion in the Asia-Pacific and
China markets. The new Brand Center showcases the
latest retail concepts and innovations and reflects the
company’s implementation of ‘Creating the New’ as
its efforts to strengthen retail channel
well as
development in core cities.
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ADIDAS ANNUAL REPORT 2018 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
FROM THE CEO
KASPER RORSTED
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WE HAVE THE
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SEE VIDEO
↗ REPORT.ADIDAS-GROUP.COM/#CEO-VIDEO
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ADIDAS ANNUAL REPORT 2018
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
DEAR SHAREHOLDERS,
In 2018, we again used the power of sport to change lives and create a real difference. We lead the
way in sustainability and human rights. We break down barriers to give girls better access to sport.
We inspire people to be the best version of themselves. The list goes on, and it will only get longer.
We are getting closer to becoming the best sports company in the world. But in the end, our
consumer will let us know if we have made it by showing and sharing their love for our products.
This is why consumer obsession and brand desire sit at the heart of our strategic business
plan, ‘Creating the New’.
Record sales, the highest margin in our history, strong net income improvements – 2018 was a
successful year for our company. We now have until 2020 to fully implement Creating the New,
the right strategy to succeed in the highly attractive industry we are in.
consumers. Some 2018 highlights: In Los Angeles, we shook up the NBA All-Star Weekend
with a two-day festival celebrating basketball culture through creativity, innovation, music,
community, sport, and style. To mark the 15th anniversary of the Oyster card in London, we
launched a range of limited-edition trainers that sold out instantly. In Shanghai, we opened a
new Brand Center store, our latest and most modern brick-and-mortar to date.
Open Source is how we create. We invite athletes, consumers, and partners to collaborate with
our brands. Our creative collaborations with Pharrell Williams, Kanye West, Victoria Beckham,
and Stella McCartney, among others, continued to drive brand desire and growth. By partnering
up with the world’s best athletes and teams, we build communities of advocates. A prime
example was the FIFA World Cup in Russia where our teams and players – and our official match
ball, Telstar, took center stage at the most popular sports event in the world. Though sadly we
did not get to cheer for an adidas team in the final, we closed the event as ‘the most influential
brand at the World Cup’ with a total of 147 million video views and a 24% engagement rate.
We are making great strides toward our 2020 financial ambition, which makes for a clear
goalpost: We need to continue driving our top and bottom line for the last two years of our
current strategy cycle. In the coming year, we will zoom in on our strategic choices and
acceleration topics, as outlined in Creating the New.
ACCELERATION THROUGH PORTFOLIO, ADIDAS NORTH AMERICA, ONE
ADIDAS, AND DIGITAL
To amplify the impact of our strategy on brand desire, growth, and profit, we are executing
against an acceleration plan consisting of four pillars: Portfolio, adidas North America,
ONE adidas, and Digital.
CREATING THE NEW WITH SPEED, CITIES, AND OPEN SOURCE
Our strategic choices Speed, Cities, and Open Source will make us faster, help us deliver
products with impact, and bring meaningful innovation to the market.
Speed is how we deliver. Our aim is to always offer the products our consumer wants, where
they want them, when they want them. Our demand-led proposition will drive consumer
sentiment, full-price sell-through, and customer satisfaction, which, in turn, reaffirms our
consumer obsession. One proof of this is the success we enjoyed when celebrating key sporting
moments with limited-edition shoes. Produced in our Speedfactory in Atlanta, USA, the
AM4NHL running shoe honored the Washington Capitals’ first-ever Stanley Cup win. Similarly,
the AM4MN football cleats debuted at Super Bowl LII.
Cities is where we deliver. In 2018, we strengthened our presence in our six key cities: New
York, Los Angeles, Paris, London, Shanghai, and Tokyo. Last year, we saw another improvement
in brand desire which helped us to extend our market share in our key cities. We will continue
to zero in on key trade zones within these cities, focusing on how we deploy product, retail, and
activation initiatives, with the intention of creating one holistic brand experience for our
Every entity must contribute to the success of our company, be it a brand, channel, or market.
By regularly revisiting the performance of our portfolio, we identify opportunities for
improvements and develop action plans to sharpen the business. For instance, through the
‘Muscle Up’ plan we continued to set the stage for the Reebok brand to realize its full potential
and become more profitable.
The biggest market in the sporting goods industry is also the biggest opportunity for our
company. With a relatively small market share compared to our other regions, North America
is a priority market where we are strategically increasing investments into people, assets, and
infrastructure. In 2018, we continued to gain market share, increasing our adidas brand
business by 17% year-on-year.
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Excellence in operations is vital for creating flexibility and generating operating leverage.
Through a set of initiatives across three areas – brand leadership, marketing effectiveness, and
operating efficiency – ONE adidas enables us to work smarter and more efficiently, ultimately
leading to a more scalable business model.
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
LETTER FROM THE CEO
The role of digital is clear: Through sport, we have the power to change lives and, to change
lives, we have to create direct relationships with consumers. The best way to accelerate
building those direct relationships is through digital. Digital transformation, however, is not
only fundamentally changing the way we interact with our consumer – it touches every part of
the business. Gearing up for the future, we are driving digital transformation across the entire
organization. In 2018, our global e-commerce business continued to be our fastest-growing
sales channel, with a 36% increase.
Our strategy Creating the New includes a strong commitment to returning cash to you, our
shareholders, through both dividends and share buybacks. In 2018, we clearly delivered on this
promise. We completed the first tranche of our multi-year share buyback program, buying
back 5.1 million shares for a total of € 1 billion. Also taking into consideration the dividend
payment of € 528 million for the financial year 2017, paid out in May 2018, we returned more
than € 1.5 billion to our shareholders.
SUSTAINABILITY IS AN INTEGRAL PART OF OUR BUSINESS MODEL
Few companies are able to embed sustainability authentically into their business model. We
are proud to say adidas is one of them, as evidenced by the five million pairs of shoes made with
Parley Ocean Plastic in 2018, up from one million pairs the year before. What’s more, 100% of
all cotton we sourced globally was sustainable cotton.
Our ongoing work to protect human rights continues. We tackle social issues in our supply
chain, are deeply involved in human rights in sports along with safeguarding women’s rights,
which is both an internal and external focus for us as a company.
For the 19th year in a row, adidas was included in the Dow Jones Sustainability Indices, a family
of benchmarks evaluating the sustainability performance of the largest 2,500 companies listed
in the Dow Jones Global Total Stock Market Index. adidas was assessed for its performance in
corporate economic, environmental, and social dimensions and rated overall industry leader in
the ‘Textiles, Apparel and Luxury Goods industry’ category. We were also ranked #1 in the 2018
Corporate Human Rights Benchmark, which measures the human rights performance of the
top 100+ global companies across industries.
2019 OUTLOOK
Staying true to our core belief, through sport we have the power to change lives, we will
continue to create value in 2019. And we will do this by executing upon our strategic choices
and acceleration topics with diligence. Regarding our financial performance, we are targeting
a currency-neutral sales increase between 5% and 8%. By further leveraging our scalable
operating model, net income is expected to once again grow significantly faster than revenues
to a level of around € 1.9 billion. Operating margin is expected to increase to at least 11.3%.
These figures will keep us firmly on track toward our 2020 financial ambition.
IN CLOSING
Our mission is to be the best sports company in the world. This mission sets the bar for how we
operate as a company and how we, as adidas employees, show up to work every day. But one
thing is for sure: 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.
Going forward, we will focus on what matters: connecting with our consumer and playing to win
as one strong global team. Together, we will tackle any challenge with confidence.
2018 FINANCIAL RESULTS
Our efforts are mirrored in strong financial results in 2018. We achieved record sales of
€ 21.9 billion, reflecting a currency-neutral increase of 8% and nominal growth of 3%. Despite
currency headwinds, our gross margin climbed 140 basis points to 51.8%.
Thank you for your ongoing support.
Sincerely yours,
We increased 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
10.8%, the highest operating margin in the history of our company. Our net income from
continuing operations grew six times as fast as our top line in nominal terms, up 20% to
€ 1.7 billion. Again, a new record.
K A S P E R R O R S T E D
C E O
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ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
EXECUTIVE BOARD
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Harm Ohlmeyer
Chief Financial Officer
Roland Auschel
Global Sales
Karen Parkin
Global Human Resources
Kasper Rorsted
Chief Executive Officer
Eric Liedtke
Global Brands
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1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
EXECUTIVE BOARD
KASPER RORSTED
CHIEF EXECUTIVE
OFFICER
Kasper Rorsted was born in Aarhus, Denmark, in
1962 and is a Danish national. He holds a degree
in Business Studies from the International Business
School, Denmark, and completed a series of
Executive Programs at Harvard Business School,
USA. 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 Resour ces, Purchasing,
Information Technologies and
Infra structure
Services. Three years after joining Henkel, he
was appointed Chief Executive Officer. In 2016,
Kasper Rorsted was appointed to the Executive
Board of adidas. After two months as a Board
member, he became Chief Executive Officer.
Kasper Rorsted is also:
— Member of the Supervisory Board,
Bertelsmann SE & Co. KGaA / Bertelsmann
Management SE, Gütersloh, Germany
— Member of the Board of Directors,
Nestlé S.A., Vevey, Switzerland 1
1 Since April 12, 2018.
ROLAND AUSCHEL
GLOBAL SALES
Roland Auschel was born in Bad Waldsee, Germany,
in 1963 and is a German citizen. After obtaining
a Bachelor’s degree in European Business Studies
from the Münster University of Applied Sciences,
Germany, and the University of Hull, UK, as well
as an MBA from the University of Miami, USA, 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 and is respon sible for Global Sales.
OUR EXECUTIVE BOARD IS COMPRISED
OF SIX MEMBERS. EACH BOARD MEMBER
IS RESPONSIBLE FOR AT LEAST ONE MAJOR
FUNCTION WITHIN THE COMPANY.
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
EXECUTIVE BOARD
ERIC LIEDTKE
GLOBAL BRANDS
Eric Liedtke was born in Dayton/Ohio, USA, in
1966 and is a US citizen. He holds a Bachelor of
Arts degree in Journalism from the University of
Wisconsin-Madison, USA. He joined adidas in
1994 as Global Line Manager for Cross Training in
Portland/Oregon, USA. During his 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 transferred to the company‘s headquarters
in Herzogenaurach, Germany, to become Senior
Vice President Global Brand Marketing. In 2011,
he assumed the position of Senior Vice President
adidas Sport Performance, respon sible for all
adidas brand sports categories globally. In 2014,
Eric Liedtke was appointed to the Executive
Board and is responsible for Global Brands (the
adidas and Reebok brands). In addition to his
Executive Board position, he is a 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
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HARM OHLMEYER
CHIEF FINANCIAL
OFFICER
Harm Ohlmeyer was born in Hoya, Germany, in
1968 and is a German national. He holds a
degree in Business Studies from the University
of Regensburg, 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/California, 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 as Senior Vice President Digital Brand
Commerce. From 2014 to 2016, he held additional
responsibility as Senior Vice President Sales
Strategy and Excellence. In 2017, Harm Ohlmeyer
was appointed to the Executive Board and sub-
sequently became Chief Financial Officer and
Labor Director.
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1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
EXECUTIVE BOARD
KAREN PARKIN
GLOBAL HUMAN
RESOURCES
Karen Parkin was born in Bowden, UK, 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,
UK. Karen Parkin joined adidas in 1997 as Sales
Director adidas UK, where she was Head of
Customer Service
from 2000
to 2001 and
Business Development Director from 2001 to
2004. In 2004, she relocated 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 Management and was based both at the
company’s headquarters in Herzogen aurach and
at the adidas America headquarters in Portland/
Oregon, USA. Since 2014, she has held the position
of Chief HR Officer. In 2017, Karen Parkin was
appointed
to
the Executive Board and
is
responsible for Global Human Resources.
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FOR MORE
INFORMATION ON
THE ADIDAS AG
EXECUTIVE BOARD
↗ ADIDAS-GROUP.COM/EXECUTIVE-BOARD
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Member of the Executive Board
until February 26, 2019:
GIL STEYAERT
GLOBAL OPERATIONS
1 TO OUR SHAREHOLDERS
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SUPERVISORY BOARD
SUPERVISORY BOARD
IGOR LANDAU
CHAIRMAN
residing in Lugano, Switzerland
born on July 13, 1944
Member of the Supervisory Board
since May 13, 2004
Pensioner
SABINE BAUER*
DEPUTY CHAIRWOMAN
residing in Erlangen, Germany
born on January 16, 1963
Member of the Supervisory Board
since May 20, 1999
Full-time member of the Works Council
Herzogenaurach, adidas AG
Chairwoman of the European Works
Council, adidas AG
WILLI SCHWERDTLE
DEPUTY CHAIRMAN
residing in Munich, Germany
born on April 14, 1953
Member of the Supervisory Board
since May 13, 2004
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
BIOGRAPHICAL
INFORMATION ON OUR
SUPERVISORY BOARD
MEMBERS IS AVAILABLE
ONLINE
↗ ADIDAS-GROUP.COM/SUPERVISORY-BOARD
— Member of the Board of Directors,
Frère-Bourgeois SA, Loverval, Belgium 3
— Member of the Board of Directors,
Château Cheval Blanc, Société Civile,
Saint Emilion, France 4
— Member of the Board of Directors, GBL
Energy S.à r.l., Strassen, Luxembourg 5
— Member of the Board of Directors, GBL
Advisors Ltd, London, United Kingdom 6
— Member of the Board of Directors,
GBL Development Ltd, London, United
Kingdom7
DR. FRANK APPEL
residing in Königswinter near Bonn,
Germany
born on July 29, 1961
Member of the Supervisory Board
since May 9, 2018
Chief Executive Officer, Deutsche Post AG,
Bonn, Germany
IAN GALLIENNE
residing in Gerpinnes, Belgium
born on January 23, 1971
Member of the Supervisory Board
since June 15, 2016
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
Mandates within the Groupe Bruxelles
Lambert or in entities under common
control with 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,
Erbe SA, Loverval, Belgium 1
— Member of the Board of
Directors, Compagnie Nationale à
Portefeuille SA, Loverval, Belgium 2
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* Employee representative.
1 Until January 12, 2018.
2 Since April 30, 2018.
3 Since January 12, 2018.
4 Since December 17, 2018.
5 Until June 25, 2018.
6 Since January 19, 2018.
7 Since May 29, 2018.
ADIDAS ANNUAL REPORT 2018
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SUPERVISORY BOARD
DIETER HAUENSTEIN*
residing in Herzogenaurach, Germany
born on January 13, 1957
Member of the Supervisory Board
since May 7, 2009
Specialist for job safety, adidas AG
HERBERT KAUFFMANN
residing in Stuttgart, Germany
born on April 20, 1951
Member of the Supervisory Board
since May 7, 2009
Independent Management Consultant,
Stuttgart, Germany
— Member of the Supervisory Board,
DEUTZ AG, Cologne, Germany 8
DR. WOLFGANG JÄGER*
residing in Bochum, Germany
born on August 3, 1954
Member of the Supervisory Board
since May 7, 2009
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
* Employee representative.
8 Until April 26, 2018.
KATJA KRAUS
residing in Hamburg, Germany
born on November 23, 1970
Member of the Supervisory Board
since May 8, 2014
Author/Managing Partner, Jung von Matt/
sports GmbH, Hamburg, Germany
UDO MÜLLER*
residing in Herzogenaurach, Germany
born on April 14, 1960
Member of the Supervisory Board
since October 6, 2016
Full-time member of the Works Council
Herzogenaurach, adidas AG
Chairman Works Council Herzogenaurach,
adidas AG
KATHRIN MENGES
residing in Neuss, Germany
born on October 16, 1964
Member of the Supervisory Board
since May 8, 2014
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 Finland Oy, Vantaa, Finland
ROLAND NOSKO*
residing in Wolnzach, Germany
born on August 19, 1958
Member of the Supervisory Board
since May 13, 2004
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
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ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SUPERVISORY BOARD
HANS RUPRECHT*
residing in Herzogenaurach, Germany
born on April 18, 1954
Member of the Supervisory Board
since January 1, 2002
Vice President Customer Service Central,
adidas AG
NASSEF SAWIRIS
residing in London, Great Britain
born on January 19, 1961
Member of the Supervisory Board
since June 15, 2016
Chief Executive Officer and Member of the
Board of Directors, OCI N.V., Amsterdam,
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 9
HEIDI THALER-VEH*
residing in Uffenheim, Germany
born on November 14, 1962
Member of the Supervisory Board
since April 13, 1994
Full-time member of the Works Council
Uffenheim, adidas AG
Chairwoman of the Works Council Uffenheim,
adidas AG
Deputy Chairwoman of the Central Works
Council, adidas AG
KURT WITTMANN*
residing in Markt Bibart, Germany
born on July 11, 1963
Member of the Supervisory Board
since October 6, 2016
Full-time member of the Works Council
Herzogenaurach, adidas AG
Member of the Supervisory Board
until May 9, 2018:
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
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, 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 (Chairman), Sabine Bauer*, Willi Schwerdtle, Heidi Thaler-Veh*
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* Employee representative.
9 Until July 16, 2018.
ADIDAS ANNUAL REPORT 2018 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
IGOR LANDAU
CHAIRMAN OF
THE SUPERVISORY
BOARD
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FINANCIAL REVIEW
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SUPER VISORY BOARD REPORT
DEAR SHAREHOLDERS,
We look back on 2018 as another very successful year. Thanks to a sharp focus on our
consumers’ needs as part of our stringent implementation of our ‘Creating the New’ strategy,
the company was once again able to increase sales and achieve strong bottom-line growth in
the 2018 financial year. Innovative products and impressive marketing campaigns such as for
the FIFA World Cup in Russia strengthened the presence of our brands and brand desire. We
were able to generate double-digit growth rates in our focus markets North America and China
as well as in the important e-commerce channel. At the same time, we tackled company-
specific weaknesses in our home market Europe, and negative macroeconomic factors in large
parts of the world were effectively offset. Despite investments in our brands, which increased
significantly in the last year and were higher than ever before, as well in the scalability of the
company, we generated profitability results which surpassed the targets set at the beginning of
the year. This reflects both the quality and sustainability of our growth and places our company
in a position to continue to grow profitably in the future. In the last year, we duly shared the
company’s success with our shareholders, as underscored by the total dividend payout and
share buyback of more than € 1.5 billion in 2018, and we intend to continue to do so.
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. We regularly advised the Executive Board on
the management of the company and diligently and continuously supervised its management
activities, assuring ourselves of the legality, expediency and regularity thereof. The Executive
Board involved us directly and in a timely and comprehensive manner in all of the company’s
fundamental decisions.
The Executive Board informed us extensively 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
accounting processes, the risk situation and the effectiveness of the internal control and risk
management systems 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 each of these deviations 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 extensive 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 past financial year, the Supervisory Board primarily exercised its duties in plenary
sessions. We held six regular meetings of the entire Supervisory Board, one of which took
place outside Germany. One resolution was passed by way of a circular resolution. The
attendance rate of the members at the Supervisory Board and committee meetings was around
94% in the year under review. All committee meetings, with the exception of one Audit
Committee meeting from which one member was excused, were fully attended.
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ADIDAS ANNUAL REPORT 2018 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
The participation of the individual Supervisory Board members in the Supervisory Board and
committee meetings is set out below:
Individual meeting participation of the Supervisory Board members
in meetings requiring personal attendance and telephone conferences of the Supervisory Board
in the 2018 financial year
Supervisory Board members
Igor Landau, Chairman of the Supervisory Board
Sabine Bauer, Deputy Chairwoman of the Supervisory Board
Willi Schwerdtle, Deputy Chairman of the Supervisory Board
Dr. Frank Appel 1
Ian Gallienne
Dieter Hauenstein
Dr. Wolfgang Jäger
Dr. Stefan Jentzsch 2
Herbert Kauffmann
Katja Kraus
Kathrin Menges
Udo Müller
Roland Nosko
Hans Ruprecht
Nassef Sawiris
Heidi Thaler-Veh
Kurt Wittmann
1 Starting from the end of the Annual General Meeting on May 9, 2018.
2 Until the end of the Annual General Meeting on May 9, 2018.
2018
Number of
Supervisory
Board and
committee
meetings
Participation
Participation
in %
10
9
9
3
12
6
13
3
13
6
7
6
8
12
6
6
6
10
9
9
3
12
5
13
3
13
5
6
6
8
10
6
5
5
100%
100%
100%
100%
100%
83%
100%
100%
100%
83%
86%
100%
100%
83%
100%
83%
83%
The external auditor, KPMG AG Wirtschaftsprüfungsgesellschaft (‘KPMG’), Berlin, attended all
regular meetings of the Supervisory Board – the exception being the meeting which took place
outside Germany – insofar as no Executive Board matters were dealt with. KPMG also attended
all meetings of the Audit Committee.
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.
The Supervisory Board also regularly conferred on, in particular, Supervisory Board matters
and personnel matters of the Executive Board without the Executive Board. Both the Supervisory
Board and the Audit Committee reviewed the efficiency of their work in the spring and fall of
2018. Overall, the Supervisory Board members assessed the work in the entire Supervisory
Board and Audit Committee as efficient. However, they resolved upon specific improvements
regarding the organization of the Supervisory Board work.
The members of the Supervisory Board are individually responsible for undertaking any
necessary training and further education measures required for their tasks. Furthermore,
training measures were offered to the Supervisory Board to ensure the required expertise.
Moreover, there was an onboarding process for the new Supervisory Board member in order to
facilitate his exercising of the new office.
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. Moreover, the Supervisory Board dealt with the
corporate strategy and the annual and multi-year business planning. 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.
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ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SUPER VISORY BOARD REPORT
The Executive Board reported on the situation of the company and the financial figures for the
2017 financial year at the February meeting and the balance sheet meeting in March. In
addition, after in-depth examination of the financial statements, the Supervisory Board
approved the annual financial statements and consolidated financial statements as well as the
combined Management Report, including the non-financial statement for adidas AG and the
Group as at December 31, 2017. The annual financial statements were thus adopted. Prior to
the passing of the resolution, the auditor reported on the material results of the audit, including
the results of the examination of the content of the non-financial statement commissioned by
the Supervisory Board in accordance with § 111 section 2 German Stock Corporation Act
(Aktiengesetz – AktG). Furthermore, the Supervisory Board Report to the Annual General
Meeting for the 2017 financial year was approved. Finally, we dealt with, inter alia,the business
development of Reebok and the distribution strategy of adidas. At the May meeting, we primarily
dealt with the results for the first quarter of the year under review and with the current
development of the business. Particular topics of the August meeting were the financial results
of the second quarter and of the first half of the 2018 financial year as well as the business
development of the company. Furthermore, we dealt in detail with the main sustainability
initiatives and adidas’ talent strategy. Finally, we discussed the current development of the
Runtastic business segment. At the annual strategy meeting of the Supervisory Board in
October, the Executive Board reported on the current business situation and outlined in detail
the further course of the strategic business plan which the Supervisory Board discussed in
depth. Another focal point of the Supervisory Board meeting was the development of business
in Europe. Finally, we intensively dealt with the topic of digitalization. In this regard, we
discussed adidas’ digitalization strategy and the challenges and opportunities associated with
it. Topics of our December meeting were the 2019 Budget and Investment Plan as well as the
marketing and sponsorship agreements concluded in the year under review.
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.
In March, we resolved upon the resolutions to be proposed to the 2018 Annual General Meeting,
including the proposal regarding the appropriation of retained earnings for the 2017 financial
year. At the May meeting, we approved the issuance of non-share-based bonds and/or
comparable financial instruments, including equity-neutral convertible bonds. We also
approved the extension of our US-based Portland location as well as the adjusted resolution
proposal of the Executive Board on the appropriation of retained earnings. At our October
meeting, we approved the cancelation of treasury shares and resolved upon the amendment to
the Articles of Association due to the reduction of the nominal capital resulting from the
cancelation of treasury shares. One topic of our December meeting was, after thorough
discussion, the approval of the 2019 Budget and Investment Plan presented by the Executive
Board.
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. After in-depth review of the individual performance of the
Executive Board members and the achievement of the targets set for the 2017 Performance
Bonus and LTIP 2015/2017, we resolved upon the performance-related compensation to be
paid to the Executive Board members for the 2017 Performance Bonus and LTIP 2015/2017 at
this meeting. Furthermore, after comprehensive consultation, we set the criteria and targets
decisive for the 2018 Performance Bonus as well as for the new long-term incentive plan
LTIP 2018/2020 along with the individual bonus target amounts for each Executive Board
member. Following in-depth discussions, we adjusted the pension commitments of the
Executive Board members Gil Steyaert, Eric Liedtke and Karen Parkin in March and May due to
tax law provisions. Finally, we dealt with the contribution for the defined contribution pension
plans and determined this for 2019 at our October meeting.
CHANGES ON THE SUPERVISORY BOARD AND COMPLIANCE
WITH THE STATUTORY MINIMUM QUOTA
There was one personnel change with regard to the full Supervisory Board in the year under
review. Dr. Stefan Jentzsch resigned as Supervisory Board member with effect from the end of
the Annual General Meeting of adidas AG held on May 9, 2018. As his successor, Dr. Frank
Appel, Chief Executive Officer of Deutsche Post AG, was elected by the Annual General Meeting
as member of the Supervisory Board for the remaining term of the current shareholder
representatives which expires with effect from the end of the Annual General Meeting on
May 9, 2019. The Supervisory Board wishes to thank Dr. Jentzsch for his valuable contributions
and his great dedication within the Supervisory Board of adidas AG.
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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
ADIDAS ANNUAL REPORT 2018 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
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 all Supervisory Board members expires 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. The Executive Board and Supervisory Board of adidas AG issued
their last Declaration of Compliance pursuant to § 161 AktG in February 2018. In February
2019, we discussed in depth the current 2019 Declaration of Compliance and then resolved
upon it and made it permanently available to our shareholders on our corporate website.
Corporate Governance.
SEE CORPORATE GOVERNANCE REPORT INCLUDING THE DECLARATION ON CORPORATE
GOVERNANCE, P. 35
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 2018, the Supervisory Board approved the extension of a
contract, effective January 1, 2019, 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 2019 financial year at the meeting in December 2018. In the view of the Supervisory
Board, there was no conflict of interest. Nevertheless, as in the prior years, the Supervisory
Board member concerned did not participate in the respective resolution.
Further information on corporate governance within the company is contained in the
Corporate Governance Report including the Declaration on Corporate Governance.
↗ ADIDAS-GROUP.COM/S/CORPORATE-GOVERNANCE
SEE CORPORATE GOVERNANCE REPORT INCLUDING THE DECLARATION ON CORPORATE GOVERNANCE, P. 35
In February, we discussed the independence of the members of the Supervisory Board and the
respective independence criteria. In the Supervisory Board’s assessment, currently all
members are independent.
EFFICIENT COMMITTEE WORK
In order to perform our tasks in an efficient manner, we have established a total of six standing
Supervisory Board committees.
At the February, March and May meetings of the Supervisory Board and at the August meeting
of the Audit Committee, within the framework of our regular self-evaluation, we dealt with the
results of the efficiency examination of the Supervisory Board and Audit Committee and the
measures to be implemented.
At the March meeting, we approved Kasper Rorsted taking over a Board of Directors mandate
at Nestlé S.A. In August, we approved Gil Steyaert’s Supervisory Board mandate at Fashion for
Good B.V.
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 respective committee chairmen report to the
Supervisory Board on the content and results of the committee meetings on a regular and
comprehensive basis.
— The Steering Committee did not meet in the year under review.
Topics of our October meeting were the revision of the objectives of the Supervisory Board
regarding its composition and the competency profile for the full Supervisory Board, which we
made permanently available to our shareholders on our corporate website. Taking into
consideration 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 continues
to have 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
— The General Committee held two meetings in the 2018 financial year. The main focus of the
meetings was the preparation of the resolutions of the entire Supervisory Board regarding
the Executive Board compensation, particularly the resolution on the target achievement
of the 2017 Performance Bonus and LTIP 2015/2017, the targets for the 2018 Performance
Bonus and LTIP 2018/2020, the 2019 contribution for the defined contribution pension plans
as well as the determination of the Executive Board compensation and the review of its
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ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SUPER VISORY BOARD REPORT
appropriateness. Furthermore, the General Committee intensively dealt with the long-term
succession planning for the Executive Board.
— The Audit Committee held six meetings in the year under review. One resolution was passed
by way of a circular resolution. The Chief Financial Officer and the auditor were present at
all meetings and reported to the committee members in detail.
In addition to the supervision of the accounting process, the committee’s work also focused
on the examination of the annual financial statements and the consolidated financial
statements for 2017, including the combined Management Report and the non-financial
statement 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
on the annual financial statements and consolidated financial statements with the auditor,
the committee decided to recommend that the Supervisory Board approve the 2017 annual
financial statements and consolidated financial statements. Furthermore, the audit of the
non-financial statement, including the selection and commissioning of the external auditor
by the Supervisory Board, was prepared. On the basis of the transitional periods of Art. 41
Regulation (EU) No 537/2014, the current statutory auditor may not be re-appointed after
June 17, 2023 and it is mandatory to carry out an external rotation. Based on a respective
resolution by the entire Supervisory Board, the Chairmen of the Supervisory Board and Audit
Committee commissioned KPMG for the audit with limited assurance of the content of the
non-financial statement for the 2018 financial year. Following in-depth discussions, the Audit
Committee also made a recommendation to the Supervisory Board regarding the proposal to
the Annual General Meeting 2018 for the appointment of the auditor. The Audit Committee
declared to the Supervisory Board 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. A further subject of in-depth discussions was the assignment of the audit
mandate for the 2018 financial year, including the determination of the focus points of the
audit, the supervision of the independence and qualification of the auditor as well as the
quality of the audit of annual accounts, the determination of the audit fees and ultimately
the discussion of the quarterly financial figures and the half year report with the auditor.
The Audit Committee dealt intensively with the monitoring of the effectiveness of the risk
management system, the internal control system and audit system as well as the compliance
management system. Moreover, the Audit Committee addressed the findings of Internal Audit
and the audit plan. Potential and pending legal disputes were also discussed. In addition, at
every meeting of the Audit Committee, the Chief Compliance Officer gave regular reports
on the Compliance Management System and material compliance cases in the year under
review. Furthermore, reports on IT security, the EU General Data Protection Regulation and
the hedging strategy were heard.
— In the year under review, the Finance and Investment Committee held one meeting by
way of a conference call at which, in particular, the Executive Board’s resolution based on
the authorization of the Annual General Meeting on May 12, 2016 to repurchase shares
with an aggregate acquisition cost of up to a total of € 3 billion until May 11, 2021 was
approved. Furthermore, the Finance and Investment Committee approved the Executive
Board’s resolution to sell a building and estate in Canton, USA.
— The Nomination Committee met once in the year under review. The Nomination Committee
particularly prepared the recommendations by the Supervisory Board to the Annual General
Meeting which will elect the shareholder representatives on the Supervisory Board in
May 2019. In this respect, taking the statutory requirements into account, the suitability
and independence of the candidates were discussed. Furthermore, taking into account the
competency profile for the members of the Supervisory Board defined by the Supervisory
Board, a qualification profile was developed. Based on this, the Nomination Committee
discussed suitable candidates for the positions to be filled within the Supervisory Board.
— The Mediation Committee, established in accordance with the German Co-Determination
Act (Mitbestimmungsgesetz — MitbestG), did not have to be convened in 2018.
EXAMINATION OF THE 2018 ANNUAL FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENTS
KPMG audited the 2018 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 2018 annual financial statements of adidas AG, prepared in accordance with
HGB requirements, and the combined Management Report of adidas AG and the adidas Group.
Furthermore, at the request of the Supervisory Board, KPMG audited the non-financial
statement. KPMG has been the auditor and Group auditor of adidas AG as a capital market-
oriented company since the 1995 financial year. Auditor Karl Braun has been signing the
annual financial statements since the 2012 financial year and auditor Haiko Schmidt as the
responsible audit partner since the 2017 financial year. On May 9, 2018, the Annual General
Meeting elected KPMG as auditor and Group auditor upon proposal of the Supervisory Board,
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ADIDAS ANNUAL REPORT 2018 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
corresponding with a recommendation of the Audit Committee. Prior to the Supervisory Board
proposing KPMG as auditor to the Annual General Meeting, KPMG had confirmed to both the
Supervisory Board and the Audit Committee that there are no circumstances which could
prejudice their independence as auditor or which could cast doubt on KPMG’s independence. In
this respect, KPMG also declared to which extent non-audit services were rendered for the
company in the prior financial year or are contractually agreed upon for the following year. 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 1, 2019 and at the Supervisory Board’s March 5, 2019
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
€ 3.35 per dividend-entitled share and adopted this increase to € 3.35 compared to the prior
year in consideration of the strong business development in the 2018 financial year, the
company’s good financial situation and positive 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. I would also like to thank the employee representatives on the Supervisory Board
for their trusting collaboration.
For the Supervisory Board
I G O R L A N DA U
CHAIRMAN OF THE SUPERVISORY BOARD
March 2019
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ADIDAS ANNUAL REPORT 2018
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 in February 2018. For the period from the
publication of the last Declaration of Compliance, the following
Declaration refers to the German Corporate Governance Code
(hereinafter referred to as 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:
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)
In the past, the Supervisory Board refrained from taking a
generalized approach as regards a regular limit of length of
membership for Supervisory Board members. When revising
the objectives regarding its composition (and determining a
competency profile for the full Supervisory Board) at its meeting
in October 2018, the Supervisory Board resolved to determine a
regular limit of length of membership for Supervisory Board
members and has since been compliant with all
recommendations pursuant to section 5.4.1 subsection 2
sentence 2 in conjunction with sentence 1 of the Code.
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 which are listed at a stock exchange or
have similar requirements.
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
portfolio companies. All companies (apart from adidas AG) in
which Ian Gallienne holds mandates in supervisory bodies
are portfolio companies or subsidiaries of GBL or are under
common control with it and thus belong to the same group of
Ian Gallienne
companies. They have to be attributed to his main occupation
as Co-Chief Executive Officer of GBL. 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. Moreover, the Supervisory Board has
assured itself that Ian Gallienne has sufficient time to
perform his Supervisory Board mandate at adidas AG.
Herzogenaurach, February 2019
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
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
remuneration components should not be permitted.
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1 The Corporate Governance Report including the Declaration on Corporate Governance is an unaudited section of the combined Management Report.
ADIDAS ANNUAL REPORT 2018
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
DUAL BOARD SYSTEM
As a globally operating public listed company with its registered
seat in Herzogenaurach, Germany, adidas AG is subject to, inter
alia, 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 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.
The Executive Board is responsible for independently managing
the company, determining the Group’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 Group. The Executive Board is
in charge of preparing the quarterly statements, the company’s
half year report as well as the annual financial statements and
consolidated
the combined
Management Report of adidas AG and the Group. Moreover, it
prepares a combined non-financial statement for the company
and the Group. Additionally, the Executive Board ensures
appropriate risk management and risk controlling as well as
compliance with statutory regulations and internal guidelines.
In this regard, the Executive Board
is responsible for
implementing an adequate compliance management system
which meets the requirements of the company’s risk situation.
It is bound to the company’s interest and obligated to strive for
a sustainable increase in company value.
financial statements and
Notwithstanding 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
about all significant developments in their business areas and
align on all cross-functional measures. Collaboration within
the Executive Board is further 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.
The Executive Board and Supervisory Board cooperate closely
for the benefit of the company. The Executive Board reports to
the Supervisory Board regularly, extensively and in a timely
manner on all matters relevant for the company’s strategy,
planning, business development, financial position and
compliance as well as on essential business risks. When
filling leadership positions in the company, the Executive
Board takes diversity into consideration and aims for, inter
alia, an increase in the percentage of women.
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 comparable requirements.
SEE EXECUTIVE BOARD, P. 21
COMPOSITION AND WORKING METHODS OF
THE SUPERVISORY BOARD
Our Supervisory Board consists of 16 members. It comprises
eight shareholder representatives and eight employee repre-
sentatives in accordance with the German Co-Deter mination
Act (Mitbestimmungsgesetz – MitbestG).
BOARD, P. 25 The shareholder representatives are elected by the
SEE SUPERVISORY
shareholders at the Annual General Meeting, and the employ-
ee representatives by the employees. The term of office of the
current members of the Supervisory Board expires at the end
of the 2019 Annual General Meeting.
Objectives for the composition of the Supervisory Board
At its meeting in October 2018, taking into account the
recommendations of the Code, the Supervisory Board resolved
upon objectives regarding its composition (including a profile
of skills and expertise [competency profile] for the full
Supervisory Board) which are published on our website.
↗ ADIDAS-GROUP.COM/S/BODIES According to these objectives, the
Supervisory Board should be composed in such a way that
qualified supervision of and advice to the Executive Board are
ensured. Its members as a whole are expected to have the
knowledge, skills and professional experience required to
properly perform the tasks of a supervisory board in a capital
market-oriented, international company in the sporting goods
industry. To this end, it is ensured that the Supervisory Board
as a whole possesses the competencies considered essential
in view of adidas’ activities. This includes, in particular, in-
depth knowledge and experience in the sporting goods and
sports- and leisure-wear industry, in the business of fast-
in the areas of
moving consumer-oriented goods and
technology, digitalization and
technology
(including IT security), production, marketing and sales, in
particular in the e-commerce and retail sector. Moreover, the
Supervisory Board is expected to possess knowledge and
experience in the markets relevant for adidas, in particular
the Asian and US markets, and in the management of a large
international company. Furthermore, the Supervisory Board as
a whole must possess knowledge and experience in the areas
of business strategy development and
implementation,
personnel planning and management, accounting and financial
governance/
reporting,
compliance as well as corporate and social responsibility. At
least one member of the Supervisory Board must have
controlling/risk management,
information
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expertise in the areas of accounting or auditing of annual
accounts. Additionally, the Supervisory Board members as a
whole are expected to be familiar with the sporting goods
industry.
More than two-thirds of the Supervisory Board members
should be independent within the meaning of section 5.4.2
of the Code. Moreover, with regard to diversity, it is the
Supervisory Board’s aim to take into account origin, diverse
professional and international experience and, in particular,
its
an adequate representation of both genders
composition. Furthermore, an adequate number of the
shareholder representatives should have
long-standing
international experience.
for
In addition, each Supervisory Board member must ensure
that they have sufficient time to properly perform the tasks
associated with the mandate. An age limit of, in general,
72 years at the time of election should be taken into account.
As a rule, the length of membership in the Supervisory Board
should not exceed 15 years or three terms of office.
In the Supervisory Board’s assessment, the Supervisory
Board as a whole fulfills the objectives stated and the
competency profile. 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. Moreover, with Herbert
Kauffmann, the Chairman of the Audit Committee, at least
one member of the Supervisory Board has proven expertise in
the areas of accounting or auditing of annual accounts. The
number of female Supervisory Board members currently
amounts to four. This report contains information on the
SEE SECTION ‘COMMITMENT TO THE PROMOTION OF EQUAL
fulfillment of the quota stipulated in § 96 section 2 sentence
1 AktG, according to which the Supervisory Board must be
composed of at least 30% female and at least 30% male
members.
PARTICIPATION OF WOMEN AND MEN IN LEADERSHIP POSITIONS’, P. 38 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 interest. No members of the Supervisory Board are
former Executive Board members. In the Supervisory Board’s
assessment, currently all shareholder representatives are
independent within the meaning of the Code. In accordance
with the objectives resolved upon regarding its composition, the
Supervisory Board deems this to be an appropriate number.
The names of the independent shareholder representatives are
set out in the overview of all Supervisory Board members in
this Annual Report.
SEE SUPERVISORY BOARD, P. 25 Assuming that
all of the employee representatives also in principle meet the
independence criteria as defined by the Code, in the Supervisory
its members are
Board’s assessment, currently all of
independent. Regarding the Supervisory Board’s composition,
the age limit of, in general, 72 years at the time of election was
taken into account. The maximum length of membership in the
Supervisory Board of normally 15 years or three terms of office
which was set by the Supervisory Board is observed with the
exception of three employee representatives.
When preparing its nomination proposals for the Annual
General Meeting, the Supervisory Board takes into account
the objectives regarding its composition, in particular seeking
to fulfill the competency profile for the full Supervisory Board.
Therefore, the Supervisory Board pays attention to a balanced
composition to ensure that the know-how sought after is
represented on as broad a scale as possible.
implementation with
Tasks of the Supervisory Board
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 company’s risk situation including
compliance and coordinates the strategy of the company and
its
the Supervisory Board. The
Supervisory Board examines and approves the annual
financial statements and consolidated financial statements as
well as the combined Management Report of adidas AG and
the 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 Supervisory Board’s resolution proposals to be
presented to the Annual General Meeting. Moreover, the
Supervisory Board examines the combined non-financial
statement for the company and the Group. 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.
Corresponding details are set out in § 8 of the Rules of
Procedure of the Supervisory Board of adidas AG. Furthermore,
the requirement of prior Supervisory Board approval is
stipulated in some resolutions by the Annual General Meeting.
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The Supervisory Board is also responsible for the appointment
and dismissal of the Executive Board members as well as for
the allocation of their areas of responsibility. When appointing
new Executive Board members, the Supervisory Board aims
to select candidates with a wide range of complementary
skills to ensure the best possible Executive Board composition
for the company, keeping long-term succession planning in
mind. Inter alia, experience, industry knowledge as well as
professional and personal 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,
important personal
qualities. Furthermore, the Supervisory Board determines
the Executive Board compensation system, examines it
regularly and decides on the individual overall compensation
of each Executive Board member. Further information on
Executive Board compensation
the
Compensation Report.
internationality and further
SEE COMPENSATION REPORT, P. 41
is compiled
in
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
— Objectives of the Supervisory Board regarding its composition (including
competency profile for the full Supervisory Board)
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 tasks, responsibilities and work processes of
the committees are in line with the requirements of the
German Stock Corporation Act and the Code. 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.
SEE SUPERVISORY BOARD, P. 25
Further information on the committees’ tasks is available on
our website. ↗ ADIDAS-GROUP.COM/S/SUPERVISORY-BOARD-COMMITTEES
Apart from the individual skills expected of the members, the
Rules of Procedure of the Supervisory Board and of the Audit
Committee also set out the tasks and responsibilities as well
as 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. 28
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.
Furthermore, the Supervisory Board and the Audit Committee
examine the efficiency of their work on a regular basis.
SEE SUPERVISORY BOARD REPORT, P. 28
The compensation of the Supervisory Board members is set
out in the Compensation Report.
SEE COMPENSATION REPORT, P. 41
COMMITMENT TO THE PROMOTION OF 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
is
women
necessary to ensure that, in the future, a larger number of
suitable female candidates is available for Executive Board
positions. The Supervisory Board thus supports the company’s
initiatives to foster diversity and inclusion and promote
women in leadership positions.
in leadership positions within the company
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 Supervisory Board determined target figures for the
percentage of female representation on the Executive Board,
including corresponding deadlines for their achievement, and
the Executive Board determined such target figures for the
first two management levels, including deadlines for their
achievement, for adidas AG:
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— The target figure for the Executive Board is 1/7 or 14.29%.
The deadline for achieving this target figure is June 30, 2022.
— 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.
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, the members of
the Executive Board and the members of the Supervisory
Board did not face any conflicts of interest.
SEE SUPERVISORY BOARD REPORT, P. 28
In accordance with § 96 section 2 sentence 1 AktG, at least
30% of the members of the Supervisory Board have to be
female and at least 30% have to be male. 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.
As at December 31, 2018, a total of four Supervisory Board
mandates of the company were held by women. The minimum
quota required
the shareholder
representatives and the employee representatives. The next
election of shareholder representatives to the Supervisory
Board will take place at the Annual General Meeting of
adidas AG in May 2019. The list of candidates proposed to the
shareholders will comprise at least two female shareholder
representatives.
fulfilled both by
is
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
SHARE OWNERSHIP OF AND SHARE
TRANSACTIONS CONDUCTED BY THE
EXECUTIVE BOARD AND SUPERVISORY BOARD
An overview of the managers’ transactions pursuant to Article 19
of the Regulation (EU) No 596/2014 (Market Abuse Regulation)
notified to adidas AG in 2018 is published on our website.
↗ ADIDAS-GROUP.COM/S/MANAGERS-TRANSACTIONS
RELEVANT MANAGEMENT PRACTICES
Our business activities are oriented toward the legal systems
in the various countries and markets in which we operate.
This implies a high level of social and environmental
information on company-specific
responsibility. Further
practices which are applied
to statutory
requirements, such as our Code of Conduct (‘Fair Play’), on
compliance with working 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,
in addition
↗ ADIDAS-GROUP.COM/SUSTAINABILITY
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
the
system
establishes
linked to the company’s risk and opportunity management
system. As part of our global ‘Fair Play Concept’, the compliance
organizational
management
framework for company-wide awareness of our internal rules
and guidelines and for the legally compliant conduct of our
business. It underscores our strong 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
risk-aware, opportunity-oriented and
system ensures
informed actions in a dynamic business environment in order
to guarantee the competitiveness and sustainable success of
adidas.
SEE RISK AND OPPORTUNITY REPORT, P. 131
TRANSPARENCY AND PROTECTION OF
SHAREHOLDERS’ INTERESTS
It is our goal to inform all institutional investors, private
financial analysts, business partners,
shareholders,
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 shareholders. ↗ ADIDAS-GROUP.COM/S/INVESTORS,
SEE OUR SHARE, P. 57
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Further information on the principles of our management
More information on topics covered in this report can be found on our website
↗ ADIDAS-GROUP.COM/EN
including:
— Code of Conduct (Fair Play)
— Sustainability
— Social commitment
— Risk and opportunity management and compliance
— Information and documents on the Annual General Meeting
— Managers’ transactions
— Accounting and annual audit
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, 2019, 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.
SHARE-BASED PROGRAMS
A long-term incentive (LTI) plan, which is part of the long-
term remuneration for senior executives of adidas, applies.
Based on this plan, the plan participants receive restricted
stock units (RSUs).
SEE PEOPLE AND CULTURE, P. 81
SEE NOTE 28, P. 189,
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 LTIP 2018/2020 links the
long-term compensation of the Executive Board to the
company’s performance and thus to the interests of the
shareholders. The decisive assessment factors are designed
in a transparent manner and are linked to the long-term
profitability targets externally communicated. Moreover, the
long-term compensation of the Executive Board and the long-
term compensation of senior management are aligned. The
LTIP 2018/2020 is share-based. The adidas shares purchased
are subject to a multi-year lock-up period.
SEE COMPENSATION REPORT, P. 41
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, Berlin, was
appointed as auditor for the 2018 annual financial statements
and 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. 232
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COMPENSATION REPORT
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 (Code).
COMPENSATION OF THE EXECUTIVE
BOARD MEMBERS
Following preparation by the Supervisory Board’s General
Committee, the compensation system for the 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. 28
COMPENSATION SYSTEM
PRINCIPLES OF THE COMPENSATION SYSTEM
The compensation system is geared toward creating an
incentive for successful, sustainably value-oriented corporate
management and development. The compensation is thus
structured with an appropriate balance of non-performance-
related and performance-related components. More than
50% of the performance-related compensation components
are based on mainly future-related, multi-year performance
criteria. They are designed in such a way that both positive
and negative developments are considered. Moreover, the
incentive to achieve the long-term targets decisive for the
multi-year performance-related compensation component is
higher than the incentive to achieve the targets decisive for
being
performance-related
compensation component. At least 80% of the performance-
related compensation is directly linked to the short- and long-
term sales and profitability targets externally communicated,
thus bringing the compensation of the Executive Board
members directly in line with the interests of the shareholders.
one-year
granted
the
SEE SECTION ON ‘PERFORMANCE-RELATED COMPONENTS’, P. 43
When designing the compensation system and determining
the Executive Board compensation, the Supervisory Board
takes into account the size and global orientation, the
economic situation, the success and the outlook of the
company. Furthermore, the Supervisory Board considers the
common level of compensation taking into account both the
compensation level of peer companies and the relation
between the Executive Board compensation and that of senior
management and employees overall, also in terms of its
development over time. Compared with competitors, the
compensation should be attractive, offering incentives to
attract qualified members for the Executive Board and retain
them
the
compensation, the tasks of the respective Executive Board
member and their contribution to the company’s success are
taken
performance-related
compensation is measured based on the achievement of
ambitious, pre-agreed targets; subsequent changes to
In addition, when determining
consideration.
long-term.
into
The
performance targets or comparison parameters are not
permitted. The compensation system aims to appropriately
remunerate exceptional performance, while diminishing
performance-related compensation when targets are not
met. Thus, in the Supervisory Board’s opinion, an appropriate
level of compensation, which is reviewed regularly by the
Supervisory Board and adjusted if required, is ensured.
The compensation system which has been applicable for the
members of the Executive Board since the 2018 financial year
was adopted by the shareholders at the Annual General
Meeting on May 9, 2018.
The total compensation of the Executive Board members is
composed of fixed compensation, an annual cash bonus
(Performance Bonus), a long-term share-based bonus (Long-
Term Incentive Plan – LTIP Bonus) as well as pension benefits
and other benefits. In case of 100% target achievement, the
target direct compensation (total annual compensation
without pension benefits and other benefits) is composed of
— 35% fixed compensation,
— 25% Performance Bonus and
— 40% LTIP Bonus.
SEE DIAGRAM 1
Overall, the Supervisory Board believes that the compensation
system is easy to understand, makes use of transparent
performance criteria and is directly linked to the short- and
long-term targets of the company, thereby aligning the
interests of the Executive Board with the interests of the
shareholders.
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Compensation system for the Executive Board members
Fixed compensation
35% of target direct compensation.
The fixed compensation is paid out
monthly in twelve equal installments.
2018 Performance Bonus
25% of target direct
compensation.
For the performance criteria
determined at the beginning
of the 2018 financial year,
see the section ‘2018 Perfor-
mance Bonus’ on page 47.
The bonus amount is
payable following approval
of the consolidated financial
statements for the past
financial year.
LTIP 2018/2020
40% of target direct compensation.
For the performance criterion ‘absolute
increase in net income from continuing
operations’ determined in the 2018 financial
year, see the section ‘LTIP 2018/2020: Perfor-
mance year 2018’ on page 47.
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 Performance Bonus.
LTIP 2018/2020
If the annual increase in net income is below the threshold
value defined in advance (€ 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 the threshold
value defined in advance (€ 280 million) in the respective year,
the degree of target achievement is capped at a maximum of
150%.
Fixed compensation
One-year performance-related compensation
Multi-year performance-related compensation
1 The Grant Amount must be invested by the Executive Board members 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. However, if the increase in net income is higher than € 210 million in a performance year, the target for the following performance years remains unaffected.
1
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
Other benefits for the Executive Board members primarily
consist of paying for, or providing the monetary value of, non-
cash benefits such as premiums or contributions to insurance
schemes in line with market practice, 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 the tax
consultant selected by adidas. The total amount of other
benefits is capped at 5% of the total amount of the fixed
compensation and a (possible) Performance Bonus granted in
the respective financial year.
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PERFORMANCE-RELATED COMPONENTS
Performance Bonus
the
the annual performance-related component,
As
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. In case of 100%
target achievement, the target amount of the Performance
Bonus corresponds to 25% of the target direct compensation
of the respective Executive Board member.
The amount of the Performance Bonus is determined based
on the achievement of, generally, four weighted criteria. Two
of these criteria are the same for all Executive Board members
and are weighted at 60%. These criteria are directly linked to
the annual guidance externally communicated and, at the
same time, follow directly from the – also externally
communicated – long-term growth targets of adidas. For the
2019 financial year, these criteria are again ‘currency-neutral
sales growth’ and ‘the development of the operating margin’.
It is intended to retain these criteria in the years to come. The
other two criteria are individual criteria for the respective
Executive Board member with a 40% weighting. All criteria
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.
SEE TABLE 2
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 assessed by the
Supervisory Board. The Supervisory Board determines the
factor by which the Performance 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
(Performance Bonus Amount). When determining the degrees
of target achievement and thus when determining the
Performance Bonus Amount, the Supervisory Board may, at
its equitable discretion, take into account extraordinary
positive and negative developments which are not related to
the performance of the Executive Board.
Even in case of an overall degree of target achievement of
more than 150%, the Performance Bonus Amount is capped
at a maximum of 150% of the individual Performance 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 and conditions of the
Performance Bonus, entitlement to the payout of a
Performance Bonus is generally forfeited.
The Performance Bonus Amount is payable following
approval of the consolidated financial statements for the
past financial year.
Performance Bonus
2
Performance criteria – two shared criteria (60% weighting): directly
linked to the annual guidance externally
communicated and, at the same time, following
directly from the – also externally communi-
cated – long-term growth targets of adidas
– two individual criteria (40% weighting)
Transparency of the
performance criteria
– the two shared criteria are transparent and, in
case of 100% target achievement, are in line with
the guidance externally communicated
Cap
– capped at a maximum of 150%
– no payout if overall degree of target achievement
lies at or below 50%
Long-Term Incentive Plan 2018/2020 (LTIP 2018/2020)
The LTIP 2018/2020 aims to link the long-term performance-
related compensation of the Executive Board to the
company’s performance and thus to the interests of the
shareholders. Therefore, the LTIP 2018/2020 is share-
based. It consists of three annual tranches (2018, 2019 and
2020) and each tranche is assessed based on a period of
approximately four and a half years.
SEE TABLE 3
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LTIP 2018/2020
3
LTIP 2018/2020: Growth targets
4
– one shared criterion: absolute increase in net
income from continuing operations
Performance year
Growth target for net income
from continuing operations
Performance
criterion
Transparency of
the performance
criterion
Cap
– criterion for the respective performance year
is transparent and, in case of 100% target
achievement, is in line with the guidance exter-
nally communicated
– capped at a maximum of 150% (with
externally communicated threshold values
which are defined in advance)
– no payout in case of result below the threshold
value which is defined in advance
Claw back/malus
Share-based
yes
yes
Time period
approx. 4.5 years
Compensation of
Executive Board and
senior management
aligned
yes
Each of the three annual LTIP tranches consists of a
performance year and a subsequent lock-up period of slightly
more than three years.
SEE DIAGRAM 6 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
income from continuing
in net
operations compared to the respective previous year.
increase
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 income from continuing operations would amount
to € 2,060 million in 2020. 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 by adidas in the five-year strategy.
SEE TABLE 4
2018 (compared to 2017 1)
2019 (compared to 2018)
2020 (compared to 2019)
+ € 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 the increase in net income from continuing operations is
below € 210 million in the respective performance year, 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 instance, if net income increases by € 180 million in the
performance year 2019, net income in the performance year
2020 must be increased by € 240 million for 100% target
achievement. However, if the increase in net income is higher
than € 210 million in a performance year, the target for the
following performance years remains unaffected. So despite a
net income increase in 2018 of € 279 million reflecting a
target achievement of 149%, net income in the following
performance years 2019 and 2020 must still be increased by
€ 210 million, respectively, for a target achievement of 100%.
In case of 100% target achievement, the LTIP 2018/2020 target
amount for each of the LTIP tranches corresponds to 40% of
the target direct compensation of the respective Executive
Board member.
The precise target achievement is determined on the basis of
the approved consolidated financial statements for the
respective performance year. In this respect, the Supervisory
Board may, at its equitable discretion, take into account
extraordinary positive and negative developments which are
not related to the performance of the Executive Board. The
degree of
the annual
target achievement by which
LTIP 2018/2020 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.
SEE TABLE 5
LTIP 2018/2020: Calculation of target achievement
5
Increase in net income from
continuing operations compared to
the previous year
≥ + € 280 million
+ € 210 million
+ € 140 million
< + € 140 million
Degree of target
achievement
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 degree of target achievement is
determined based on a sliding scale. If the annual increase in
net income is below € 140 million, the degree of target
achievement is zero. Furthermore, the degree of target
achievement is capped at 150%, even if the increase in net
income exceeds € 280 million.
By multiplying the degree of target achievement thus
calculated with the annual LTIP target amount determined for
the respective Executive Board member based on 100% target
achievement, the Grant Amount is determined, which is paid
out to the Executive Board member for the respective annual
LTIP 2018/2020 tranche following the approval of the
consolidated
the
performance year.
financial statements of adidas
for
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LTIP 2018/2020: Annual LTIP tranches
6
LTIP tranche
2018
2019
2020
2018
1
2019
2
1
2020
2021
2022
2023
2024
3
2
1
4
3
2
5
4
3
5
4
5
Performance year
Lock-up period
1 Performance year: determination of LTIP target amount in case of 100% target achievement.
2 Determination of the degree of target achievement, Grant Amount payable following approval of the consolidated financial statements for the past performance year and investment of LTIP payout amount in adidas AG shares. Start of lock-up period.
3 Lock-up period.
4 Lock-up period.
5 End of lock-up period upon expiry of the month in which the Annual General Meeting of adidas AG takes place.
The Executive Board members have to invest the Grant
Amount which remains after deducting applicable taxes and
social security contributions (LTIP payout amount) into the
acquisition of adidas AG shares. The shares acquired are
subject to a lock-up period. This 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 of
adidas AG takes place. The Executive Board members may
only dispose of the shares after expiry of the lock-up period.
SEE DIAGRAM 6 Due to this mechanism, the compensation which
the Executive Board members eventually receive from each of
the LTIP 2018/2020 tranches is directly dependent on the
share price performance during the respective lock-up period
of slightly more than three years and is thus dependent on the
long-term performance of the company. The Executive Board
members are entitled to any dividends distributed
in
connection with these shares during the lock-up period.
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 2018/2020 tranches for which
the performance year begins after the respective Executive
Board member’s departure. In certain cases defined in the
terms and conditions 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.
Furthermore, the terms and conditions of the LTIP 2018/2020
contain malus and claw back provisions; until expiry of the
lock-up period (malus) and beyond (claw back), these
provisions allow the Supervisory Board at its equitable
discretion, under certain circumstances, to reduce the
compensation from the LTIP 2018/2020. Such circumstances
are, for instance, material misstatements in the financial
reports as well as serious compliance violations.
In exceptional cases, 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 that were already
decisive for granting the Performance Bonus or the
LTIP 2018/2020 Bonus. If such special bonus is granted, it is
capped at a maximum of 100% of the annual fixed
compensation of the financial year for which the special bonus
is granted. If a special bonus is granted, the reasons for
granting it will be disclosed in the Compensation Report on
the financial year concerned.
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DEFINED CONTRIBUTION PENSION PLANS
The current members of the Executive Board have defined
contribution pension plans. Each year, as part of the pension
commitments, the virtual pension account of each Executive
Board member is credited with an amount which equals a
percentage determined by the Supervisory Board and which is
related to the Executive Board member’s individual annual
fixed compensation. The appropriateness of the percentage is
regularly assessed by the Supervisory Board. 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 percentage most
recently determined by the Supervisory Board amounts to
50%. The pension assets on the virtual pension account at the
beginning of the respective calendar year 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 is 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.1
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.2
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 virtual
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 installments. 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.3 The
still outstanding installments 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.
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 annual fixed
compensation on a pro rata basis up to the date on which they
leave office as well as a potential prorated Performance
Bonus and a potential prorated LTIP 2018/2020 Bonus.
Further, Executive Board members are subject to a post-
two years. As
contractual competition prohibition of
consideration, for the duration of the competition prohibition,
the Executive Board members generally receive a monthly
compensation amount totaling 50% of the monthly fixed
compensation last received, subject to offsetting (e.g. of
income from other use of their work capacity). Under certain
circumstances, the departing Executive Board member also
receives a follow-up bonus. This follow-up bonus is payable in
two tranches, twelve and 24 months following the end of the
contract.4
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. The Executive Board member
1 The pension plan for the Executive Board member Gil Steyaert deviates from the above: Prior to the occurrence of the pension-triggering event, annual pension contributions are paid for the Executive Board member into a special account at a financial institute which is subject to access restrictions. The rules for this
pension plan generally correspond to the rules of the defined contribution pension plans of the other Executive Board members. There are no ongoing interest payments and no credited contributions in the case of invalidity or death. The respective annual pension contributions to be determined by the Supervisory Board are
therefore increased for Gil Steyaert by an amount determined based on actuarial principles.
2 The pension plans for Eric Liedtke and Karen Parkin do not provide for early retirement pensions upon reaching the age of 62.
3 The pension plans for Eric Liedtke and Karen Parkin stipulate that the pension benefits are paid out in three equal installments payable in January of the three calendar years following the occurrence of the pension-triggering event. Moreover, under US law, there may be certain waiting periods regarding the payout of the
first annual installment. The pension plan for Gil Steyaert stipulates that on occurrence of the pension-triggering event, the access restrictions no longer apply and the amount on the special account at the respective point in time becomes available to the Executive Board member.
4 As regards the current members of the Executive Board, such a follow-up bonus is 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.
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does not receive a severance payment if they terminate tenure
prematurely at their own request or if there is good cause for
the company to terminate the employment relationship.
If an Executive Board member dies during their term of office,
their 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.
EXECUTIVE BOARD COMPENSATION 2018
2018 Performance Bonus: Target achievement
7
Performance
criterion
Weighting
100%
target value
Actual
value 2018
Degree
of target
achievement
Currency-
neutral
sales growth 30%
Operating
margin
increase
Individual
criterion 1
Individual
criterion 2
30%
20%
20%
by 10%
8.3%
72%
to 10.4%
10.8%
150%
individual
individual
individual
individual
individual
individual
2018 PERFORMANCE BONUS
For the 2018 financial year, the Supervisory Board determined
as performance criteria
— currency-neutral sales growth,
— an increase in the operating margin and
— two criteria relating to the individual performance of the
Executive Board members
as success factors.
Based on the targets actually achieved, this results in a degree
of target achievement between 67% and 118% (2017: between
132% and 140%) for the individual Executive Board members
for the year under review. When determining the respective
individual degrees of target achievement, the Supervisory
Board did not take into account any extraordinary positive or
negative developments which are not related to the
performance of the Executive Board.
100% target achievement thereby reflects the guidance
communicated for the 2018 financial year, namely ‘currency-
neutral sales increase of around 10%‘, and ‘an increase in
the operating margin to a level between 10.3% and 10.5%’.
SEE TABLE 7
LTIP 2018/2020: PERFORMANCE YEAR 2018
In the 2018 financial year, 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.
SEE TABLE 4
LTIP 2018/2020: Target achievement in the
performance year 2018
8
Performance
criterion
100%
target value
Actual
value 2018
Degree of target
achievement
Increase in net
income from
continuing opera-
tions compared to
the previous year + € 210 million
+ € 279 million
149%
Based on the actual target achievement, this results in a degree
of target achievement of 149% (2017: 150%) for each
Executive Board member for the performance year 2018.
SEE TABLE 8 When determining the degree of target achievement,
the Supervisory Board did not take
into account any
extraordinary positive or negative developments which are
not related to the performance of the Executive Board. The
Executive Board members have to invest the Grant Amount
which remains after deducting applicable taxes and social
security contributions
the
acquisition of adidas AG shares. The shares acquired will be
subject to a lock-up period ending upon expiry of the month in
which the Annual General Meeting of adidas AG takes place in
the 2022 financial year.
SEE SECTION ON ‘LONG-TERM INCENTIVE PLAN
(LTIP payout amount)
into
2018/2020 (LTIP 2018/2020)’, P. 43
The Executive Board was not granted a special bonus.
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PENSION COMMITMENTS
The service costs for the pension commitments granted to the
Executive Board members in the 2018 financial year and
the cash values of the vested rights are set out individually.
SEE TABLE 9
OVERALL COMPENSATION FOR 2018 IN
ACCORDANCE WITH THE CODE
Based on the Supervisory Board’s determination outlined
above, the overall compensation of the Executive Board
for the 2018 financial year amounts to € 23,912 million
(2017: € 38.013 million). Due to the LTIP 2015/2017 Bonus
paid out for the three-year period 2015 to 2017 in the 2017
financial year, the overall compensation for the year under
review is lower than the overall compensation for the 2017
financial year.
Pension commitments in the 2018 financial year in €
9
Accumulated pension obligation
for the pension commitments
excluding deferred compensation
Service costs
Executive Board members incumbent as at December 31, 2018
2018
2017
2018
Kasper Rorsted
Roland Auschel
Eric Liedtke
Harm Ohlmeyer (since March 7, 2017)
Karen Parkin (since May 12, 2017)
Gil Steyaert (since May 12, 2017) 1
Total
1,052,993
1,243,202
402,742
447,154
386,523
375,785
528,998
430,138
502,371
385,521
289,045
296,747
2,114,236
1,622,119
1,587,967
741,407
644,177
825,745
2017
1,523,987
1,457,786
1,387,206
385,521
289,045
296,747
3,194,195
3,147,024
7,535,651
5,340,292
Executive Board members departed in the 2017 financial year
Glenn Bennett (until August 4, 2017) 2
Robin J. Stalker (until the end of the Annual General Meeting on May 11, 2017) 3
Total
–
–
–
872,497
880,423
1,752,920
–
–
–
–
–
–
1 Due to the adjustment of Gil Steyaert’s pension commitment in the 2018 financial year, the service costs 2018 correspond to the gross contribution credited by the company for the respective financial year to the
special account opened for the Executive Board member as well as to the gross contribution recalculated on a pro rata basis for the 2017 financial year in the amount of € 37,674. The accumulated pension
obligation 2018 for Gil Steyaert’s pension commitment corresponds to the gross contribution credited by the company since his appointment to the Executive Board to the special account opened for the Executive
Board member.
2 The prorated service costs 2017 for Glenn Bennett also comprise the contractually agreed follow-up bonus in the amount of € 693,085 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.
3 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.
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 2017 and
2018 financial years in case of 100% target achievement of the
performance-related compensation are disclosed including
other benefits and service costs, and also including the
maximum and minimum achievable compensation. SEE TABLE 10
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Benefits granted in €
10
Fixed compensation
Other benefits
Total
One-year variable compensation 1
Multi-year variable compensation
LTIP 2018/2020 (tranche 2018)
LTIP 2015/2017 2
Total
Service costs 3
Overall compensation
Fixed compensation
Other benefits
Total
One-year variable compensation 1
Multi-year variable compensation
LTIP 2018/2020 (tranche 2018)
LTIP 2015/2017 2
Total
Service costs 3
Overall compensation
Kasper Rorsted
Chief Executive Officer
Roland Auschel
Executive Board member, Global Sales
2017
2018
2018 (min.)
2018 (max.)
2017
2018
2018 (min.)
2018 (max.)
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
2,000,000
19,314
2,019,314
1,428,571
2,285,714
2,285,714
–
5,733,599
1,052,993
6,786,592
2,000,000
19,314
2,019,314
0
0
0
–
2,019,314
1,052,993
3,072,307
2,000,000
19,314
2,019,314
2,142,857
3,428,571
3,428,571
–
7,590,741
1,052,993
8,643,734
750,000
17,943
767,943
642,857
750,000
–
750,000
2,160,800
430,138
2,590,938
920,000
17,943
937,943
657,143
1,051,429
1,051,429
–
2,646,515
402,742
3,049,257
920,000
17,943
937,943
0
0
0
–
937,943
402,742
1,340,685
920,000
17,943
937,943
985,715
1,577,144
1,577,144
–
3,500,801
402,742
3,903,543
Eric Liedtke
Executive Board member, Global Brands
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
2017
2018
2018 (min.)
2018 (max.)
2017
2018
2018 (min.)
2018 (max.)
820,000
12,575
832,575
702,857
820,000
–
820,000
2,355,432
502,371
2,857,803
1,000,000
24,475
1,024,475
714,286
1,142,857
1,142,857
–
2,881,618
447,154
3,328,772
1,000,000
24,475
1,024,475
0
0
0
–
1,024,475
447,154
1,471,629
1,000,000
24,475
1,024,475
1,071,429
1,714,286
1,714,286
–
3,810,190
447,154
4,257,344
561,603
14,650
576,254
481,374
561,603
–
561,603
1,619,231
385,521
2,004,752
687,225
17,826
705,051
490,875
785,400
785,400
–
1,981,326
386,523
2,367,849
687,225
17,826
705,051
0
0
0
–
705,051
386,523
1,091,574
687,225
17,826
705,051
736,313
1,178,100
1,178,100
–
2,619,464
386,523
3,005,987 0
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Benefits granted in €
10
Fixed compensation
Other benefits
Total
One-year variable compensation 1
Multi-year variable compensation
LTIP 2018/2020 (tranche 2018)
LTIP 2015/2017 2
Total
Service costs 3
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
2017
2018
2018 (min.)
2018 (max.)
2017
2018
2018 (min.)
2018 (max.)
437,829
14,070
451,899
375,282
437,829
–
437,829
1,265,010
289,045
1,554,055
687,225
18,692
705,917
490,875
785,400
785,400
–
1,982,192
375,785
2,357,977
687,225
18,692
705,917
0
0
0
–
705,917
375,785
1,081,702
687,225
18,692
705,917
736,313
1,178,100
1,178,100
–
2,620,330
375,785
2,996,115
437,829
8,590
446,419
375,282
437,829
–
437,829
1,259,529
296,747
1,556,276
687,225
20,904
708,129
490,875
785,400
785,400
–
1,984,404
528,998
2,513,402
687,225
20,904
708,129
0
0
0
–
708,129
528,998
1,237,127
687,225
20,904
708,129
736,313
1,178,100
1,178,100
–
2,622,541
528,998
3,151,539
0
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Benefits granted in €
10
Fixed compensation
Other benefits
Total
One-year variable compensation 1
Multi-year variable compensation
LTIP 2018/2020 (tranche 2018)
LTIP 2015/2017 2
Total
Service costs 3
Overall compensation
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
2017 4, 5
421,115
19,862
440,977
694,822
887,847
–
887,847
2,023,647
872,497
2,896,144
2018
2018 (min.)
2018 (max.)
2017 6
2018
2018 (min.)
2018 (max.)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
241,512
7,265
248,777
556,200
741,800
–
741,800
1,546,777
880,423
2,427,199
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 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 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.
2 Contractually agreed LTIP Bonus target amount 2015/2017 due to the 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 during the plan term.
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 the end of August 4, 2017) during the plan term.
3 Due to the adjustment of Gil Steyaert’s pension commitment in the 2018 financial year, the service costs 2018 correspond to the gross contribution credited by the company for the respective financial year to the special account opened for the Executive Board member as well as to the gross contribution recalculated on a
pro rata basis for the 2017 financial year in the amount of € 37,674. 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.
4 Exchange rate 1.12662 $/€ (annual average rate 2017).
5 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 terminated 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 in the 2017 financial year.
6 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 terminated 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 in the 2017 financial year.
0
5
1
ADIDAS ANNUAL REPORT 2018 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 annual
fixed compensation, other benefits, the Performance Bonus,
the LTIP Bonus as well as the service costs are disclosed as
an allocation for the financial year in which the compensation
was granted.
SEE TABLE 11
Allocation in €
11
Fixed compensation
Other benefits
Total
One-year variable compensation 1
Multi-year variable compensation
LTIP 2018/2020 (tranche 2018) 2
LTIP 2015/2017 3
Other
Total 4
Service costs 5
Overall compensation
Fixed compensation
Other benefits
Total
One-year variable compensation 1
Multi-year variable compensation
LTIP 2018/2020 (tranche 2018) 2
LTIP 2015/2017 3
Other
Total 4
Service costs 5
Overall compensation
Kasper Rorsted
Chief Executive Officer
Roland Auschel
Executive Board member,
Global Sales
Eric Liedtke
Executive Board member,
Global Brands
2018
2017
2018
2,000,000
19,314
2,019,314
1,685,714
3,405,714
3,405,714
–
–
7,110,741
1,052,993
8,163,734
2,000,000
452
2,000,452
2,400,000
4,250,000
–
4,250,000
–
8,650,453
1,243,202
9,893,655
920,000
17,943
937,943
624,286
1,566,629
1,566,629
–
–
3,128,858
402,742
3,531,600
2017
750,000
17,943
767,943
880,714
2,975,000
–
2,975,000
–
4,623,657
430,138
5,053,795
2018
1,000,000
24,475
1,024,475
707,143
1,702,857
1,702,857
–
–
3,434,476
447,154
3,881,630
2017
820,000
12,575
832,575
969,943
3,080,000
–
3,080,000
–
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
2018
687,225
17,826
705,051
559,598
1,170,246
1,170,246
–
–
2,434,895
386,523
2,821,418
2017
561,603
14,650
576,254
640,228
842,405
–
842,405
–
2,058,886
385,521
2,444,407
2018
687,225
18,692
705,917
525,236
1,170,246
1,170,246
–
–
2,401,399
375,785
2,777,184
2017
437,829
14,070
451,899
495,372
656,743
–
656,743
–
1,604,015
289,045
1,893,060
2018
687,225
20,904
708,129
328,886
1,170,246
1,170,246
–
–
2,207,261
528,998
2,736,259
0
5
2
2017
437,829
8,590
446,419
502,878
656,743
–
656,743
–
1,606,040
296,747
1,902,787
ADIDAS ANNUAL REPORT 2018 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 €
11
Fixed compensation
Other benefits
Total
One-year variable compensation 1
Multi-year variable compensation
LTIP 2018/2020 (tranche 2018) 2
LTIP 2015/2017 3
Other
Total 4
Service costs 5
Overall compensation
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
2018
–
–
–
–
–
–
–
–
–
–
–
2017 6, 7
421,115
19,862
440,977
924,113
3,995,313
–
3,995,313
–
5,360,404
872,497
6,232,901
2018
–
–
–
–
–
–
–
–
–
–
–
2017 8
241,512
7,265
248,777
739,746
3,338,100
–
3,338,100
–
4,326,623
880,423
5,207,045
1 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 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.
2 The Grant Amount which remains for the respective annual LTIP tranche after deduction of applicable taxes and social security contributions (LTIP payout amount) must be invested in the acquisition of adidas AG shares. These shares are subject to a lock-up period which ends in the third financial year after the acquisition
of the shares upon expiry of the month in which the Annual General Meeting of adidas AG takes place. The LTIP payout amount is considered earned only after expiry of the lock-up period and only then can the Executive Board members dispose of the shares at their own discretion. By contrast, the amount deducted for
income tax and social security contributions is already fully earned at the time of payout following the approval of the consolidated financial statements by the Supervisory Board.
3 Contractually agreed LTIP Bonus target amount 2015/2017 due to the 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 during the plan term.
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 the end of August 4, 2017) during the plan term.
4 The compensation components set out above constitute the overall compensation both for the 2018 financial year and for the previous year, which have to be set out individually in accordance with German Commercial Law.
5 Due to the adjustment of Gil Steyaert’s pension commitment in the 2018 financial year, the service costs 2018 correspond to the gross contribution credited by the company for the respective financial year to the special account opened for the Executive Board member as well as to the gross contribution recalculated on a
pro rata basis for the 2017 financial year in the amount of € 37,674. 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 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.
6 Exchange rate 1.12662 $/€ (annual average rate 2017).
7 Service costs 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 terminated 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 in the 2017 financial year.
8 Service costs 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 terminated 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 in the 2017 financial year.
0
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OVERALL PAYMENTS TO FORMER MEMBERS OF
THE EXECUTIVE BOARD AND THEIR SURVIVING
DEPENDENTS
In the 2018 financial year, overall payments to former members
of the Executive Board and their surviving dependents
amounted to € 3.746 million (2017: € 13.520 million). The
amount of overall payments is lower than in the previous year
because the overall payments for 2017 took into account
compensation payments for the former Executive Board
members Herbert Hainer, Robin J. Stalker and Glenn Bennett,
who departed from the Executive Board in the 2016 or 2017
financial year.
Provisions for pension entitlements were created for former
members of the Executive Board who resigned on or before
December 31, 2005 and their surviving dependents, amounting
to € 43.904 million (2017: € 44.587 million) in total as at
December 31, 2018. 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
€ 40.969 million (2017: € 40.106 million) arise for adidas AG,
for which no accruals were established due to financing
through the pension fund and pension trust fund.
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.
MISCELLANEOUS
The Executive Board members do not receive any additional
compensation for mandates within adidas. The Executive
Board members have not received any loans or advance
payments from adidas AG.
COMPENSATION OF THE
SUPERVISORY BOARD MEMBERS
The compensation system which has been applicable for the
members of the Supervisory Board since July 1, 2017 was
adopted by the shareholders at the Annual General Meeting
on May 11, 2017.
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 performance-related
compensation. Furthermore, the Supervisory Board members
receive attendance fees and are reimbursed for expenses they
incur.
Fixed compensation for Supervisory Board function
12
Supervisory
Board member
Chairman
Deputy
Chairman
Base
amount
300% of the
base amount
200% of the
base amount
Based on full year € 80,000
€ 240,000
€ 160,000
for membership
ADDITIONAL COMPENSATION FOR MEMBERSHIP
IN A COMMITTEE
Furthermore, the Supervisory Board members receive
additional compensation
in certain
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.
SEE TABLE 13
Compensation for membership in a committee
13
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 two deputies
receive higher fixed compensation.
SEE TABLE 12
In % of the
base amount
Based on
full year
General Committee and
Finance and Investment
Committee
Audit Committee
Member
Chairman
Member
Chairman
50%
100%
100%
200%
€ 40,000
€ 80,000
€ 80,000
€ 160,000 0
5
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ADIDAS ANNUAL REPORT 2018
1 TO OUR SHAREHOLDERS
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FINANCIAL REVIEW
STATEMENTS
COMPENSATION REPORT
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 their task in the
committee with the highest compensation.
REDUCED FIXED COMPENSATION AND
ADDITIONAL COMPENSATION IN CASE OF
MEMBERSHIP FOR 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 for membership in a committee are
reduced accordingly on a pro rata temporis basis.
ATTENDANCE FEES
For each personal attendance of meetings requiring personal
attendance, the Supervisory Board members are also granted
an attendance fee in the amount of € 1,000. Members of
committees that are formed on an ad hoc basis do not receive
an attendance fee. If several meetings take place on one day,
the attendance fee is only paid once.
EXPENSES
for
The Supervisory Board members are reimbursed
in
incurred
necessary expenses and
connection with their mandates as well as for the VAT payable
on their compensation, insofar as they charge for it separately.
travel expenses
SUPERVISORY BOARD
COMPENSATION 2018
FIXED COMPENSATION AND ATTENDANCE FEES
The total compensation paid to the Supervisory Board in
the 2018 financial year amounted to € 2.20 million
(2017: € 1.78 million). In addition, attendance fees totaling
€ 129,000 (2017: € 126,750) were paid.
SEE TABLE 14 The
increase in the total compensation paid for the 2018 financial
year compared to the 2017 financial year is attributable, in
particular, to the adjustment of the Supervisory Board
compensation effective July 1, 2017 and the fact that 2018 was
the first financial year in which the Supervisory Board received
the adjusted compensation for the entire year.
MISCELLANEOUS
The Supervisory Board members have not received any loans
or advance payments from adidas AG.
0
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ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
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COMPENSATION REPORT
Compensation of Supervisory Board members in €
Supervisory Board members
Igor Landau, Chairman of the Supervisory Board
Sabine Bauer, Deputy Chairwoman of the Supervisory Board
Willi Schwerdtle, Deputy Chairman of the Supervisory Board
Dr. Frank Appel (from the end of the Annual General Meeting on May 9, 2018)
Ian Gallienne
Dieter Hauenstein
Dr. Wolfgang Jäger
Dr. Stefan Jentzsch (until the end of the Annual General Meeting on May 9, 2018)
Herbert Kauffmann
Katja Kraus
Kathrin Menges
Udo Müller
Roland Nosko
Hans Ruprecht
Nassef Sawiris
Heidi Thaler-Veh
Kurt Wittmann
Total
2018
Fixed
compensation
2018
Compensation
committee
work
2018
Attendance fees
2017
Fixed
compensation
Total
2017
Compensation
committee
work
2017
Attendance fees
240,000
160,000
160,000
51,398
80,000
80,000
80,000
28,602
80,000
80,000
80,000
80,000
80,000
80,000
80,000
80,000
80,000
80,000
40,000
40,000
–
80,000
–
80,000
–
160,000
–
–
–
40,000
80,000
–
–
–
9,000
9,000
9,000
4,000
9,000
6,000
12,000
3,000
12,000
6,000
6,000
7,000
9,000
10,000
7,000
5,000
6,000
329,000
209,000
209,000
55,398
169,000
86,000
172,000
31,602
252,000
86,000
86,000
87,000
129,000
170,000
87,000
85,000
86,000
195,000
130,000
130,000
–
65,000
65,000
65,000
65,000
65,000
65,000
65,000
65,000
65,000
65,000
65,000
65,000
65,000
65,000
32,500
32,500
–
55,860
–
65,000
9,140
117,500
–
–
–
32,500
65,000
–
–
–
9,750
9,750
9,000
–
10,000
6,250
10,750
7,000
10,750
6,250
4,250
6,250
9,750
10,750
5,250
5,500
5,500
14
Total
269,750
172,250
171,500
–
130,860
71,250
140,750
81,140
193,250
71,250
69,250
71,250
107,250
140,750
70,250
70,500
70,500
1,600,000
600,000
129,000
2,329,000
1,300,000
475,000
126,750
1,901,750
0
5
6
ADIDAS ANNUAL REPORT 2018 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
Global stock markets were volatile throughout the year and
ended 2018 on a negative note. The DAX-30 and the EURO
STOXX 50 decreased by 18% and 14%, respectively, while the
MSCI World Textiles, Apparel & Luxury Goods Index was
down 5%. The adidas AG share outperformed the broader
stock market and ended 2018 with an increase of 9%
compared to the prior year. As a result of the strong
operational performance in 2018 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 € 3.35 at our 2019 Annual General
Meeting.
ADIDAS AG SHARE RISES AND OUTPERFORMS
BROADER STOCK MARKET IN 2018
In 2018, global stock markets ended the year on a negative
note, following a period of pronounced volatility in the second
half of the year. US-China trade tension and political turmoil in
parts of Europe in combination with nascent concerns about a
Five-year share price development 1
| Dec. 31, 2013
slowdown of global economic growth weighed on capital
markets. In addition, further interest rate hikes by the Federal
Reserve put pressure on equities. As a result, the DAX-30
decreased 18%, while the EURO STOXX 50 was down 14% in
2018. The MSCI World Textiles, Apparel & Luxury Goods Index
ended the year with a 5% decrease.
SEE TABLE 16 The adidas AG
share outperformed global stock markets and ended the year
9% above the 2017 year-end level. Strong financial results
resulted in an upgrade of the company’s full year 2018
profitability outlook in November, which helped to further build
investors’ confidence in the successful execution of our
strategic business plan ‘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 € 216.00 in the course of the year. However,
the global stock market sell-off in the second half of 2018 also
dragged down our share in subsequent months. Nevertheless,
the adidas AG share closed the year at € 182.40 and thus 9%
above the prior year-end level, making it one of the top
performers in the DAX-30.
SEE DIAGRAM 15
15
Dec. 31, 2018 |
250
200
150
100
50
1 Index: December 31, 2013 = 100.
adidas AG
DAX-30
EURO STOXX 50
MSCI World Textiles, Apparel & Luxury Goods Index
Performance of the adidas AG share and important indices
at year-end 2018 in %
16
adidas AG
DAX-30
EURO STOXX 50
MSCI World Textiles, Apparel
& Luxury Goods
Source: Bloomberg.
1 year
3 years
5 years 10 years
9
(18)
(14)
(5)
103
(2)
(8)
25
97
11
(3)
16
572
120
23
283
LEVEL 1 ADR PERFORMS IN LINE WITH
COMMON STOCK
Our Level 1 ADR closed 2018 at US $ 104.34, representing
increase of 5% versus the prior year level (2017:
an
US $ 99.82). The less pronounced increase of the Level 1 ADR
price compared to the ordinary share price was due to the
appreciation of the US dollar versus the euro in 2018. The
number of Level 1 ADRs outstanding increased to 9.0 million at
year-end 2018 compared to 7.1 million at the end of 2017. The
average daily trading volume decreased to around 51,400 ADRs
in 2018 (2017: around 60,200). Further information on our ADR
program can be found on our website. ↗ ADIDAS-GROUP.COM/ADR
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, 2018, our weighting in the
DAX-30, which is calculated on the basis of free float market
capitalization and twelve-month share turnover, improved
to 3.94% (2017: 3.01%). 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 9 on market
capitalization (2017: 11) and 11 on turnover (2017: 12) at
0
5
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ADIDAS ANNUAL REPORT 2018 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
year-end 2018. Additionally, in recognition of our economic,
social and environmental efforts, adidas AG is listed in several
key sustainability indices and was rated industry leader in the
Dow Jones Sustainability Indices in 2018.
SEE TABLE 17
result in the issuance of any new shares nor will adidas AG be
required to deliver existing shares. The economic exposure to
pay cash amounts under the convertible bond upon any
exercise of conversion rights by investors is fully hedged.
2012 CONVERTIBLE BOND FULLY CONVERTED
In March 2012, adidas AG 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 € 80.48
per share. This adjustment became effective on May 10, 2018.
The bonds have been callable by the issuer since June 2017.
In 2018, 377,630 shares were transferred following the
exercise of conversion rights, all of which were serviced
from treasury shares of the company.
Consequently, as at December 31, 2018, the convertible bond
was fully con verted (2017: 94%).
SEE NOTE 27, P. 184
2018 EQUITY-NEUTRAL CONVERTIBLE BOND
SUCCESSFULLY PLACED
On September 5, 2018, adidas AG successfully placed a
€ 500 million equity-neutral convertible bond. The proceeds
of the offering will be used for general corporate purposes
and to finance a portion of the multi-year share buyback
program. The convertible bond has a term of five years and
has a coupon of 0.05%. The issue price was fixed at 104%
of the nominal value, corresponding to an annual yield to
maturity of – 0.73%, and the offering was 2.7 times
oversubscribed. Investors will have conversion rights in
respect to the convertible bond which will be settled in cash
by reference to the share price. Due to the cash settlement,
the issue and conversion of the convertible bond will not
Dividend proposal
DIVIDEND PROPOSAL OF € 3.35 PER SHARE
As a result of the strong operational performance in 2018, 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 € 3.35 per dividend-
entitled share to shareholders at
the Annual General Meeting (AGM) on May 9, 2019. This
represents an increase of 29% compared to the prior year
dividend (2017: € 2.60). Subject to the meeting’s approval, the
dividend will be paid on May 14, 2019. The total payout of
€ 666 million (2017: € 528 million) reflects a payout ratio of
39.0% of net income from continuing operations (2017: 37.0%
excluding the negative one-time tax impact in 2017 as a result
of the US tax reform).
SEE TABLE 17 This is within the target
range of between 30% and 50% of net income from continuing
operations as defined in our dividend policy.
FIRST TRANCHE OF SHARE BUYBACK PROGRAM
COMPLETED
On March 13, 2018, adidas AG announced the launch of a
multi-year share buyback program of up to € 3.0 billion in
total until May 11, 2021. The program is executed by buying
back shares via the stock exchange under the authorization
The adidas AG share
17
Number of shares outstanding 2
Basic earnings per share 3
Diluted earnings per share 3
Year-end price
Year high
Year low
Market capitalization 4
Dividend per share
Dividend payout
Dividend payout ratio 3
Dividend yield
Shareholders’ equity per share 4
Price-earnings ratio at year-end 7
2018
2017 1 Important indices
shares
199,171,345
203,861,234 — DAX-30
€
€
€
€
€
€ in millions
€
€ in millions
%
%
€
%
8.46
8.45
182.40
216.00
166.40
36,329
3.35 5
666 6
39.0 6
1.8
32.02
21.6
7.05
7.00
167.15
199.95
143.80
34,075
2.60
528
37.0
1.6
29.59
23.7
— EURO STOXX 50
— MSCI World Textiles, Apparel &
Luxury Goods
— Deutsche Börse Prime Consumer
— Dow Jones Sustainability Indices
(World and Europe)
— FTSE4Good Index Series
— MSCI World ESG Leaders Index
— MSCI Global Sustainability Indices
— MSCI SRI Indices
— STOXX Global ESG Leaders
— ECPI Ethical Equity Indices (Global,
Euro and EMU)
— ECPI ESG Equity (World and Euro)
— Ethibel Sustainability Indices (Global
and Europe)
Average trading volume per trading day 8
shares
824,045
653,389
— Euronext Vigeo (Eurozone 120)
1 Excluding the 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 the number of shares outstanding at the date of preparation of the Consolidated Financial Statements.
7 Based on basic EPS from continuing operations.
8 Based on number of shares traded on all German stock exchanges.
0
5
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ADIDAS ANNUAL REPORT 2018 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 €
18
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
230
210
190
170
150
0
3
.
7
8
1
0
4
.
6
6
1
0
8
.
3
8
1
0
6
.
4
7
1
5
1
.
8
9
1
0
0
.
9
6
1
30-day moving average
High and low share prices
1 Based on daily Xetra closing prices.
0
7
.
3
1
2
0
3
.
5
9
1
0
2
.
7
0
2
0
9
.
8
8
1
0
4
.
3
0
2
0
0
.
4
8
1
5
4
.
0
9
1
0
5
.
1
8
1
0
7
.
5
1
2
5
9
.
4
8
1
0
0
.
6
1
2
0
1
.
6
0
2
0
8
.
3
1
2
0
6
.
2
9
1
0
0
.
7
0
2
0
8
.
4
9
1
0
0
.
0
0
2
0
1
.
0
8
1
Source: Bloomberg.
Shareholder structure by investor group 1
19
Shareholder structure by region 1, 2
20
8%
Private investors and
undisclosed holdings
1 As of January 2019.
6%
1%
France
Treasury shares
9%
92%
Institutional investors
Belgium
10%
Germany
11%
Rest of world
1 As of January 2019.
2 Reflects institutional investors only.
43%
North America
21%
United Kingdom
granted by the Annual General Meeting on May 12, 2016. The
authorization covers the repurchase of up to 10% of the
company’s share capital on the stock exchange. The vast
majority of the share buyback program will be financed
through the company’s net cash position as well as the
expected strong operating cash flow generation in the
years ahead. In a first tranche, between March 22, 2018, and
December 4, 2018, the company bought back 5.1 million
shares, corresponding to 2.5% of the company’s share capital,
for a total consideration of € 1.0 billion. The average purchase
price per share was € 196.45. A total of 8.8 million treasury
shares, which resulted from the current and the previous
buyback program, were canceled in October, reducing the
company’s share count and stock capital correspondingly.
STRONG INTERNATIONAL INVESTOR BASE
Based on our share register, we estimate that adidas AG
currently has more than 80,000 shareholders (2017: 70,000).
In our latest ownership analysis conducted in January 2019,
we identified almost 100% of our shares outstanding.
Institutional investors represent the largest investor group,
holding 92% of shares outstanding (2017: 87%). Private
investors and undisclosed holdings account for 8% (2017:
10%). Lastly, adidas AG currently holds 1% of the company’s
shares as treasury shares (2017: 3%); this decline versus
the prior year mainly reflects the cancelation of treasury
shares resulting from our share buyback activities.
SEE DIAGRAM 19
In terms of geographical distribution, the North American
market currently accounts for 43% of institutional share-
holdings (2017: 40%), followed by the UK with 21% (2017:
18%). Identified German institutional investors hold 10% of
shares outstanding (2017: 11%). Belgium and France account
for 9% (2017: 9%) and 6% (2017: 6%), respectively. 11% of
institutional shareholders were identified in other regions of
the world (2017: 15%).
SEE DIAGRAM 20
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2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
OUR SHARE
MAJORITY OF ANALYSTS WITH A POSITIVE
RATING OF ADIDAS AG SHARE
Around 40 analysts from investment banks and brokerage
firms regularly publish research reports on adidas. The
vast majority of analysts are confident about the medium-
and long- term potential of the company. This is reflected
for our share as at
i n
December 31, 2018. 59% of analysts recommended investors
to ‘buy’ our share (2017: 46%). 36% advised to ‘hold’ our share
(2017: 46%) and 5% of the analysts recommended to ‘sell’ our
share (2017: 8%).
the recommendation split
VOTING RIGHTS NOTIFICATIONS PUBLISHED
All voting rights notifications received in 2018 in accordance
with §§ 33 et seq. of the German Securities Trading Act
(Wertpapierhandelsgesetz – WpHG) (§§ 21 et seq. German
Securities Trading Act old version) are published on our
corporate website. ↗ ADIDAS-GROUP.COM/S/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 27, P. 184
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, or by any person in close relationship with these
persons, are reported on our website. ↗ ADIDAS-GROUP.COM/S/
MANAGERS-TRANSACTIONS
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ADIDAS ANNUAL REPORT 2018 Corporate Strategy
adidas Brand Strategy
Reebok Brand Strategy
Sales and Distribution Strategy
Global Operations
Innovation
People and Culture
Sustainability
Non-Financial Statement
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.
062
067
070
072
074
078
081
088
101
8
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
S
A
D
D
A
I
OUR COMPANY
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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.
SEE DIAGRAM 21
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
21
E
C
R
U
O
S
N
E
P
O
E
R
U
T
L
U
C
CITIE
S
FOCUS
D
E
E
P
S
BRAND
DESIRE
TOP LINE &
MARKET SHARE
GROWTH
GROSS MARGIN
EXPANSION
OPERATING
LEVERAGE
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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. In addition, the
Global High Potential Group was formed in 2018 to identify
and develop high potentials who have the ability to take on
more complex, demanding and higher-level responsibilities
at a global senior management level.
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, was simplified and linked to the development of the
company’s bottom line and our share price 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. We have made
further progress in this regard. Karen Parkin was appointed
to the Executive Board already in May 2017. In addition, the
share of women in leadership positions across the company
increased to 33% in 2018 compared to 29% in 2015.
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 fulfill higher
consumer demand than initially forecasted.
— 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 37% in 2018,
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, Speedfactory
allows the production process to become faster, leading to
reduced lead times. Accelerated speed to market and the
Speedfactories’ proximity to consumers helps us to respond
more quickly to trends and shifts in the marketplace, which
ultimately enables adidas to satisfy consumers’ expectations
with greater speed and precision. 2018 saw the introduction of
new high-performance products
SEE GLOSSARY manufactured
in our Speedfactories: The AM4 cities series, individually
designed and manufactured shoes made for our six global key
cities, as well as additional limited editions specific to cultural
and sporting moments, such as the Stanley Cup victory of the
Washington Capitals, were introduced. And while Speedfactory
enables us to rethink conventional manufacturing processes,
it also enables us to continuously learn from it, which in turn
will help us to also
increase
opportunities within the traditional supply chain, which will
remain the backbone of our global sourcing activity.
improve efficiency and
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
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1 TO OUR SHAREHOLDERS
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CORPORATE STRATEGY
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.
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. Major successes in 2018 include
the ‘747 Warehouse’ around the NBA All-Star weekend
in Los Angeles, where we offered cross-category product
installations and created an unprecedented experience
with creativity, sport and culture for the local community
and over 20,000 visitors. We also launched ‘Republic of
Sports’ in Shanghai, where 60,000 creators interacted
with us through sports activities, Maker Lab and Parley
experiences. In addition, the ‘/// <3 NYC (adidas loves New
York)’ campaign in New York created brand heat through a
series of community-focused activations.
— Products: We continue to drive a multi-pronged strategy
of product introductions, focused across all six cities,
including global campaign launches and exclusive
collections. After the initial 2017 launch of the AM4 series
produced in our Speedfactory, we expanded the collection
to Tokyo, Shanghai, Los Angeles and New York. We also
introduced key technologies, for instance, the launch of
Alphaedge 4D exclusively in our global key cities.
— Experiences: We are committed to providing premium
retail experiences to our consumers with executions that
connect, engage and inspire them. The opening of our
largest Asia-Pacific Brand Center NJE800 in Shanghai
showcased the latest retail concepts and innovations
from adidas. The Brand Center features products from
all categories and provides a multi-functional training
venue, a ‘Protect the Oceans’ themed Run Lab, and a
Creator Lab for customized services. Integrating retail
concepts with sports experiences into one sports hall,
the new Brand Center provides a space where sports
enthusiasts can explore the latest trends and make the
most of their creativity. Moreover, in collaboration with our
retail partners, we continue to execute our strategy in key
trade zones to transform our retail spaces into premium
shopping destinations.
The 2018 results for specific 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. Last year, we continued to experience an
improvement in brand desire which helped us to extend our
market share in 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. In collaboration with the
Brooklyn Creator Farm – a design space and creation hub
we offer for urban creative talent, where we invite them to
fuel innovation in sport with their ideas – we launched our
first-ever laceless basketball silhouette N3XT L3V3L with
the new Lightstrike midsole, Marquee BOOST, a lightweight
model inspired by past designs, and the Pro Vision featuring
a Bounce midsole. In addition, we continued our successful
creative partnerships with Alexander Wang, Kanye West,
Pharrell Williams, and Stella McCartney, among others,
to drive brand desire and growth globally.
— 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 efforts in digital and physical spaces.
For instance, in 2018 our ‘adidas Runners’ communities
accounted for 180,000 active runners in 50 cities. And driven
by our adidas Runners communities, close to one million
runners got involved in the ‘Run for the Oceans’ campaign
with around 200 events taking place in over 60 countries.
In total, participants collected over 12 million kilometers
and tracked their runs on Runtastic (and Joyrun for those
based in China).
— Partner collaborations: The strategic initiatives in this area
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
SEE GLOSSARY serves as a prime example. As
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CORPORATE STRATEGY
a founding member of the organization, our support goes
far beyond financial aid to fund beach clean-ups. We keep
working with Parley to prevent plastic from entering our
oceans and transform it into high-performance sportswear.
In 2018, we expanded the sustainability efforts with new
silhouettes such as Deerupt, and with a new collection of
outdoor footwear and apparel. We have recycled up to 1,000
tons of plastic per year with Parley and produced more
than five 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. In 2018, the Futurecraft 4D was
launched and all product drops were sold out within 24
hours.
SEE GLOSSARY in 2018.
SEE INNOVATION, P. 78
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 want to grow the numbers of users in our digital
ecosystem. We have made significant progress in this regard
and are now connected with more than 500 million users
through our different platforms and social media channels.
With the insights generated through Open Source, we craft
better products and services for our consumers, driving 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. After the
completion of the sale of the TaylorMade, Adams Golf and
Ashworth brands as well as our CCM Hockey business in
2017, we are now operating with a narrowed focus on 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 2018, we continued to execute upon Reebok’s turnaround
plan ‘Muscle Up’, aimed at accelerating the brand’s top-line
growth in the US 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 four years, despite a 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 2018.
the remaining
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.
After having successfully operationalized the initiatives under
the Brand Leadership
SEE GLOSSARY pillar in 2018, we are now
two pillars – marketing
focusing on
effectiveness and operating efficiency. 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,
2018 saw the continuation of several initiatives kicked off in
2017 which are aimed at significantly improving our operating
efficiency and profitability in the years to come. Our disciplined
execution has already led to initial positive results. For
example, our Non-Trade Procurement
SEE GLOSSARY initiative,
which is focused on enabling more efficient sourcing of goods
and services not linked to the products sold to the consumer,
started to deliver sustainable savings through the application
of latest procurement practices and technologies such as
e-auctions, e-catalogs and e-marketplaces. We decided to
use these benefits to reinvest into the business and continue
our investment efforts into our scalable business model. In
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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. Our
dividend policy is complemented by a multi-year share
buyback program announced in March 2018. Under the
current program, we plan to buy back own shares for up
to € 3 billion in total until May 2021, of which € 1 billion
was utilized in 2018.
addition, with the roll-out and expansion of our Global
Business Services in 2018, we continue to work on the
standardization and harmonization of processes in areas such
as Accounting and HR Services. These and other initiatives
are designed to enable scalability and operating leverage 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 2018, we made good progress with
multiple digital accelerators. After the initial launch in
2017, we rolled out our adidas App to a further 23 countries.
As a result, by the end of 2018, our adidas App was live in
25 countries, with more than seven million downloads.
Furthermore, we launched Creators Club in the US and Japan.
With this membership program, we provide our consumers
with personalized content and offerings, easy access to
products and events, exclusive offers and promotions,
recognitions and rewards, as well as an integrated experience
with our sustainability programs. By providing consumers
with a premium, connected and personalized shopping
experience, we are on the right track to reach our 2020 own
e-commerce revenue target of € 4 billion. In 2018, our own
e-commerce platform was our fastest-growing channel with a
currency-neutral revenue increase of 36%. In addition, we are
developing our enterprise-level digitalization capabilities,
such as end-to-end Digital Creation, with the goal of digitizing
the entire value chain from product creation to point of sale.
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. 103
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 of around 15%; updated
in March 2017: increase between 20% and 22%).
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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 and in a sustainable way.
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.
SEE
— 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
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 2018, we created a new Advanced
Concepts team across the Sport Performance business
units. The purpose of this team is to lead, control and manage
the adidas innovation pipeline in order to service and deliver
superior concepts to the different categories. This will allow
the Future team to focus on larger upstream innovation with
the intent and focus being to create new brand platforms and
extensions of existing platforms. Furthermore, we created a
vertically integrated Outdoor organization. This will enable
us to incubate the Outdoor business, test new business
models and nurture new business opportunities. Vertical
integration and co-location will allow the Outdoor team to
operate in a start-up manner, make quick decisions and
drive clear accountability across all functions.
— 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.
— 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. 103
PRODUCT FRANCHISES: CREATE THE MOST
DESIRED SYMBOLS OF SPORT IN THE WORLD
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 design, 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 footwear franchises to represent at least 30% of
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adidas Brand Strategy
the brand's footwear business by 2020. In 2018, key adidas brand
footwear franchises included UltraBOOST, PureBOOST, Alpha-
bounce, Predator, and NMD. On the apparel side, we continued to
build out franchises on the success of the Z.N.E. Hoodie and Tiro
Pant.
WOMEN’S: A NEW DIMENSION
TO DRIVE GROWTH
Winning the female consumer continues to be a key focus as it
offers one of the largest business opportunities for the adidas
brand, with the women’s category leading the growth in the
sportswear industry. In 2018, the adidas brand further invested
resources in expanding a cross-functional women’s organization
and support infrastructure to set direction for creative, ranging,
merchandising and marketing as well as to steer cross-
category planning. When it comes to winning the female
consumer, adidas has focused its initiatives across product,
retail, and activation. Highlights from these initiatives include:
— Product: adidas has been investing in key product areas
that are critical to winning the trust of the female consumer,
including bras, tights and running footwear, as well as
improving overall apparel fit for the female consumer. In
2018, adidas introduced new bras and tights with positive
response from both consumers and testers. adidas has also
invested in research around the vertical female athlete, that
will enable the future creation of products that will help her
improve her game.
— Retail: adidas has taken steps toward enhanced
merchandising and storytelling across our brand, building
off female consumer shopping insights, to enable a
seamless shopping experience for her to mix and match
product. adidas has also rolled out a bra fitting training
program in adidas own-retail stores, covering more than
500 own-retail doors with continued investment planned,
ensuring the floor staff is upskilled in bra fitting services to
better support our customers in finding the right product.
— Activation: One of the cornerstones of the adidas Women’s
approach continues to be the Creator Network. Powered
by sport, fueled by culture, and fostered by collaboration,
the Creator Network is a collective of athletes, influencers
and innovators such as Karlie Kloss, Hannah Bronfman and
Robin Arzon. Additionally, adidas has invested in female
communities in key cities across the world, creating a
direct relationship with the female consumer to collaborate
with her, gather product feedback, gain insight on future
opportunities and understand the barriers to sport she
faces. A key highlight in this regard was the launch of a
new purpose-driven platform at the US Open in New York
in August 2018 focused on removing obstacles to sport
for girls and elevating the conversation around equality in
sport across genders.
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 marketing investments going forward.
While the brand historically spent 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: This 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, the Olympic
Games, and the Boston and Berlin Marathons.
— 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 and Damian Lillard,
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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adidas Brand Strategy
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 and Alexander Wang. In 2018, we added
new collaborators such as Childish Gambino and Jonah Hill.
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 2018, we activated close to a million
runners across the world to raise funds and awareness for the
fight against ocean plastic through the Run For The Oceans.
We created more than five million pairs of shoes using Parley
Ocean Plastic, alongside two million pieces of apparel, and
restated our ambition to reduce the use of virgin plastic.
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 three
overarching roles: Lead, Grow, 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 investing in the brand’s football footwear franchises.
In 2018, the adidas brand implemented innovations in its
football footwear business with the continued focus on the
Predator, ‘X’ and Nemeziz franchises as well as re-launching
the most iconic football boot of all time – Copa. Leveraging
the FIFA World Cup, the biggest event in sport, adidas
achieved its objective of being the most influential brand
during the event via its most personal campaign ever. The
brand campaign featured a launch film with more than
50 assets and a global call to action for consumers to
co-create content. The campaign drove reach, achieving the
highest engagement rate for adidas in 2018.
— 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. In 2018, we
incubated new concepts and achieved a greater balance
between our classic models and new and innovative concepts.
We have also incorporated more technology innovation such
as BOOST or Carbon 4D into Originals products. At the same
time, we continued to proactively manage the life cycles of
our iconic franchises – Superstar and Stan Smith – to ensure
healthy sell-through and inventory levels.
Grow
— The running category is the adidas brand’s biggest growth
opportunity across all genders and price points. 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. The adidas brand, for example,
has introduced groundbreaking innovation in materials
such as BOOST and pioneering new manufacturing
processes driven through Speedfactory. To spur growth,
amongst other things, adidas Running will significantly
refine and evolve its franchise strategy for the male and
female athlete across price points, increase its investment
in running communities and grassroots activations through
the adidas Runners communities in over 100 cities around
the world, as well as play a central role in driving the future
of digital in sport in cooperation with Runtastic. Running
will also continue to play a major part in our sustainability
strategy through the Run For The Oceans activation.
— 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
— 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.
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,
rugby, tennis, 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, Reebok has gone
through a transformation from traditional sports to the sport
of fitness. On this journey, Reebok has invested in its newly
established ‘Sport’ unit 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
iconic past with new
technologies that revolutionize both performance and lifestyle
products.
its
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. 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.
Within that consumer group, Reebok will continue to focus on
the female Game Changers. Rooted in Reebok’s heritage, the
brand is putting women at the heart of everything. This
female-centric approach, with women being the focal point of
content strategy, product creation, 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 2018, Reebok
successfully launched the PureMove Bra, a revolutionary
sports bra featuring patented fabric technology that adapts to
movement and intensity. This product was then featured in a
women’s-only brand campaign.
footwear
PRODUCT FRANCHISES:
LEVERAGING THE BRAND’S FITNESS DNA
Reebok recognizes the importance of building strong apparel
and
innovative but
franchises, establishing
repeatable product lines that become annuities for the brand
and essential items for the consumer. This is not only crucial
for enhancing consumer perception and brand consideration,
but for the efficiency of the Reebok brand.
For this reason, Reebok continues to heavily invest in
franchises, making them a key priority. By 2020, Reebok
expects key apparel franchises to represent at least 25% of
the brand’s total apparel business. Key franchises include
performance products
SEE GLOSSARY such as the Lux Tight or
Epic Short. The newest franchise, the PureMove Bra, won
several covetable awards in 2018, including TIME’s Best
Inventions of 2018.
In footwear, Reebok continues to grow franchises that have
been authenticated by their respective communities, such as
the CrossFit Nano and the FloatRide Run. In 2018, the FloatRide
Run Fast, an iteration of the running franchise, won the
prestigious Runner’s World Gear of the Year award. In addition,
Reebok leverages its unique fitness DNA through iconic styles
such as the Aztrek, the Classic Leather and the Club C.
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, 2019 will see continued storytelling around
the Sole Fury, footwear built with a distinct split cushioning
outsole, removing excess weight for 360-degree breathability
and lightweight cushioning. Beyond technology platforms,
Reebok remains committed to investing into innovation that
consumers can relate to, fostered by unique collaborations
and stories.
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 several relevant assets and influencers
in the digital ecosystem.
— Be More Human: Inspiring people to be their absolute best
selves 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. With the latest
evolution, Reebok celebrated strong women who have made
positive changes to the world in unique ways. The campaign
featured some of the world’s most respected athletes and
sought-after artists, including Katrin Davidsdottir, Danai
Gurira, Gigi Hadid, Ariana Grande and Nathalie Emmanuel.
These women told their personal stories about overcoming
barriers to become their best selves and were featured
alongside influential women who have built organizations
that are empowering women and making history.
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Reebok Brand Strategy
— 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 fashion icon Victoria Beckham, rapper
and songwriter Future, and American football pro bowler
J. J. Watt. In 2018, music artist Cardi B, actress Gal Gadot,
and UFC superstar Conor McGregor 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, Les Mills, and Midnight Runners.
Most recently, Reebok announced the formation of the
Boston Track Club, a professional running club with elite
runners. Finally, continuing to build relationships with
fitness instructors remains a crucial component of Reebok’s
goal of connecting with the global fitness community. With
over 155,000 fitness instructors currently being part of its
global network, Reebok has made major progress toward
its goal to be the brand of choice for instructors around
the world.
— Digital ecosystem: Reebok is changing the way it operates
digitally in order 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.
In 2018, Reebok improved site speed and usability of its
consumer-facing digital ecosystem. Reebok is focused on
continuing to optimize the consumer experience globally,
with 2019 seeing a site redesign and the launch of a new
membership program.
ROLE OF THE CATEGORIES
To achieve the ambition of becoming the best fitness brand in
the world, Reebok recognized the need to combine its
performance authenticity with even better product and
stronger lifestyle credentials for a consumer who is both
fitness and style obsessed. To that end, Reebok combined its
activities in Running and Training and created the Sport
business. This unit, along with Classics, plays a vital role for
the Game Changers, allowing the brand to amplify its impact
on
leverage commercial
opportunities from their active lifestyle.
fitness enthusiast and
the
Sport’s insight-driven and consumer-led approach supports
authentic experiences for both highly specialized and versatile
products. These products are at the forefront of fitness and
true to the culture and community that the Game Changers
train, run, and live in. Additionally, the Reebok Sport category
has developed several contemporary silhouettes, which
epitomize the intersection of performance, innovation and
style. Reebok Classics celebrates the brand’s unique heritage
across multiple iconic silhouettes.
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. At the same time, 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,
and the brand’s margins have not been accretive to the
company’s overall profitability. As a result, Reebok announced
a turnaround plan called ‘Muscle Up’ in 2016 aimed at
accelerating Reebok’s top-line growth in North America and
improving the brand’s overall profitability.
With efficient and effective distribution being key to Reebok’s
future success in the all-important North American market,
the company has significantly reduced its store base in the
market over the past two years. In total, the company has
closed nearly 50% of its own stores in the US market – both
concept stores and factory outlets – since the introduction of
Muscle Up. In addition, the brand has also streamlined its
wholesale business, putting a clear focus on elevating brand
equity and driving profitable growth.
the brand.
to enhance
In addition to progressing on the brand’s turnaround efforts in
its home market, Reebok continues to execute on several
transformational Muscle Up projects
the
profitability of
Initiatives span marketing
effectiveness, organizational efficiency and measures to
improve product margins. By relentlessly executing against
those initiatives Reebok has already realized meaningful
profitability
improvements, as reflected by the brand’s
increase in gross margin of 7.0 percentage points to 43.7%
over the past two years.
While Reebok will continue to relentlessly execute the
initiatives aimed at further improving its profitability, the
brand will accelerate its efforts to drive high-quality revenue
growth by shortening go-to-market timelines, driving product
innovation, further focusing on its own e-commerce channel,
important
and expanding partnerships with the most
wholesale customers.
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CORPORATE STRATEGY
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 actively shaping and accelerating the growth
of our profitable and integrated trade network. 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, we continued to execute our 2020
strategic business plan, ‘Creating the New’, across our six
global markets during 2018. At the beginning of the year, we
completed the integration of the markets Greater China,
Japan, South Korea and South-East Asia/Pacific into one
consolidated market for Asia-Pacific. This allows us to better
serve the converging consumer and customer demands in the
region for 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 2,300 own-retail stores, more than 14,000
mono-branded franchise stores and more than 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.
— ‘Buy Online, Return to Store’ not only provides consumers
with a convenient way to return product purchases but also
offers new buying opportunities.
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. 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 online
and brick & mortar). This is how we create halo effects across
all consumer touchpoints, resulting in further marketplace
expansion.
In 2018, we advanced our sales strategy with several initiatives
focused, amongst others, on premium consumer experiences,
marketplace transformation as well as productivity and
efficiency 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’ allows online shoppers to view in-store
product availability.
— ‘Click & Collect’ allows consumers to order online and
purchase or reserve items for pick-up in a local store.
— ‘Ship from Store’ allows us to service consumers faster than
before by turning our stores into mini distribution centers.
— ‘Partner Program’ enables us to expand our online offering
to a larger group of consumers by making it available to
selected key wholesale partners.
— ‘Endless Aisle’ provides in-store visitors with access to our
full range of products through our e-commerce platform.
— Our ‘adidas App’ is an always-on connection to the adidas
brand and offers premium shopping experiences.
Digital focus
In 2018, we continued our focus on and investments into
digital partners. As part of our Partner Program initiative that
was launched in 2016, we continued to successfully onboard
partners across Europe, North America, Emerging Markets
and Asia-Pacific, allowing us to deliver incremental sales
growth and learnings that will be leveraged to evolve and
further grow the program in the future. In addition, 2018 saw
the expansion of the adidas App to a further 23 countries
across all major markets, thereby becoming an important
new consumer touchpoint
in the adidas e-commerce
ecosystem. 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 and access to our newly created
membership program – the Creators Club. The success of the
App is significantly enhanced by continued investments in
Customer Relationship Management (CRM), which will enable
us to develop an even 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.
SEE GLOSSARY
Whenever we can actively manage the way our brands and
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CORPORATE STRATEGY
Sales and Distribution Strategy
products are presented at the point of sale, the impact on the
consumer 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 online and brick
& mortar). By 2020, we aim to generate more than 60% of our
revenues through controlled space.
helping to drive revenue growth to achieve our target to double
revenues in our key cities by 2020 compared to the 2015 level.
We will continue to focus on trade zones within the cities,
specifically on how we deploy product, retail and activation
initiatives. Our intention is to create one holistic brand
experience for our consumers within these key commercial
areas across all shopping channels and platforms.
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. In 2018, we made significant investments in
remodeling our stores and sharpening the top of the pyramid
of our store fleet. By doing so, we have strengthened our own
retail presence in key cities and key trade zones. We extended
our flagship fleet by opening a flagship store on Shanghai’s
East Nanjing Road and remodeled the existing Beijing Sanlitun
store. 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.
In that regard, we will continue to support our key wholesale
partners, ensuring that we have premium space in their new
flagship stores.
Cities and trade zones
In the last couple of years, we saw continued success in our
key cities New York, Los Angeles, Paris, London, Shanghai
and Tokyo. Our Net Promoter Score (NPS)
SEE GLOSSARY
further improved year on year in our key cities during 2018,
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: Our Sales Academy
program continues to help 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 adidas 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 2018 we continued with our optimization
program to shift focus and resources to our most profitable
channels. By doing so, we have improved the distribution
mix of our company and consequently the underlying
profitability 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), market share, net sales, and profitability.
SEE INTERNAL MANAGEMENT SYSTEM, P. 103
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GLOBAL OPERATIONS
GLOBAL OPERATIONS
Global Operations manages the development, production
planning, sourcing, and distribution of our company’s
products. The function strives to
increase efficiency
throughout the company’s supply chain and ensures the
highest standards in product quality, availability, and
delivery. With the consumer in mind, we deliver competitively
priced products in a sustainable manner, when and where
they are wanted.
CLEARLY DEFINED PRIORITIES
FOR GLOBAL OPERATIONS
Global Operations delivers upon our company’s mission to be
the best sports company in the world. First, the function
creates the best products by establishing state-of-the-art
infrastructure, processes, and systems that enable us to
focus on innovative materials and manufacturing capabilities.
Second, Global Operations is focused on delivering best
services through
innovative distribution capabilities by
enabling product availability through the omni-channel
approach to supply chain agility. Third, Global Operations
strives to deliver the best experience to our customers and
consumers in a sustainable way.
SEE DIAGRAM 22
Best product: 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
newness and increased speed-to-market capabilities. The
function also plays a critical role in driving operational efficiency
to support the company’s growth ambition. Global Operations
has been successfully consolidating and improving legacy
thereby reducing complexity and mitigating
structures,
material and labor costs for the company through material
and packaging consolidation.
supply chain. Global Operations is driving several strategic
initiatives to push Creating the New.
OTIF 2018
Best service: Global Operations strives to develop, produce,
source, and distribute all ordered articles on time and in full.
Therefore, a non-financial KPI ‘On-Time In-Full’ (OTIF)
towards our
measures adidas delivery performance
customers and our own-retail stores.
SEE INTERNAL MANAGEMENT SYSTEM, P. 103 In
2018, adidas delivered 78% of its adidas
and Reebok brand products on time and in
full (2017: 78%), which is broadly in line with the overall target
of 80%. In Greater China and Russia/CIS, OTIF levels reached
above 90% of our order quantities.
Best experience: Global Operations contributes to the adidas
strategic business plan ‘Creating the New’ to accomplish our
mission. The function strengthens brand desire by creating
and providing the right product to consumers – in the right
quality, size, color, and style, in the right place and at the right
time, across the entire range of the company’s channels and
brands. Global Operations builds capabilities that further
improve supply chain efficiencies, while mitigating costs,
thereby ensuring a continuously sustainable and competitive
STRATEGIC COMPANY PRIORITY ‘SPEED’
‘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 We are consumer
obsessed; thus, we want to respond quicker to consumer
demand. We want to make our products available when and
where they are wanted across our wholesale, retail, and
e-commerce channels. Our aim is to always be on trend and
always in stock. We are moving away from predominantly
developing products in advance of seasonal merchandising
calendars and are getting closer to responding quickly to
consumer demands with in-season development and rapid
replenishment manufacturing. 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.
In 2018, we made further progress around our strategic
priority with advanced creation and production capabilities
and we are working to achieve at least 50% of the company’s
net sales through speed-enabled articles by 2020. With
the ‘Speed’ initiative, we expect to increase sales and achieve
Global Operations in go-to-market process
22
Global Operations
Marketing
Design
Product
development
Sourcing
Supply chain
management
Global Sales
Briefing
Concept
Product creation
Manufacturing
Distribution
Sales
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GLOBAL OPERATIONS
a higher share of full-price sell-through compared to the
regular range.
now established as a key strategic priority under the umbrella
of digital transformation.
and processing that is now applied by our selected partners
operating in countries in scope.
SEE SUSTAINABILITY, P. 88
Advanced production capabilities: To increase ‘Speed’ also
on production timelines, in 2018 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 for the vast
majority of our footwear, apparel and hardware products. In
addition to shortening our overall production lead times,
fast replenishment
Global Operations has scaled
capabilities of best-selling articles, offering more articles
within seasons based on actual sell-through data, with 20%
of all articles across all product categories established on
30 days production lead times.
its
Speedfactory: Powered by end-to-end automated manu-
facturing processes and innovative materials, with Speedfactory
SEE GLOSSARY we create high-quality per formance products
faster than ever before to react to moments that matter in key
markets. With that we also enable our key customers to co-
create in an interactive production process while creating
customer engagement and ultimately brand desire. Insights
gained from our Speedfactories will enable us to drive digital
manufacturing also into our existing supply chain.
SEE
CORPORATE STRATEGY, P. 62
DIGITALIZING THE END-TO-END CREATION-TO-
SHELF VALUE CHAIN
In recent years Global Operations has focused on digitalizing
the product creation process, leveraging digital capabilities
and technologies across design and development teams. In
2018, we further expanded these efforts towards digitalizing
the end-to-end creation-to-shelf value chain. This covers the
pre-season marketing planning phase to product design,
development, sourcing, and into the sell-in process. This is
To connect the end-to-end value chain, we have brought key
building blocks together and we aim to scale up our new way
of working with one of our Business Units. With digitally
created products we support a more efficient creation process
internally enabling a ‘right first-time’ approach. Externally,
digital products will become more prominent in the interaction
and communication with our partners, allowing us to make
faster product iterations and take better decisions earlier in
the process. This new way of working will enable a faster
time-to-market and create a holistic and immersive digital
sell-in experience for our key customers. Our ambition in
2019 is to continue building the digital infrastructure for the
future, gradually rolling out the new capabilities across our
businesses, and extending the platform to invite consumers
to co-create with us, while also working closer with our key
customers in the early phases of the creation process.
FUTURE OF MATERIAL SOURCING
Global Operations constantly looks 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
SEE GLOSSARY, in 2018, we continued 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 and
other sustainable materials, we built a dedicated sourcing
operation with the aim to ensure a steady and transparent
supply chain. We expanded our sourcing countries for ocean
plastic in 2018 from Maldives to Sri Lanka and will continue to
grow in 2019, focusing on South East Asia and expanding
collaboration with Small Island Development States. We
developed a code of conduct specific to the plastic collection
AUTOMATION TO IMPROVE PRODUCTION
EFFICIENCY
Driving the level of automation in our supply chain remains of
overriding importance for Global Operations. In this context,
automation technologies such as auto cutting, computerized
stitching, robotic adhesive spray system, and auto packing
solutions are important focus areas, as they allow us to
reduce our dependency on manual labor while ensuring
consistent and highest quality standards. To further improve
our production efficiency, we will continue to increase the
level of automation in our supply chain in the years to come.
MAJORITY OF PRODUCTION THROUGH
INDEPENDENT MANUFACTURING PARTNERS
To keep our production costs competitive, we outsource
almost 100% of production to independent manufacturing
partners (adidas only operates two own production sites –
one in the USA and one in Germany). In 2018, adidas changed
the definition of independent manufacturing partners from
individual manufacturing facilities to supplier group level
(i. e. companies we work with that might produce in several
manufacturing facilities). Based on this new definition, we
worked with 130 independent manufacturing partners in
2018 that were producing in 289 manufacturing facilities
(2017: 296).
Of our independent manufacturing partners, 71% are located
in Asia (2017: 79%), 18% in the Americas (2017: 11%), 6% in
Africa (2017: 1%), and 5% in Europe (2017: 9%).
SEE DIAGRAM 23
While we provide our manufacturing partners with detailed
specifications for production and delivery, they possess
excellent expertise in cost-efficient, high-volume production
of footwear, apparel, and hardware.
SEE GLOSSARY
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Independent manufacturing
partners by region 1
5%
Europe
18%
Americas
GLOBAL OPERATIONS
23
6%
Africa
71%
Asia
1 Figures include the adidas and Reebok brands, but exclude local sourcing partners, sourcing agents,
subcontractors, second-tier suppliers and licensee factories.
In line with the definition change from individual manufacturing
facilities to supplier group level, 26 of the 130 independent
manufacturing partners are considered key strategic
partners and produce the vast majority of our products in
Key strategic partner relationships
24
Number of key strategic
partners
Average years as key
strategic partner
Share of all production
volume
Share of all production
value
Strategic relationships
< 10 years
Strategic relationships
10 – 20 years
Strategic relationships
> 20 years
Total Footwear
Apparel Hardware
26
11
8
17.8
17.0
17.2
74%
92%
62%
78%
92%
57%
15%
18%
13%
42%
36%
63%
42%
45%
25%
7
19.6
54%
61%
14%
29%
57%
Key strategic partner
relationships > 20 years
82 manufacturing facilities worldwide (2017: 109). We value
long-term relationships: 84% of our
key strategic partners have worked
with adidas for more than ten years
and 42% have a tenure of more than
20 years.
SEE TABLE 24
The length of the relationship is determined by specific
performance criteria which are regularly measured and
reviewed by Global Operations. To ensure the high quality that
consumers expect from our products, we enforce strict
control and inspection procedures of our manufacturing
partners and in our own factories. Effectiveness 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
environmental standards is promoted throughout our supply
chain.
SEE SUSTAINABILITY, P. 88 Current supplier lists can be
found on our website.
↗ ADIDAS-GROUP.COM/SUSTAINABILITY/S/SUPPLY-CHAIN-APPROACH
VIETNAM REMAINS LARGEST FOOTWEAR
SOURCING COUNTRY
97% of our total 2018 footwear volume was produced in Asia
(2017: 97%). Production in Europe and the Americas combined
accounted for 3% of the sourcing volume (2017: 3%).
DIAGRAM 25 Vietnam represents our largest sourcing country
with 42% of the total volume (2017: 44%), followed by
Indonesia with 28% (2017: 25%) and China with 18% (2017:
19%). In 2018, our footwear manufacturing partners produced
approximately 409 million pairs of shoes (2017: 403 million
pairs).
SEE DIAGRAM 26 Our largest footwear factory located in
Vietnam produced approximately 11% of the footwear sourcing
volume (2017: 11%).
SEE
Footwear production by region 1
2%
Americas
1 Figures include the adidas and Reebok brands.
Footwear production1 in million pairs
2018
2017
2016
2015
2014
1 Figures include the adidas and Reebok brands.
25
1%
Europe
97%
Asia
26
409
403
360
301
258
CAMBODIA BECOMES LARGEST SOURCE
COUNTRY FOR APPAREL
In 2018, we sourced 91% of the total apparel volume from Asia
(2017: 93%). The Americas represented 4% of the volume,
Europe 4%, and Africa 1% (2017: the Americas 4%, Europe
3%, and Africa 1%).
SEE DIAGRAM 27 Cambodia is the largest
sourcing country, representing 24% of the produced volume
(2017: 22%), followed by China with 19% (2017: 23%) and
Vietnam with 18% (2017: 18%). In total, our manufacturing
partners produced approximately 457 million units of apparel
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in 2018 (2017: 404 million units).
SEE DIAGRAM 28 The largest
apparel factory produced approximately 9% of this apparel
volume and is located in China (2017: 10%).
Apparel production by region 1
4%
Europe
4%
Americas
1 Figures include the adidas and Reebok brands.
Apparel production 1 in million units
2018
2017
2016
2015
2014
CHINA REMAINS MAIN SOURCE OF HARDWARE
PRODUCTS
In 2018, 79% of our hardware products, such as balls and
bags, were produced in Asia (2017: 82%). Europe accounted
for 19% (2017: 16%) and the Americas represented 1% of the
total volume (2017: 2%).
SEE DIAGRAM 29 China remained our
largest sourcing country, accounting for 38% of the sourced
volume (2017: 40%), followed by Turkey and Pakistan with
18% each (2017: 15% and 18%, respectively). The total
hardware sourcing volume was approximately 113 million
units (2017: 110 million units), with the largest factory
accounting for 18% of production (2017: 15%) located in
Turkey.
SEE DIAGRAM 30
27
1%
Africa
91%
Asia
Hardware production by region 1
28
19%
Europe
457
404
382
364
309
29
1%
Americas
79%
Asia
Hardware production 1 in million units
2018
2017
2016
2015
2014
1 Figures include the adidas and Reebok brands.
30
113
110
109
113
99
INCREASED AVAILABILITY BY OPTIMIZING THE
DISTRIBUTION CENTER NETWORK
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 for pick-up in our own-retail stores or own-
retail stores able to sell inventory available in other own-retail
stores.
SEE SALES AND DISTRIBUTION STRATEGY, P. 72
In 2018, Global Operations focused on further optimizing its
distribution center network, while at the same time preparing
it for future consumer demand. In this context, we extended
one distribution center on a large scale in Rieste, Germany
and built a new distribution center in Suzhou, China – both
went live in 2018. In addition, we started with the construction
of a new distribution center in Pennsylvania, USA and
expanded our existing West Coast third-party 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 as well as to position us well for Brexit, we added a
new e-commerce facility to our existing distribution network
in the market in 2018.
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1 Figures include the adidas and Reebok brands.
1 Figures include the adidas and Reebok brands.
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FINANCIAL REVIEW
STATEMENTS
INNOVATION
Creating innovative concepts to meet the needs of athletes
and 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
concept pipeline, bringing new groundbreaking technologies
and processes to life, investing into sustainable enablers
and exploring the 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.
MEETING THE NEEDS AND EXPECTATIONS OF
OUR CONSUMER
The modern innovation landscape extends beyond product
and 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.
During 2018, adidas continued to implement a centralized
project team to drive the process for the application and
management of publicly funded research projects. Located
within the FUTURE team, the team is responsible for
collaborating with governmental organizations on a local,
national and European level to develop key projects with
strong consortia partners, tackling major societal challenges
that will impact our consumer and industry. Three major
projects were finalized in 2018, spanning research on a new
class of fully recyclable sporting goods, on human/computer
interaction concepts for wearable computing trends, and on
the development of an entire eco-system for innovative
internet-based services catering to the consumer.
INNOVATION APPROACH BASED ON OPEN
SOURCE MINDSET
Our approach to innovation 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 the input
from knowledgeable partners. We work with several partners
to unlock further potential through collaborations:
— BASF: Together with BASF we manage and enhance BOOST,
an industry-first cushioning technology designed to deliver
maximum energy return, responsiveness and comfort to
athletes.
— Carbon: Together with Carbon, a Silicon Valley-based tech
company, we are revolutionizing product creation through
hardware, software and molecular science, to enable mass
production of additively manufactured components, coming
to life with adidas 4D.
— Fashion for Good: Together with Fashion for Good, a
global initiative to make all fashion sustainable, we are
accelerating and scaling sustainable innovation in the
apparel industry through, among other things, mentorship
of circular apparel start-ups.
— Oechsler: Together with Oechsler, an expert in high-tech
automated manufacturing of technical components and
assemblies, we operate our Speedfactories in Ansbach,
Germany, and Atlanta, USA.
— Parley for the Oceans: Together with Parley for the Oceans,
we are developing products partially created from upcycled
plastic waste, intercepted before it reaches the ocean from
beaches and coastal communities.
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
time drive game-changing
in the fields of
innovations
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
the company’s
increase speed-to-market capabilities,
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 commit ourselves
to long-term cooperation with industry-leading companies and
organizations to take a leading role in manufacturing innovation.
Digital and experience innovation
The adidas brand was amongst the first in the industry to
comprehensively bring data analytics to the athlete. With
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INNOVATION
FINANCIAL REVIEW
STATEMENTS
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 consumer, it is
crucial to fully understand the specific product needs of the
female athlete 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 building of insights
and foresights that keep us at the forefront of product
innovation.
important
COMMERCIALIZATION OF INNOVATIONS
We believe developing industry-leading technologies and
consumer experiences is only one aspect of being an
innovation leader. Equally
is the successful
commercialization of those innovative concepts:
— adidas 4D: The high-performance footwear produced under
the adidas 4D concept features midsoles crafted with light
and oxygen using Digital Light Synthesis, a unique technology
developed by Carbon. The 4D midsole pioneers a digital
footwear component creation process that eliminates the
necessity of traditional prototyping or molding. With the new
technology, adidas officially departs from 3D printing and
brings additive manufacturing in the sports industry into a
new dimension. adidas produced more than 100,000 pairs of
this high-performance footwear in 2018 and is working with
Carbon to develop new machinery to continue scaling for
mass production. Futurecraft 4D, the first shoe to feature a
4D midsole, was recognized with the ‘Gold Lion Design’ and
the ‘Silver Lion Innovation’ awards in Cannes in 2018.
— Parley Ocean Plastic: Products made of Parley Ocean Plastic
SEE GLOSSARY focus both on the needs of our athletes, by
living up to their performance promise, and on the needs
of the world, by helping to protect our oceans from marine
plastic pollution. We have taken sustainability to the product
level and continue to roll it out across our product portfolio.
In 2018, we made five million pairs of shoes containing
Parley Ocean Plastic, across various footwear franchises
in both Sport Performance and Sport Inspired. In addition,
two million pieces of our 2018 apparel offering featured
Parley Ocean Plastic, including jerseys for high-profile
teams such as Real Madrid, Bayern Munich, Juventus Turin
and Manchester United.
— AM4 Series: The ‘adidas made for (AM4)’ products are
created at the adidas Speedfactory facilities in Ansbach
and Atlanta. In 2018, we launched AM4 products for Los
Angeles (AM4LA), New York (AM4NYC), Shanghai (AM4SH)
and Tokyo (AM4TKY), completing the ‘Key City Series’ which
started with London (AM4LDN) and Paris (AM4PAR) in 2017.
During 2018, there were additional AM4 limited editions
specific to cultural and sporting moments, such as the
AM4NHL which was built in the Atlanta Speedfactory to
reward the 2018 Stanley Cup winner Washington Capitals.
Each run is bespoke product tailored to unique demands
and local insight, produced at speed and scale.
— Creators Club: This new digitally enabled membership
program rewards loyal consumers with invitations to
exclusive events and access to limited-edition products. In
addition, it enhances the e-commerce shopping experience
for members through an even faster checkout process
and new order-tracking options. The program allows us
to deepen the relationship with our consumers and to
gain valuable insights into their expectations and needs.
Creators Club launched in the US toward the end of 2018,
with other markets to follow in 2019.
— PureMove Bra: Treated with Motion Sense Technology,
the Reebok PureMove Bra changes the game for women’s
sports bras. The PureMove Bra will naturally stiffen when
high-intensity workouts begin, and releases when complete
for comfort. Based on strong consumer feedback on the
launch, this exclusive material is now being modeled
into more extended sizes and additional applications. For
the PureMove Bra initiative, Reebok partnered with the
University of Delaware.
— Cotton + Corn: Reebok’s Cotton + Corn is the first bio-based
shoe, certified in the US and Western Europe, and ‘made
with things that grow’: an upper comprised of organic cotton
and a base originating from industrial grown corn, which is
a non-food source. Cotton + Corn was also launched in a
vegan version and will be extended to multiple colorways in
upcoming seasons. 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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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 2018. New products
tend to have a higher gross margin compared to products
which have been in the market for more than one season. As
launched products contributed over-
a result, newly
proportionately to net income in 2018. We expect this
development to continue in 2019 as we will present a wide
range of new, innovative products.
SEE OUTLOOK, P. 128
In 2018, 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 74% of
brand sales (2017: 79%), while only 3% of sales were generated
with products introduced three or more years ago (2017: 2%).
At Reebok, 67% of footwear sales were generated by products
launched in 2018 (2017: 69%). Only 11% of footwear product
sales relate to products introduced three or more years ago
(2017: 12%).
R&D EXPENSES DECREASE 18%
Expenses for research and development (R&D) include
expenses for personnel and administration, but exclude other
costs, for example costs associated with the design aspect of
the product creation process or the majority of costs related
to company-wide Open Source
initiatives. In 2018, as in prior years,
all R&D costs were expensed as
company’s R&D
incurred. The
expenses decreased 18% to € 153 million from € 187 million
in the prior year.
R&D expenses
m
In 2018, R&D expenses as a percentage of sales equated to
0.7% (2017: 0.9%). The number of people employed in R&D
activities at December 31, 2018, was 1,041 compared to 1,062
employees in the prior year. This represents 1.8% of total
employees.
SEE TABLE 31
Key R&D metrics 1, 2
R&D expenses (€ in millions)
R&D expenses (in % of net sales)
R&D employees
2018
153
0.7
1,041
2017
187
0.9
1,062
2016
149
0.8
1,021
2015
139
0.8
993
31
2014
126
0.9
985
1 2018, 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 and 2014 figures reflect continuing operations as a result of the divestiture of the Rockport business.
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PEOPLE AND CULTURE
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 2018,
we made good progress by advancing the following initiatives.
SEE DIAGRAM 32
ATTRACTION AND RETENTION OF
THE RIGHT TALENTS
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 2018, adidas locations around the world leveraged
The four pillars of our People Strategy
32
People Strategy
Defines and inspires the right organizational culture for ‘Creating the New’
Attraction and retention
of the right talents
Meaningful reasons to join
and stay
Attract and retain great talent
by offering personal
experiences, choices and
individual careers.
Role model leadership
Diversity and inclusion
Culture
Role models who inspire us
Bring forward fresh and
diverse perspectives
A creative climate to make
a difference
Inspire and nurture role
model leadership.
Represent and live the
diversity of our consumers
in our people.
It is our goal to develop a
culture that cherishes
creativity, collaboration and
confidence – three behaviors
we deem crucial to the
successful delivery of our
corporate strategy.
our employer brand attributes for attraction, retention and
engagement strategies. This work contributed to several top
rankings worldwide, including the Glassdoor and LinkedIn
Best Employer rankings, as well as Best Employer in Digital
Talent Communication. This has also helped us to attract
some of the industry's top talent.
Our offices in China, Hong Kong, Italy, the Netherlands, South
Africa, Spain, Taiwan, and the United Arab Erimates received
the Top Employer Institute awards in 2018 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 and
Development 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.
ROLE MODEL LEADERSHIP
The quality of current and future talent and leadership is key
to our success. We want to inspire and nurture role model
leadership. 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
future roles, they have tailored individual development plans
and participate in targeted development programs. These are
complemented by dedicated apprenticeship and trainee
programs to attract great talent.
In 2018, we made further progress with this People Strategy
pillar.
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Leadership groups
We have established three groups with selected leaders and
talents within the company:
— The Core Leadership Group (CLG) is the most senior group,
made up of around 20 members from our senior leadership
population. Members of this group jointly represent critical
positions and roles across our company worldwide. This
group partners with the Executive Board in leading the
execution of the Creating the New strategy, accelerating
its delivery across functions, as well as developing and
inspiring the next generation of leaders. The CLG also
serves as the succession pool for the Executive Board.
— The Extended Leadership Group (ELG) has around 120
members. The ELG collaborates across markets and
functions to lead the execution of the strategic initiatives
that form the Creating the New portfolio, and drives
continuous improvement and consistency across the
organization. The ELG also mentors and sponsors the
Global High Potential Group and serves as a succession
pool for the CLG.
— The Global High Potential Group (GHIPO) was formed
in 2018 consisting of around 50 members with an equal
gender balance. The GHIPO group enables us to identify
and develop high potentials who have the ability to take on
more complex, demanding and higher-level responsibilities
at a global senior management level.
We hold two physical-presence CLG and ELG events per year,
together with the Executive Board, to ensure these groups
interact and align on the execution of Creating the New as
well as our People Strategy. The GHIPO also meets twice per
year for an on-site learning experience in our key markets.
Throughout the year, all groups remain in touch via virtual
meetings and calls.
SEE CORPORATE STRATEGY, P. 62
Leadership Framework
To drive clarity and accountability, leaders at adidas were
engaged to further activate our global Leadership Framework
SEE GLOSSARY in 2018. The Leadership Framework is based
on the three company behaviors creativity, collaboration
and confidence (the ‘3Cs’
SEE GLOSSARY) 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 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 is built into
the way we hire and promote as well as rate performance. The
framework was first activated and cascaded to employees
globally through the CLG and ELG groups.
Leadership development experiences
We offer a portfolio of leadership development programs for
corporate office employees for all grades and levels:
— Executive Development Experience: We are partnering with
Harvard Business School in delivering a tailored learning
experience for all of our senior manager population. In
2018, the CLG and ELG attended the in-residence Executive
Development Experience at Harvard Business School. The
rest of our senior managers are experiencing the same
content in a live-virtual online learning setting.
— Manager Development Experience and Director
Development Experience: In an effort to develop current
and future leaders of our company, we introduced the
Manager Development Experience (MDE) in 2018. MDE is
a flexible approach to develop the leadership skills and
abilities of our lower management level employees. MDE
is designed to provide a customizable learning experience
that uses the Leadership Framework as its foundation and
drives the development of personal and team mastery. MDE
is inspired by sport – what can the world of sport teach
leaders about managing themselves and others? In 2019, we
will introduce the Director Development Experience (DDE).
DDE is based on the same principles with the Leadership
Framework at its core and allows a customizable learning
experience for our middle management level employees.
— Talent Carousel: Our internal career development program
Talent Carousel has entered its fourth year, with the second
generation graduating in 2018. 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 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.
Succession management
Our succession management approach aims to ensure
stability and certainty in business continuity through the
development of strong internal pipelines for our critical
leadership positions. We achieve this through a globally
consistent succession process that identifies these important
leadership positions within the organization, and matches
identified top talent as successors for these roles. We conduct
regular reviews to ensure individual development plans are in
place to prepare successors for their potential next steps. The
leadership groups we have established serve as succession
pools for the highest levels of our organization.
Future talent programs
— Apprenticeship and Dual Study Program: The adidas
Apprenticeship Program offers young pupils 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, IT or other areas. The Dual Study Program
for young school graduates offers – in cooperation with
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various universities – theoretical and practical experience
at adidas in fields such as digital commerce, finance or
international business including at least one three- to
six-month international rotation. At the end of 2018, we
employed 55 apprentices in Germany (2017: 65) and
45 Dual Study Program students (2017: 37).
— Global Trainee Program: The Functional, Digital and
Design Trainee Program is an 18- to 24-month program
providing graduates with an international background and
excellent educational credentials the opportunity to start
a functional career within adidas. The program comprises
assignments in various functional and cross-functional
departments. At least one of these assignments takes place
abroad. At year-end 2018, we employed 61 participants in
our Global Trainee Program (2017: 63).
— Internships: Our global internship program offers students
three to six months of work experience within adidas. In
2018, we employed 447 interns in Germany (2017: 765).
Employee collaboration and learning
We believe that a robust and state-of-the-art
internal
communication platform is essential for driving employee
engagement and fostering learning, as well as for 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 managers and the
Executive Board.
of employee training and development activities across the
globe. Through the Learning Campus, our people are able to
develop skills to support their current performance and future
career development. In 2018, 21,228 employees (2017: 23,113)
accessed our Learning Campus digitally, while 6,810
employees (2017: 4,295) employees participated in in-person
learning activities, ranging from two hours to two days in
duration. In mid-2018, we launched the LinkedIn Learning
platform, giving all corporate office employees access to
content across subjects in business, creative and technology
areas. Employees who accessed this digital learning content
in the first six months spent an average of around 70 minutes
per month on self-directed learning. This uptake of learning is
in the upper third of benchmarks for global organizations.
In 2018, adidas core learning programs were launched 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.
DIVERSITY AND INCLUSION
We believe it is crucial for the success of our company to have
a diverse workforce comprised of 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 fulfill 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.
Via a-LIVE we offer all employees access to the Learning
Campus, where employees are able to utilize learning
opportunities 24/7 in a virtual environment. We also offer in-
learning activities. As a result of the global
person
implementation of our Learning Management System that
continued through 2018, we have increased the accessibility
Nationalities at
HQ in Germany
At our company’s headquarters
in
Herzogenaurach, Germany, we have
than 100
from more
employees
nations. As part of our global diversity
approach we proactively pursue a
portfolio of internal and external activities as well as
memberships. Throughout the company we continue to
support our Employee Resource Groups – specific networks
that give employees from various walks of life a voice. We have
women’s networks in North America, Latin America, Europe
and Asia, LGBTQ networks in North America and Europe as
well as a network to connect people with different ethnic
backgrounds in North America, and an experienced generation
network in Europe.
The Executive Board and senior management teams are
provided with quarterly diversity reporting to support decision
making and target setting, and we continue to invest in
diversity and gender
the
intelligence
organization.
training across
In 2018, functional and local market teams continued to
develop dedicated action plans to invest in a stronger female
talent pipeline, data analysis on gender balance and a more
balanced organization in terms of gender, age and origin. As
an example, Latin America saw a notable increase in the
female leadership ratio throughout the year as a result of
intensified efforts in driving a set of initiatives. This included a
significant increase in the number of employees receiving
gender intelligence training, the initiation of senior leadership
mentoring with a balanced 50:50 ratio, as well as the launch
of ‘Lean In’ learning circles, a concept and reference tied to
our partnership with the 'Lean In' organization.
To inspire action outside of our company, we are active
members in both ‘Charta der Vielfalt’ (‘Diversity Charter’) and
the Diversity and Inclusion in Asia Network (DIAN), that allow
us to promote communication and the sharing of best
practices and insights. adidas is also listed in the genderdax
and has become a member company within the Bloomberg
Gender-Equality Index.
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PEOPLE AND CULTURE
Gender intelligence training
We continued the delivery of our global ‘BIG Deal’ gender
intelligence training, with 300 senior managers upskilled in
2018, resulting in a total of over 600 employees since the
launch of the training in 2016. ‘BIG’ stands for Balanced,
Inclusive, Gender Intelligent, and 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 bias in the workplace. BIG Deal training will
become part of the Director Development Experience.
Moreover, we have made the move to internalize the delivery
of the BIG Deal training with a Train the Trainer program to
increase the roll-out speed and scope. Thus far, a total of
almost 30 internal facilitators have been upskilled – with
training delivered to around 900 colleagues in North America
in 2018. Our headquarter-based facilitators in Germany will
initiate delivery of BIG Deal training in 2019.
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 Global High Potential 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.
the German
Women in
management positions
total of 33% of women globally in
management positions (2017: 31%),
exceeding the 2020 target of 32%.
↗ ADIDAS-GROUP.COM/S/EMPLOYEES Pursuant
‘Law on Equal
to
Participation of Women and Men in Leadership Positions in
the Private and Public Sector’, the adidas AG Supervisory
Board determined target figures for the percentage of female
representation
including
corresponding deadlines for their achievement, and the
Executive Board determined such target figures for the
first two management levels below the Executive Board,
including deadlines for their achievement, for adidas AG.
the Executive Board,
on
SEE CORPORATE GOVERNANCE REPORT INCLUDING THE DECLARATION ON
CORPORATE GOVERNANCE, P. 35
CULTURE
It is our goal to develop a culture that cherishes creativitiy,
collaboration and confidence (the 3Cs) as well as high
performance – the behaviors we deem crucial to the
successful delivery of our corporate strategy. In fact, our
culture and people serve as the foundation and a key enabler
of the Creating the New strategy.
Performance management
To drive high performance within the company, in 2018 we
replaced our performance management approach called ‘The
Score’ with
is a new and holistic
performance development approach combining monthly
high-quality conversations between the employee and the line
manager as well as regular upward and peer feedback options
with quarterly target setting and performance evaluation.
‘#MYBEST’, which
Already in 2011, adidas proactively set itself the goal of
increasing the number of women in management positions
globally. By the end of 2018, the company had recorded a
is based on the evaluation of multiple
The approach
dimensions:
— Target achievement: qualification of how well an employee
has delivered upon established quarterly objectives
— Behaviors: qualification of how well an employee is living
the company Leadership Framework and 3C behaviors
— Peer and upward feedback: employees can request and
incorporate feedback from colleagues and direct reports in
their overall assessment for a more holistic review.
Wages, benefits and incentives
We are committed to rewarding our employees with
compensation, benefit and incentive programs that are
competitive in the marketplace and are aligned with our
performance culture. 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 senior management 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 the 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
initiation of a new compensation
conducted was the
adjustment approach. The approach was
in
Germany and the US in 2017 and 2018, and is designed to
introduced
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level
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 to ensure that we pay equally
at the same
female and male employees.
Furthermore, we developed a monitoring approach to identify
potential pay gaps and work continuously to improve and
close these gaps on a country-by-country basis. To further
enhance our efforts and transparency on this topic we support
initiatives such as ‘Lean In’ and will also in 2019 put a strong
emphasis on continuously closing potential gaps.
for
In addition, we improved transparency and governance for
senior management remuneration. Analytics for our global
management population provided higher transparency about
actual remuneration as well as
internal and external
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 rolled out a global Long-Term Incentive
Program for senior management. This program provides
Restricted Stock Units (RSU), linked to our 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 a company ownership mentality.
SEE NOTE 28, P. 189
Our subsidiaries also grant a variety of benefits to employees,
depending upon locally defined practices and country-specific
regulations and norms.
Stock Purchase Plan
Participation in the Stock Purchase Plan is provided to
employees in Germany, the US, the Netherlands and Greater
China (China mainland, Taiwan and Hong Kong), offering 45%
of the total employee population the possibility to participate.
By the end of 2018, approximately 4,800 employees (2017:
3,600) participated in the program.
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 the provision of flexible working times 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 two
day-care facilities at our headquarters in Herzogenaurach,
Germany. After opening our first full-time care center ‘World
of Kids I’ that offers places for 130 children aged three months
to school entry age in 2013, an outdoor group with 20 additional
places for kindergarten children was added in 2017, as well as
the second facility ‘World of Kids II’ in 2018, providing 138
spots for nursery and kindergarten children. In 2019, this will
be complemented by 15 ad hoc places to support all parents
in emergency situations or during short-term assignments.
On-site, our external partners are upskilled and trained on an
educational approach that is based on our company values
such as creativity, diversity and inclusion, democracy, health
and movement. Additionally, World of Kids is among 100
digital leading model childcare centers in Germany and has
been supported with technical equipment (e.g. iPads or
cameras for kids). Other global locations also offer various
forms of benefits and support services to ensure that our
employees are able to access and secure quality childcare.
With the ongoing expansion of our infrastructure and childcare
offering, we as a company emphasize our commitment to a
family-friendly environment to integrate work and private
life – and enable balanced careers.
For parental leave and re-entry, programs are in place to
provide employees with advice early on and options for their
return to work, also taking into consideration flexible working
hours and work locations. In Germany, we guarantee our
employees on parental leave their positions, which are only
filled temporarily. In the US, in addition to regular parental
leave for new parents (up to 10 weeks at home, 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 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.
Continuing in Germany in 2018, every employee with an
adidas AG contract whose working tasks can be carried out
independently of campus facilities, campus equipment or
personal interaction on-site is eligible to work 20% of their
total working time off-campus. This new policy and agreement
is based on our belief that results can be achieved in the same
quality and quantity, regardless of people’s location. Over the
course of the year we evaluated our off-campus working
approach in Germany. Approximately 3,400 employees took
part in a survey, and based on the positive feedback we
decided to roll out the off-campus working approach globally.
Our North America market implemented the concept in
November, and additional markets will begin
the
implementation process in 2019.
In line with the expansion efforts at the headquarters campus
in Herzogenaurach, in 2018 we opened HalfTime, a 14,000m²
event center with integrated employee restaurant that is
designed with an open floor plan and with rooms that are
adaptable to different configurations, such as private
meetings, discussions and workshops. In 2019, a new building
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called Arena will become the company’s new main office with
capacity for around 2,000 employees, centralizing most of the
employees in Herzogenaurach on the World of Sports campus.
Continuing the successes of our newly established workplace
spaces (called BASE, Pitch 1 and Pitch 2), we are integrating
the activity-based working concept, which means that
employees no longer have assigned desks and instead choose
from a variety of rooms and spaces, dependent on their needs.
MEASURING THE SUCCESS OF OUR
PEOPLE STRATEGY
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 the goal 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 desirable 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, in 2017 we launched ‘People
Pulse’ – our approach and system platform for measuring the
level of employee satisfaction with the experience adidas
provides as an employer – for all office employees with an
email account.
People Pulse allows for the measurement of employeeNPS
(eNPS).
SEE INTERNAL MANAGEMENT SYSTEM, P. 103 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 approach as well as a 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 in every survey to allow
for tracking of the results over time.
— Changing focus topics which are directly derived from the
company’s strategic agenda as well as the new Leadership
Framework and the 3Cs.
In 2018, we saw People Pulse gain significant traction, to a
point where it is now fully embedded within the organization
globally. 90% of eligible employees participated at least once
over the course of the year. We place a major focus on
delivering an effective insights-to-action process, which was
achieved through a change of cadence from monthly to
quarterly tracking as of July 2018 for additional depth of
insights, centralized tracking of action plans and the creation
of a global People Pulse Ambassador community to facilitate
sharing of successes and best practices.
Company-wide focus on eNPS and influencing factors, as well
as on targeted follow-up actions and communication, led to a
positive trend in eNPS in 2018. We now not only leverage
People Pulse for general feedback on the employee experience
at adidas, but also as a tool to gather employee insights
regarding important elements of our strategy such as Brand
Leadership or Leadership Framework adoption.
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 2018
Reporting of People Pulse
results
Minimum participation
rate per quarter of 50%
and accumulated partici-
pation rate of 80% at least
once every six months
Results recipients to,
among others,
– actively show leadership
commitment and
ownership by openly
discussing the results
– drive action on identified
areas of improvement
– Reports with scores and anonymized
comments are provided to the Executive
Board as well as leaders down to the
Board -3 level.
– Employees have access to the overall
company results via a SharePoint
workspace and our global intranet a-LIVE.
– Participation in 2018 rose to 60% on
average per pulse.
– More than 90% of eligible employees
par ticipated in at least one pulse.
– Leaders partner with HR and relevant
functions to review, cascade and commu-
nicate results.
– Discussion with network of ‘People
Pulse Champions’ to share best-practice
examples.
HR FOUNDATIONS FOR OUR PEOPLE STRATEGY
In 2018, the adidas HR function defined and kicked off a multi-
year HR Cloud transition roadmap to strengthen, future-proof
and further enhance the HR system landscape of the company.
The cloud transition will further drive standardization,
digitization and automation across HR to scale, as well as
enable HR to proactively manage the workforce and enable
the organization to increasingly make data-driven decisions.
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In 2018, we also focused on further enhancing and expanding
the HR Shared Service Center function for Germany to also
cover services for the Netherlands. In addition, a second HR
Shared Service Center has been launched and established out
of Portland to provide services for North America. 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 second half of 2018, the
HR Shared Service Center functions were organizationally
consolidated into a cross-functional Global Business Services
(GBS) business unit to further professionalize the company’s
shared services approach.
GLOBAL EMPLOYEE POPULATION
On December 31, 2018, the company had 57,016 employees
(2017: 56,888). Thereof,
Number of employees
7,830 were employed at
adidas AG.
SEE TABLE 33 On a
full-time equivalent basis,
our company had 49,563 employees (thereof 7,182 adidas AG)
on December 31, 2018 (2017: 48,775).
SEE TABLE 34 Personnel
expenses decreased to € 2.481 billion
(2017:
€ 2.549 billion), representing 11% of sales (2017: 12%).
SEE NOTE 35, P. 212 An overview of the development of our
employee base in the past ten years can be found in the
ten-year overview.
SEE TEN-YEAR OVERVIEW, P. 240
in 2018
Employee statistics1
33
Employee split 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)
2018
57,016
2017
56,888
51%
49%
67%
33%
31
4
50%
50%
69%
31%
30
4
21%
Group functions
6%
Emerging Markets
8%
Latin America
15%
Russia/CIS
1 At year end.
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.
Number of employees by function 1
34
Employees by function 1
Employees 2
Full-time equivalents 3
2018
32,297
3,857
6,175
5,764
5,574
888
1,041
1,420
57,016
2017
32,698
3,795
5,890
5,964
5,157
1,132
1,062
1,190
56,888
2018
25,880
3,742
5,976
5,565
5,251
803
971
1,377
49,563
2017
25,640
3,680
5,617
5,742
4,835
1,105
1,002
1,154
48,775
2%
IT
2%
Production
7%
Sales
10%
Marketing
10%
Central administration
Own retail
Sales
Logistics
Marketing
Central
administration
Production
Research and
development
IT
Total
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; deviations in totals may arise due to calculation
1 At year end.
of full-time equivalents.
35
12%
Europe
18%
North America
20%
Asia-Pacific
36
2%
Research and
development
57%
Own retail
11%
Logistics
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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 company 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. We have a clear roadmap
for 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 increasingly endangered due to man-
made 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.
↗ ADIDAS-GROUP.COM/SUSTAINABILITY
MATERIAL TOPICS
We seek to ensure that we address the topics that are most
salient to our business, our 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 formal 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. Our ongoing evaluation of these topics in 2018
has shown that we can confirm our strategic ambitions and
embedded goals that we aim to reach by 2020.
SEE NON-FINANCIAL STATEMENT, P. 101
We are using external frameworks to determine the selection
of material topics, and to ensure alignment with global
development priorities. One of these frameworks is the UN
Sustainable Development Goals (SDGs) which represent a
global call for action to promote prosperity for all while
protecting the planet. We have used internal and external
methods that helped us identify the SDGs on which we believe
our business has the most impact, and where our sustainability
roadmap can lead to positive impact. Although our current
roadmap and underlying targets were implemented prior to
the adoption of the SDGs, we see a clear correlation between
the SDGs and our own commitment
to sustainable
development. Consequently, we have been able to link
prioritized SDGs with both the environmental priorities
related to the selection of materials, manufacturing, use and
disposal of our products, and the needs and concerns of
people in the adidas value chain. Finally, we see an alignment
with SDG 17 on Partnerships as we are strongly committed to
collaborating with our industry partners and all other levels of
society to find long-lasting solutions to global environmental
and social challenges.
CORRELATION BETWEEN UN SDGS AND OUR
SUSTAINABILITY ROADMAP
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
details the different forms of stakeholder engagement.
Through active participation in, for example, the Better Cotton
Initiative (BCI), the Zero Discharge of Hazardous Chemicals
(ZDHC) working group, 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),
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the Fair Factories Clearinghouse (FFC), the Fair Labor
Association (FLA), the Bangladesh Accord on Fire and Building
Safety 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 International Labour Organization’s
(ILO) Better Factories program in Cambodia. As an active
participant in the Bali Process Government and Business
Forum we have formally endorsed our commitment to the
Acknowledge, Act, Advance Recommendations, that outline
actions to advance long-term efforts to improve supply chain
transparency,
treatment of workers, and ethical
recruitment. ↗ ADIDAS-GROUP.COM/S/PARTNERSHIPS
the
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 we disclose the names of factories of suppliers
who process materials for our primary suppliers or sub-
contractors, 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 the programs that drive achievement of
our voluntarily set goals for 2020. A Sponsor Board composed
of functional heads and senior representatives 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.
EXTERNAL RECOGNITION
adidas continuously receives positive recognition from
inter national institutions, rating agencies, NGOs and socially
responsible investment analysts for our sustainability
initiatives. In 2018, the company was again represented in
a variety of high-profile sustainability indices and subject to
comprehensive corporate sustainability assessments.
SEE OUR SHARE, P. 57
for
For the 19th consecutive time, adidas was selected to join the
Dow Jones Sustainability Indices (DJSI), the world’s first
global sustainability index family tracking the performance of
leading sustainability-driven companies worldwide.
the
adidas was assessed
its corporate economic,
environmental and social performance and rated as overall
leader in the Textiles, Apparel and Luxury Goods Industry,
receiving industry-best scores in seven criteria: Innovation
Management, Materiality, Supply Chain Management,
Human Rights, Environmental Policy and Management
Systems, Operational Eco-Efficiency and Social Reporting. As
a result of our response to the Carbon Disclosure Project
(CDP) in 2018, adidas was again awarded with a B score in
the Climate Change submission (2017: B) and with a B- score
in the Water submission (2017: A-). The company continued
to be positioned among the top ten in the leather and textiles
in the annual Green Supply Chain Corporate
industry
Information Transparency Index (CITI), which forms the first
quantitative evaluation system designed to assess brands’
environmental management of their supply chains in China.
adidas also improved its score to top the Corporate Human
Rights Benchmark (CHRB) evaluation in 2018, coming in first
overall, with more than 100 companies across various
industries assessed against the CHRB’s criteria of human
rights performance. The company scored particularly well in
criteria such as ‘Embedding Respect and Human Rights Due
Diligence’, ‘Remedies and Grievance Mechanisms’ as well as
‘Performance: Responses to Serious Allegations’.
↗ ADIDAS-GROUP.COM/S/RECOGNITION
OUR PROGRESS
Following our ambition to be transparent toward our
stakeholders, for years, adidas has regularly reported about
its sustainability performance by measuring and disclosing
the progress made toward our targets. The following presents
the list of material topics within our programs and details the
progress made and challenges faced in 2018.
PRODUCT SAFETY AND TRANSPARENCY
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.
↗ ADIDAS-GROUP.COM/S/PRODUCT-SAFETY
In 1998, adidas pioneered the Restricted Substances Policy
(‘A-01’ Policy). The ‘A-01’ Policy 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,
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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 and published internally and externally at least
once a year based on findings in our ongoing dialogue with
scientific organizations, and it is mandatory for all business
partners, who have to confirm receipt and acknowledgement
of the latest policy update each year in a written format.
To ensure successful application of the policy, we monitor and
through external
influence standards and regulations
observation and
internal business
interaction, promote
understanding and offer global support by developing
guidelines and systems. One example is our ‘Product Safety
and Compliance’ workspace on our global intranet a-LIVE. It
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 follow national and international regulations
and best-practice standards as well as are in accordance with
the laws of intellectual property. Both our own quality
assurance laboratories and external testing institutes are
used to constantly monitor material samples to ensure
supplier compliance with our requirements, with the aim to
efficiently manage product safety and avoid any product
recalls. Materials that do not meet our standards and
specifications are rejected. Senior management from Social
and Environmental Affairs as well as Global Operations
reviews and signs off policy updates and is informed about
proper execution and monitoring.
One of the recent results of our ongoing collaboration with the
AFIRM Group was the creation of a consolidated AFIRM
Restricted Substances List that harmonizes Restricted
Substances Lists across the industry. We co-hosted the AFIRM
Group RSL summit with more than 400 participants in Vietnam
in 2018 to inform about the latest updates and drive the
agenda of a global best-practice industry approach. We
further continued our participation in public stakeholder
consultation processes initiated by the European Commission
(e.g. ECHA) and US state legislative initiatives to inform
governmental entities on implications and opportunities of
drafted legislation.
In 2018, adidas announced a voluntary recall of children’s
swimwear products in the Infinitex 3-Stripe range after having
received customer reports about a potential unexpected
peeling off of the three stripes on swimwear in this range
when
in contact with water. A subsequent third-party
investigation showed that using the affected swimwear
products could pose a potential safety risk to children as the
stripes might get caught on objects or other children and
become entangled, potentially leading to injuries. Sales of
affected swimwear products in all sizes were stopped
immediately, which was supported by communication on both
our corporate website and e-com website. No injuries have
been reported to us to date.
ENVIRONMENTAL IMPACTS
Managing the environmental impacts at our own sites and
along the value chain is a key focus of our work. We have
developed an approach to address water efficiency and quality
and are committed to steadily increasing the use of more
sustainable materials in our production, products and stores
while driving toward closed-loop solutions. We are committed
to reducing our absolute energy consumption and CO2
emissions, transitioning to clean energy and looking into
energy-harvesting opportunities.
In 2016, for the first time, we conducted a fact-based pilot
analysis to assess our organizational environmental footprint.
SEE DIAGRAM 37 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
Organizational footprint 1
Value chain
Greenhouse gas
Air pollution
Water consumption
Water pollution
Land use
3
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0
9
0
1 Greenhouse gas: carbon dioxide, methane and nitrous oxide. Air pollution: i.a. 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.
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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, that means
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. We are using the
results for the further evolution of our sustainability strategy
and programs, and in 2018 we looked into options to further
develop the methodology, with the aim to repeat this analysis.
In addition to responding to climate change through tailored
programs that improve the environmental footprint in our own
operations and in the supply chain, adidas is proactively
addressing the impacts of climate change through various
partnerships. The company joined the ‘UN Climate Neutral
Now’ initiative in 2015 and committed to action steps as a
champion of the initiative, such as the continued estimation
and reduction of its emissions. In 2018, adidas reinforced its
support to accelerate the transformative change needed to
reach greenhouse gas emission neutrality in the second half
of the 21st century by joining the ‘UN Fashion Industry Charter
for Climate Action’. The initiative will build a roadmap for the
industry to deliver the goals from the Paris Agreement. As a
participant, adidas commits to the target of achieving a 30%
reduction in GHG emissions by 2030, aiming to build the way
toward carbon neutrality by 2050.
Own sites
Since 2008, the adidas ‘Green Company’ program strives to
achieve ambitious savings in water, waste and energy at
adidas own sites globally. The program includes administrative
offices, production facilities and distribution centers, and
covered more than 90% of our global employee base (excluding
own retail) in 2018. In 2015, we presented a set of targets to be
achieved by 2020, including targets for carbon emissions
reduction that were calculated considering a science-based
methodology and context-based targets for water reduction.
↗ ADIDAS-GROUP.COM/S/ENVIRONMENTAL-APPROACH
In 2018, despite an increased number of sites considered in
our reporting, we achieved an accumulated reduction of 24%
in combined carbon net emissions (baseline 2015). This is the
result of the implementation of ambitious energy efficiency
programs, the use of carbon offsetting for key locations in
Europe, as well as the introduction of real-time monitoring of
performance in key locations that enable us to react fast if
performance is not on track. We also managed to improve
water efficiency at our sites, which is mainly due to increased
awareness of our employees. Between 2008 and 2018, we saw
a 31% accumulated reduction in water consumption per
employee.
SEE TABLE 38
To support the achievement of our Green Company targets,
we have implemented an Integrated Management System
(IMS) that combines three existing management systems for
environment (ISO 14001), energy (ISO 50001), as well as health
and safety (OHSAS 18001). The IMS helps us to drive further
business integration and take impact-relevant decisions for
our operations globally. A dedicated IMS policy ensures solid
application among all adidas entities affected, and our global
intranet a-LIVE enables best-practice sharing among all
employees. We aim to continuously expand certifications to key
sites and prepare them to pass the external certification
process by conducting regular internal audits. By the end of
2018, a total of 20 sites held an ISO 14001 certification (2017:
17), including our headquarter offices in Herzogenaurach and
Portland, our offices in Amsterdam, Boston, Panama, Shanghai
and Tokyo, as well as our distribution centers in Germany,
Indianapolis/USA and Brantford/Canada.
In 2017, the adidas Executive Board 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.
By now, the majority of facilities managed to phase out single-
use plastics where possible. Single-use plastic might,
however, still be in use where not replaceable, e.g. for hygiene
reasons. The announcement that was made on our global
intranet a-LIVE was one of the most successful posts to date,
showing the high commitment and engagement of both our
Executive Board and employees worldwide toward responsible
business practices.
The progress toward all Green Company targets is tracked
through an environmental data reporting system and is
disclosed in detail in our annual ‘Green Company Report’ that
will be available on our corporate website as of April 2019.
↗ ADIDAS-GROUP.COM/S/ENVIRONMENTAL-APPROACH
Own sites: Progress toward 2020 targets
2020 Targets
Emissions
Water
3% absolute annual reduction in CO2 Scope 1
and Scope 2 net emissions 1 (baseline 2015)
35% reduction in water consumption per employee
(baseline 2008)
2018
(24%)
(31%)
2017
(29%)
(27%)
0
9
1
38
2016
(11%)
(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.
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they are able
Supply chain
As almost all of our production is outsourced, a significant
impact occurs, at different
part of our environmental
intensities, throughout the supply chain. Therefore, for adidas,
sourcing is not only about ensuring high product quality and
timely delivery, it also means working with our suppliers to
their
ensure
environmental footprint. We do so by providing them with
policies and best-practice guidance
for environmental
management, by offering training sessions tailored to their
needs, and by measuring their progress toward clear
reduction targets we expect them to achieve by 2020.
TABLE 39 Progress toward these targets is regularly reported to
senior management for review and further decisions.
to continuously
improve
SEE
Using the environmental performance of adidas own sites as
best-practice examples, we provide a set of specific mandatory
policies and guidelines to our suppliers. The adidas ‘Workplace
Standards’ (the supply chain code of conduct) as well as
supportive guidelines such as our ‘Environmental Guidelines’
are updated regularly and build the basis for our engagement
with suppliers. In 2018, we released a newly developed
‘Environmental Good Practice Guide and Toolkit’ to our
suppliers. The guide serves as a manual to recommend good
industry practices for reducing environmental impacts of
manufacturing facility operations. It outlines the adidas
implementation of Environmental
approach
Management Systems, data management, wastewater
management, and Green Building Management, and provides
over 60 saving opportunities on energy, water, and waste
management and renewable energy.
the
to
adidas has initiated a system of multi-level and cross-
functional training sessions with its global supplier network.
We undertake several steps to support and to ensure
initiatives
to accelerate suppliers’
suppliers’ performance is on track to achieve their 2020
targets.
SEE TABLE 39 In 2018, we continued to support a
target
couple of
achievement. We started the ‘Energy and Water Investment
Plan’ project with facilities located in five of our main sourcing
locations (Cambodia, China, Indonesia, Vietnam and Taiwan)
that were off track to achieve their targets, or that were
recently added to the scope of our monitoring. These facilities
are required to conduct on-site assessments and develop an
investment plan enabling them to deliver on their energy and
water reduction targets, with the aim to identify potential
efficiency measures and achieve actual savings by
implementing these saving opportunities on-site before the
end of 2019. We also saw the successful completion of an 18-
month ‘Energy and Water Efficiency’ project that we co-
funded together with the International Finance Corporation
(IFC) and which benefited six supplier facilities in Vietnam.
The aim of this partnership was to provide access to advisory
services as well as low-cost financing for suppliers who wish
to invest in improving their energy and water footprint but
need technical support or the upfront capital to do so. Since
the start of the project in 2017, suppliers have implemented
more than 60 saving opportunities, with notable annual
savings in energy consumption, greenhouse gas emissions
and water consumption. As part of the project with the IFC, we
conducted a renewable energy assessment, identifying those
suppliers with the feasibility of using renewable energy.
We set ambitious reduction intensity targets for our strategic
suppliers 1 at Tier 1 and Tier 2 level, aiming to systematically
improve their environmental performance. By 2020, we expect
them to reduce their overall energy consumption, water use
and waste volume by 20% compared to their performance in
2014. We also set a 35% target for reduction in water use for
our strategic apparel material suppliers 2 at Tier 2 level. 2018
results show the promising efforts we are putting into driving
resource efficiency. Suppliers are on track to meet their 2020
reduction targets across all categories (footwear, apparel,
and accessories and gear), with overachievers compensating
low performers in the aggregated reduction results.
SEE TABLE 39
‘E-KPI’ helps us to measure suppliers’
A tool called
environmental compliance overall and assess
their
performance and progress toward the 2020 targets. Using a
benchmarking approach, the E-KPI allows for a high level of
Supply chain: Progress toward 2020 targets
2020 Targets 1
Water
Energy
Waste
20% reduction in water consumption at strategic Tier 1 supplier facilities
35% reduction in water consumption at strategic Tier 2 apparel material
supplier facilities
20% reduction in energy consumption at strategic Tier 1 supplier
facilities and strategic Tier 2 apparel material supplier facilities
20% reduction in waste volume at strategic Tier 1 supplier facilities and
strategic Tier 2 apparel material supplier facilities
2018
(24%)
(27%)
(15%)
(22%)
2017
(15%)
(24%)
(7%)
(10%)
1 Aggregated reduction results for suppliers with 2014 baseline in all categories (apparel, footwear and accessories and gear). Externally verified data for the previous year.
39
2016
(11%)
(7%)
(9%)
(4%)
0
9
2
1 Strategic suppliers account for around 75% of all production volume.
2 Apparel material suppliers are specialists in printing and dyeing operations. Based on results from previous years and a change in our tracking methodology, in 2017 the target for our apparel material suppliers was adjusted to a 35% reduction by 2020.
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transparency into suppliers’ actual consumption intensity,
hence supporting us in defining suppliers’ specified areas for
improvement and training needs that match their respective
situation. We will continue to support suppliers to identify
resource efficiency measures and rollout in our supply chain.
An additional way 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, 98%
(2017: 95%), 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.
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. 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 around 11 grams in 2018.
Chemical management: The management of chemicals in
multi-tiered supply chains is a complex challenge and
requires many actors contributing to the achievement of
effective and sustainable solutions. For years, adidas has
been running leadership programs in Chemical Management
within its area of direct influence. In consultation with external
stakeholders
including chemical experts, environmental
organizations and industry federations, adidas has defined an
end-to-end-approach spanning the management of chemical
input, monitoring supplier progress and reporting supplier
data publicly to controlling the finished end product. Our
approach was reviewed by the Sponsor Board and approved by
SEA and GOPS senior management.
Our targets for 2020 include achieving 100% sustainable input
chemistry by means of adopting the ZDHC Manufacturing
Restricted Substances List (MRSL), phasing out hazardous
chemicals and providing our strategic suppliers with a list of
positive chemistry (the bluesign bluefinder).
↗ ADIDAS-GROUP.COM/S/CHEMICAL-FOOTPRINT
In 2018, we analyzed the feedback of our suppliers on the
MRSL acknowledgement letters and now aim to build an
automated system to monitor and track supplier compliance
with the MRSL. Starting in 2019, we will run a pilot with the
majority of our strategic apparel material suppliers at Tier 2
level that will help us to define an MRSL monitoring and
tracking strategy. We contributed to the ZDHC Wastewater
Guidelines, an international wastewater standard officially
released in 2016, and put further efforts into the elimination
of hazardous chemicals from the production processes by
strengthening our wastewater monitoring approach and
adopting the ZDHC Wastewater Guidelines. Following these
guidelines, our suppliers are required to test and publicly
report their wastewater test results on the ZDHC Wastewater
Gateway twice a year. After piloting the reporting in 2017,
suppliers accounting for more than 80% of the wet processes
reported their data in 2018. We made progress toward the
2020 target to have 80% of auxiliaries
and 90% of dyestuffs bluesign-approved,
recording 76% of auxiliaries and 87% of
dyestuffs from our strategic apparel
suppliers as bluesign-approved by the end of 2018. We also
met the target to uphold our commitment of being more than
99% free of poly- and perfluorinated substances (PFCs) in our
products for the fall / winter 2019 season.
Products free of PFC
Transportation
In 2018, we tracked again the environmental impact related to
the transport of our goods. Compared to the previous year,
performance remained relatively stable with major changes
being a slight increase in sea freight for footwear products
and a slight increase in air freight for apparel products and
accessories and gear. The vast majority takes place via sea
freight.
SEE DIAGRAM 40
Freight types used to ship adidas and Reebok
products 1 in % of products shipped
40
Apparel
Truck
Sea freight
Air freight
Footwear
Truck
Sea freight
Air freight
Accessoires and gear
Truck
Sea freight
Air freight
2018
2017
2018
2017
7
87
6
7
89
4
2018
2017
1
97
2
1
96
3
2018
2017
19
78
3
17
81
2
1 Figures are expressed as a percentage of the total number of products transported. Data covers
products sourced through Global Operations, excluding local sourcing.
0
9
3
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SUSTAINABLE 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, engagement with stakeholders
including scientific 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 is tracked and managed by
respective materials development and sourcing
the
departments, progress toward targets is reported to senior
management for review and further decision.
We are aware that products made out of synthetic fiber can
cause negative environmental impacts during their use phase.
We acknowledge microfiber pollution as a complex challenge
for our industry, and are proactively addressing the problem.
To foster collaboration and drive joint action toward further
improvements, in 2018, for example, we hosted a two-day
microfiber industry summit to which we invited experts from
institutes, academia, NGOs, industry associations and other
brands to create awareness and drive harmonization,
especially with a focus on a global harmonized testing
standard. ↗ ADIDAS-GROUP.COM/S/PRODUCT-MATERIALS
Sustainable cotton sourced
Sustainable cotton
As a founding member of the Better Cotton Initiative (BCI),
adidas is working to reduce 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. BCI aims to reduce the use of pesticides, promotes
efficient water use, crop rotation and fair working conditions,
and strives to transform cotton production worldwide by
developing Better Cotton as a sustainable main stream
commodity. Not only was this objective met, but adidas is a
frontrunner in reaching its intended target. In 2018, 100%
(2017: 93%) of the cotton we sourced globally was sustainable
cotton 3. 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.
of recycled polyester in our adidas and Reebok products
throughout the last seasons.
in
Parley Ocean Plastic
Since 2015, adidas has partnered up with Parley for the Oceans
SEE GLOSSARY, an environmental organization and global
collaboration network. As a founding member, adidas
supports Parley for the Oceans
its education and
communication efforts and commits to the Parley A.I.R.
(Avoid, Intercept, Redesign) strategy. We aim to avoid the use
of plastic in our own operations, are working to prevent plastic
from entering the oceans and are using Parley Ocean Plastic
SEE GLOSSARY as an eco-innovative replacement for virgin
plastic. We are driving eco-innovation around materials and
products, and new ways of using them, with the ultimate goal
of reinventing current plastic and instead transforming it into
performance sportswear.
Recycled polyester
Recycled polyester is a synthetic fiber based on post-
consumer waste, such as plastic bottles and used garments.
The raw material is reprocessed and spun into fibers. Using
recycled polyester has many benefits over virgin polyester. It
helps us to reduce our dependency on non-renewable
petroleum and decreases our carbon impact when compared
to conventional polyester. Polyester is the most used material
in adidas products, and using more recycled polyester is one
way we seek to improve our environmental footprint while still
making high-performance products for the athlete.
We aim to replace all virgin polyester with recycled polyester
in all adidas and Reebok products where a solution exists by
2024. We have set clear internal milestones for our product
creation teams and have tracked a steady increase in the use
Shoes containing
Parley Ocean Plastic
In 2018, we continued to roll out Parley Ocean Plastic across
our key categories and were able to exceed our target, with
more than five million pairs of shoes
containing Parley Ocean Plastic made.
To facilitate the growing demand for
Parley Ocean Plastic and other
sustainable materials, we have built a
dedicated sourcing operation with the aim to ensure a steady
and transparent supply chain. Together with Parley for the
Oceans, we developed a code of conduct specific to the
collection and processing of plastic, that is now applied by our
selected partners operating in countries in scope.
SEE GLOBAL OPERATIONS, P. 74,
SEE INNOVATION, P. 78, ↗ ADIDAS-GROUP.COM/S/SUSTAINABILITY-INNOVATION
SEE ADIDAS BRAND STRATEGY, P. 67,
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4
3 99% of all cotton volume was sourced according to the Standards of the Better Cotton Initiative, around 1% was sourced as organic cotton and 0.03% was sourced as conventional cotton.
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Waste and packaging
Our commitment to reducing our plastic footprint has already
resulted in some tangible outcomes, such as the phase-out of
plastic bags in our own retail stores globally already in 2016
and the elimination of single-use plastics across the majority
of adidas locations worldwide. Where the use of plastics – for
example in transport packaging – is still unavoidable, adidas
is relying on counterbalancing measures and promoting
sustainable alternatives. In 2018, the company supported the
global innovation platform Fashion for Good with a donation of
€ 1.5 million which equates to the company’s environmental
impact of plastic packaging. The foundation is driving the
development of innovative, durable and reusable materials for
the fashion industry. adidas has been a partner of the
foundation since the beginning of 2018.
APPROACH TO HUMAN RIGHTS
adidas recognizes its responsibility to respect, protect and
promote human rights and the importance of showing that we
are taking the necessary steps to fulfill this 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. 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.
↗ ADIDAS-GROUP.COM/S/HUMAN-RIGHTS
Take-back programs
In 2018, we rolled out our global take-back program to nine
stores in some of our selected key cities (London, Paris, New
York and Los Angeles) and markets, with the main objective to
raise consumers’ awareness of what happens to products at
the end of their 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 5%) cannot be recycled and thus is sent
for disposal. ↗ ADIDAS-GROUP.COM/S/PRODUCT-END-OF-LIFE
Water treatment technologies
In 2018, we continued to look into different technologies 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.
Throughout 2018, we engaged with a broad spectrum of
human and
labor rights advocacy groups, working
collaboratively with the FLA in calling for the Cambodian
government to address freedom of expression and association,
including support for the continued operation of Cambodia’s
Arbitration Council, which handles labor disputes. We
benchmarked our current sourcing practices in Myanmar
against the recommendations of the UN-backed Fact-Finding
Mission on Myanmar. Together with other stakeholders, we
have maintained a seat on FIFA’s Independent Advisor Board
on Human Rights, providing input and recommendations to
FIFA on the hosting of the 2018 Russia World Cup. Finally, we
have continued to support the Business Network for Civic
Freedoms and Human Rights Defenders
(HRDs) and
contributed to guidance published on the role of business in
protecting HRDs.
As part of its human rights efforts, adidas developed a modern
slavery outreach program that looks beyond strategic suppliers
on Tier 1 level, seeking to gain greater transparency in its
supply chain. In 2018 we continued our efforts to tackle modern
slavery risks in our upstream supply chain, targeting the areas
that fall outside of our mainstream auditing activities.
Examples range from providing targeted modern slavery
training to 1,800
frontline Sourcing and Procurement
employees globally to engaging with our suppliers on Tier 2
level across key sourcing countries in Asia on identifying and
remediating non-socially responsible practices. We have
directed our efforts at raw material suppliers for natural
rubber at Tier 3 level and are part of an FLA multi-stakeholder
project to investigate risks in the natural rubber supply chain
in Vietnam. To strengthen our commitment to the responsible
recruitment and treatment of migrant labor, we engaged in a
project with the International Organization
for Migration focused on specific high-risk
migrant corridors in Asia. Our efforts have
been recognized in the KnowTheChain 2018
benchmarking for addressing forced labor risks, with adidas
ranking first out of the 44 apparel and footwear companies
that were part of the assessment.
KnowTheChain
st place
fair
to ensuring
labor practices,
WORKING CONDITIONS IN OUR SUPPLY CHAIN
Core to the human rights approach of adidas is its
fair
commitment
compensation and safe working conditions
in factories
throughout its global supply chain. Our active efforts are
guided by the adidas ‘Workplace Standards’, our supply chain
code of conduct. The standards form a contractual obligation
under the manufacturing agreements adidas signs with its
main business partners to provide provisions for workers’
health and safety and ensure environmentally sound factory
operations, 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
‘Guidelines on
Employment Standards’. The SEA senior management reviews
in the adidas
is provided
0
9
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and approves all policies and implementation processes of
the labor rights program.
adidas regularly rates suppliers on their ability to deliver fair,
healthy and environmentally sound workplace conditions by
means of conducting announced and unannounced audits
through adidas personnel or an approved external auditor. We
use a KPI rating system for social compliance (C-KPI) and
attach scores between 1 and 5, with 1 being the worst and 5
being the best. According to the results, our sourcing teams
decide the course of action, ranging from the definition of
training needs at the factories to reinforcement mechanisms
such as sending warning letters or even termination of
contracts.
Any cases of non-compliance identified during audits are
given a certain time frame for remediation. Potential new
suppliers are assessed in a similar way and orders can only be
placed if approval by the SEA team has been granted. adidas
operates several grievance channels allowing workers or
third parties to submit complaints about violations of the
Workplace Standards or human rights generally. All
complaints are reviewed and investigated, and the outcome is
reported on our website. Factory conditions are also inspected
by independent auditors through our participation in the Fair
Labor Association, which we joined as a founding member in
1999. We are committed to independent and unannounced
factory inspections and external verification of our programs.
At the end of 2018, adidas worked with 684 independent
supplier facilities 4 (2017: 782) who manufacture products for
our company in 51 countries (2017: 56). The fall in the number
of facilities is due to further consolidation of our supply
chain and local sourcing integration under Global Operations.
We worked with 64 licensees whose suppliers manufactured
products in 375 factories across 41 countries (2017:
62 licensees in 360 factories across 44 countries). More than
70% of the factories are located in the Asia-Pacific region.
Onboarding
In 2018, we conducted initial assessments (IA), the first
approval stage for new entry factories, in 221 factories (2017:
209). The total number increased by around 5% compared to
2017, mainly due to our decision to extend our IA monitoring
coverage to suppliers at Tier 2 level. 55 factories (2017:
50 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 41 90% of all initial assess-
ments were undertaken in Asia (2017: 81%), with China
accounting for 41% of these assessments (2017: 42%).
Overall, at the end of 2018, the ‘first-time rejection rate’ of
30% of all new factories visited was similar to the previous
year (2017: 29%) and the ‘final rejection rate’ was at 3% (2017:
2%).
SEE TABLE 41 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
Worldwide rejections after initial
assessment due to compliance problems
Total number of first-time
rejections 1
First-time rejection rate
Total number of final rejections 2
Final rejection rate
2018
55
30%
5
3%
41
2017
50
29%
4
2%
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.
with 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 and
results in 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 acceptance.
increase
Visits and training
During 2018, 546 factory visits (2017: 226) were undertaken.
The considerable
in visits was linked to our
engagement with factories to improve working conditions,
and our efforts to empower workers through several targeted
projects. These visits involved various types of monitoring,
suggestions
for sustainable remediation, and project
meetings with factory management.
0
9
6
4 Independent supplier facilities refer to individual Tier 1 facilities (factories) of our manufacturing partners (suppliers) that adidas has a manufacturing agreement with, and their Tier 2 subcontractor facilities, excluding own factories and licensee facilities. Facilities that work with our licensees are reported separately.
Some of these facilities may produce both for adidas directly and for licensee.
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Number of training sessions by region and type 1
42
Region
Asia
Americas
EMEA
Total
In %
Type and number of training sessions
Fundamental 2
Performance 3
Sustainability 4
Total
2018
2017
2018
2017
2018
2017
2018
2017
31
55
12
98
69
42
24
7
73
55
13
2
4
19
13
4
0
2
6
5
15
10
1
26
18
49
1
3
53
40
59
67
17
143
100
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.
3 Performance training covers specific labor, health, safety and environmental issues.
4 Sustainability training covers management systems and KPI improvements as well as factories’ internal monitoring programs.
Additionally, we conducted 143 training sessions and
workshops for suppliers, licensees, workers and adidas
employees (2017: 132). The 8% increase in the number of
training sessions is aligned with the increase in the number of
visits, to support and enable the suppliers to improve their
workplace conditions and environmental performance. In
total, 1,282 people (2017: 1,907) attended the training
sessions, which mainly covered fundamental topics, and
which were executed within smaller groups.
SEE TABLE 42
local
Worker empowerment
In parallel to our existing grievance systems such as
anonymous
language-based worker hotlines, we
implemented additional digital tools that enable workers to
ask questions and raise concerns directly with their
employers. Following the successful piloting of an innovative
‘SMS Worker Hotline’ back in 2012, we have progressively
improved our suppliers’ operational grievance mechanisms,
using an application-based ‘Workers Voice’ platform that was
available and used in 97% of our strategic factories across ten
countries by the end of 2018.
SEE TABLE 43
Grievance application
2020 Target
2018
2017
2016
Implementation of ‘Workers’
Voice’ Grievance Platform at
strategic suppliers: 100%
97%
63%
58%
The top three types of complaints in 2018 were related to the
categories of benefits, personal issues and working hours.
Responses received through this platform are carefully
tracked and help us understand the main challenges and
worker rights issues faced by workers in the factories,
ultimately allowing us to monitor how the factory management
teams find solutions and communicate back to their workers.
Complementing the various grievance channels, we measure
the level of worker satisfaction through annual in-factory
surveys. The survey results are shared with auditors and the
factory management and offer insights into worker concerns,
as well as potential areas for workplace improvement. By the
95
25
12
132
100
43
end of 2018, worker satisfaction surveys were conducted in
123 supplier factories in twelve countries (2017: 47 factories
across nine countries). Upon completing the survey, factories
are required to develop improvement plans for the ‘top three’
issues and then track progress regularly. Based on the
feedback captured by the surveys we have seen, for example,
in canteens and worker
constructional
dormitories as well as a positive drive to develop better
training programs for workers and supervisors.
improvements
to
the
Alongside factory-led training, adidas has also offered tailored
training for supervisors since 2016. Up until the end of 2018,
more than 700 supervisors in 55 factories across five countries
received such training. Supervisors have shown a strong
training courses and post-event
commitment
assessments. And we have received very positive feedback
from trainers and factory management regarding the
supervisors’ improved work performance. As part of our
larger efforts to empower female workers in our supply chain,
we initiated a ‘Women’s Empowerment Program’ in Pakistan
to train women on how to secure better career opportunities
in the workplace. Since its start in 2015, the program has
benefited more than 400 on-job women as well as women
workers made redundant.
Monitoring
We audit our suppliers regularly against our Workplace
Standards. In 2018, a total of 1,207 social compliance audits
and environmental assessments
(2017: 1,015) were
conducted. Performance audits at our current suppliers
dropped by 10%, which is in line with the decrease in the
number of suppliers.
0
9
7
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Number of audits by region and type
44
Social compliance performance rating of strategic supplier
factories by C-KPI rating
45
Region
Asia
Americas
EMEA
Total 4
Initial assessment 1
Performance audit 2
2018
198
14
9
221
2017
170
9
30
209
2018
479
64
43
586
2017
544
70
37
651
Environmental
assessment 3
2018
379
16
5
400
2017
138
12
5
155
Total
2018
1,056
94
57
2017
852
91
72
1,207
1,015
1 Every new 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 factories that have passed the initial assessment.
3 Includes environmental assessments and SAC HIGG data verification. 2018 figures also include wastewater test assessments according to the ZDHC Wastewater Guidelines.
4 Includes audits done in licensee factories.
1C
2C
3C
4C
5C
55
51
44
45
39
33
10
10
5
1
7
60
50
40
30
20
10
0
2018
2017
2016
and licensees increased to 620 at the end of 2018 (2017: 606).
In addition, 233 test assessments according to the ZDHC
Wastewater Guidelines were conducted.
advanced compliance levels. Additionally, 7% of our strategic
factories have achieved 5C rating, indicating that they have
mature social compliance systems and practices in place.
SEE DIAGRAM 45,
SEE TABLE 46
The total number of environmental assessments increased
notably compared to the previous year, as a result of additional
wastewater tests carried out in accordance with the ZDHC
Wastewater Guidelines in 2018.
SEE TABLE 44 In addition,
102 self-governance audits and collaboration audits were
conducted (2017: 114). When a factory reaches a compliance
maturity level of 4C and above, we empower the supplier to
conduct their own self-governance audits and develop
appropriate remediation plans, which we periodically review.
Collaboration audits are conducted in partnership with other
brands, or as part of joint remediation exercises.
A total of 47% (2017: 48%) of all direct and licensee facilities
were audited in 2018. ‘High-risk’ locations in Asia5, the major
sourcing region of adidas, received extensive monitoring in
2018 with an audit coverage that was close to 65% (2017:
70%). 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.
The number of audits in factories manufacturing goods for
licensees increased slightly by 3% compared to 2017, up to
323 in 2018, in line with the increase in percent we have seen
in the number of licensees, from 62 in 2017 to 64 in 2018. The
number of self-governance and collaboration audits at
licensee factories totaled 19 at the end of 2018 (2017: 26).
Our audits help us rate our suppliers according to their social
and environmental compliance performance with a C-KPI and
E-KPI rating tool, respectively. An evaluation of E-KPI is
contained in the description of the environmental performance
of our supply chain.
The number of audits using in-house technical staff decreased
to 354 (2017: 409), while audits conducted by third-party
monitors commissioned by suppliers, adidas business units
In 2018, almost two-thirds of our strategic factories 6 achieved
a rating of 4C or better, compared to 31% in all direct factories,
indicating that strategic factories have achieved much more
5 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.
6 In 2018 we changed from reporting detailed C-KPI performance of direct suppliers to reporting C-KPI performance of strategic suppliers. Strategic suppliers account for around 75% of all production volume.
licensee
factories, 80% successfully
Of our strategic
embedded governance systems, supply chain management,
purchasing practices and product safety compliance
requirements into their business practices. 20% achieved a
‘Sustainability Leadership’ level, signaling that in addition to
achieving high scores in other sections, they also scored
above 80% in the sustainability section of the Report Card,
which measures the existence of policies and implementation,
stakeholder engagement, public reporting and communica-
tion.
SEE TABLE 46
Non-compliances identified 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
0
9
8
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Supply chain: Progress toward 2020 targets
2020 Targets
Strategic Tier 1 suppliers 1
Strategic licensees
80% to reach at least 4C rating
10% to reach 5C rating
80% to achieve 80% or above in Score Card reports
10% to achieve Sustainability Leadership
2018
62%
7%
80%
20%
2017
50%
0
55%
0
1 Strategic suppliers are responsible for around 75% of all production volume.
Top 10 labor non-compliance findings
identified during audits in 2018
47
Top 10 health and safety non-compliance findings
identified during audits in 2018
46
2016
17%
0
50%
0
48
3%
Overtime/holiday rate
4%
Communication
systems
4%
Excessive hours
6%
Social and medical
insurance
7%
25%
Other 1
15%
Management systems
for working hours
12%
Wage management
system
4%
Material storage areas
and ladder safety
5%
Personal protective
equipment
9%
6%
No standardized filing
system 2
Electricity and
electrical hazards
8%
4%
Company policy/staff handbook
Chemical storage
7%
4%
Annual leave/public holidays
Wage payment – amount
Sanitation and hygiene
23%
Other 1
20%
Fire safety
11%
Architectural
considerations
8%
Machine safety
8%
Hazardous chemicals
in production
7%
Management systems
for health and safety
1 ‘Other’ includes, for example, freedom of association issues, and management system for disciplinary
1 ‘Other’ includes, for example, housekeeping, occupational hazard risk assessment, and ergonomics.
practices.
2 ‘No standardized filing system’ indicates a factory does not keep relevant information/documents and
records which demonstrate compliance with laws and regulations.
life-threatening health, safety and environment conditions –
immediately trigger a warning and potential disqualification
of a supplier. We report these non-compliance findings that
were identified through performance audits, collaboration
audits and self-governance assessments in 2018. We follow
up on all cases of non-compliances and seek to remediate
them within a given timeframe.
— Labor non-compliances: Besides identifying non -
compliances with our Workplace Standards, the 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 47
— Health and safety non-compliances: Fire, electrical and
machine safety are critical areas for existing suppliers
and together accounted for 34% of the non-compliances
identified in 2018. The way chemicals were stored and used,
including the presence of banned chemicals, accounted for
12% of non-compliance findings reported. A further 7% 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 48
Independent FLA audits
In 2018, the FLA conducted three factory assessments or
remediation verification exercises
(2017: 4) using the
methodology from the Sustainable Compliance Initiative (SCI).
The number of 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 chronic non-compliance
issues or improving monitoring methodologies.
During 2018, adidas completed four of these redirect activities
(2017: 12) on the topics of, for example, fair compensation and
activities beyond our Tier 1 level, including traceability of the
rubber supply chain in Vietnam, mapping and traceability of
cotton in Turkey, and giving subcontracting guidance.
0
9
9
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In 2017, the FLA accredited the adidas program for the third
time. The accreditation recognized adidas’ leadership to
coordinate brand efforts, which address labor violations, and
included commendation for the application of mobile
technology to implement a 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
compliance
standards, assessments and risk mapping beyond the Tier 1
supply chain.
implementation of
social
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 2018, we had a total of 39 active warning
letters (2017: 42) across 16 countries. The largest number of
warning letters continues to be issued in Asia, where more
than 70% of all supplier factories are located. Compared
to the previous year, the overall number of active first
warning letters decreased slightly as did the total number
of second warnings, with one letter being issued (2017: 3).
Suppliers who receive second warning letters are only one
step away from being notified of possible termination of the
manufacturing agreement and receive focused monitoring
by the SEA team. The number of third warning letters issued
to business partners (which result in factory terminations)
remained stable in 2018 (2017: 1).
SEE TABLE 49 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 2018 included
non-compliance in regard to fire safety practices, receipt of
Number of warning letters by region1
49
Region
Asia
Americas
EMEA
Total
1st warning
2nd warning
3rd and final warning
Total warning letters
2018
2017
2018
2017
2018
2017
2018
2017
30
5
2
37
35
2
1
38
1
0
0
1
1
1
1
3
1
0
0
1
0
0
1
1
32
5
2
39
36
3
3
42
1 Includes warning letters issued by licensees and agents, but excluding warnings to supplier factories 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. Figures for 2018 include warning
letters which were still active and being enforced at adidas suppliers in 2018.
wages, social and medical insurance, hazardous chemicals
management, overtime, deductions, transparency and
safety controls in high-risk areas.
— Terminations: In 2018, we terminated agreements with one
supplier for compliance reasons (2017: 4), as the supplier
refused to grant the SEA team access to audit the factory.
SEE TABLE 50 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.
Number of business relationship terminations
due to compliance problems
50
Region
Asia
Americas
EMEA
Global
2018
2017
1
0
0
1
4
0
0
4
1
0
0
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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. 237 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 Standard ‘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
— Employee engagement
SEE PEOPLE AND CULTURE, P. 81
SEE INTERNAL MANAGEMENT SYSTEM, P. 103
SEE MANAGEMENT ASSESSMENT OF PERFORMANCE, RISKS AND
OPPORTUNITIES, AND OUTLOOK, P. 144
— Supplier relationships
SEE GLOBAL OPERATIONS, P. 74
Anti-bribery and corruption
— Ethical business practices
SEE RISK AND OPPORTUNITY REPORT, P. 131
Product responsibility
— Product safety and transparency
Consumer matters
— Consumer satisfaction
SEE SUSTAINABILITY, P. 88
SEE INTERNAL MANAGEMENT SYSTEM, P. 103
SEE MANAGEMENT ASSESSMENT OF PERFORMANCE, RISKS AND
OPPORTUNITIES, AND OUTLOOK, P. 144
1
0
1
ADIDAS ANNUAL REPORT 2018
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
Business Performance by Segment
Europe
North America
Asia-Pacific
Russia/CIS
Latin America
Emerging Markets
Outlook
Risk and Opportunity Report
Illustration of Material Risks
Illustration of Opportunities
Management Assessment of Performance,
Risks and Opportunities, and Outlook
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.
103
106
106
107
111
115
118
120
125
125
125
126
126
127
127
128
131
136
142
144
FINANCIAL REVIEW
1
0
2
8
1
0
2
T
R
O
P
E
R
L
A
U
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N
A
S
A
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A
I
1 TO OUR SHAREHOLDERS
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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 51 Sales and
operating profit growth, paired with a focus on management
of operating working capital, are the main contributors to
operating cash flow 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.
SEE DIAGRAM 51 Our strong
focus on shareholder value creation is reflected in the fact
that our Management’s variable compensation is closely
linked to the company’s growth in sales, profitability and net
income.
SEE COMPENSATION REPORT, P. 41
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
focus on e-commerce and controlled space.
— Realizing supply chain efficiency initiatives.
SEE GLOSSARY
— 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.
Net sales
Operating margin
Operating working capital
Capital expenditure
Operating cash flow
Shareholder value
1
0
3
Net income
Shareholder return
Major Key Performance Indicators (KPIs)51ADIDAS ANNUAL REPORT 2018
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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.
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. 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.
FOCUS ON NET INCOME IN THE INTEREST OF
OUR SHAREHOLDERS
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 development
of both net income and earnings per share (EPS) and executes
against these two KPIs.
SEE DIAGRAM 51 Our strong focus on
driving sustainable expansion to the company’s bottom line is
also reflected in the fact that, as part of the Long-Term
Incentive Plan 2018/2020, the variable compensation for our
Management is directly linked to the company’s net income
growth.
SEE COMPENSATION REPORT, P. 41
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
business functions. Non-financial KPIs which we are closely
monitoring 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.
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.
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 regarding in which
markets and categories we have been able to gain market
share relative to our peers, enabling us to leverage those
insights across the organization.
OF PERFORMANCE, RISKS AND OPPORTUNITIES, AND OUTLOOK, P. 144 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
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OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
INTERNAL MANAGEMENT SYSTEM
Taking into account year-to-date performance as well as
opportunities and risks, the company’s expected full year
financial performance is assessed on a monthly basis. In this
respect, also backlogs and sell-through data as well as
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.
Backlogs and sell-through data: To manage demand planning
and better anticipate our future performance, backlogs
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.
SEE GLOBAL OPERATIONS, P. 74
It helps us to investigate improvement potential in the area of
order book management and logistics processes. It 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.
Employee engagement:
To measure the level of engage-
ment 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
future people strategies across our
organization, helping us to create a world-class employee
experience and continue to attract and retain top talent. In
2018, we continued to fine-tune our approach and system
focus and
platform for measuring the level of employee engagement that
was implemented the year before.
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.
RISKS AND OPPORTUNITIES, AND OUTLOOK, P. 144 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 compliance with our
Workplace Standards.
SEE SUSTAINABILITY, P. 88 We have a strong
track record in sustainability disclosure, providing regular
updates about our sustainability performance in this Annual
Report as well as on our corporate website.
SEE MANAGEMENT ASSESSMENT OF PERFORMANCE,
↗ ADIDAS-GROUP.COM/S/SUSTAINABILITY-REPORTS
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 regularly monitored
and compared against initial targets as well as rolling
forecasts on a monthly basis and latest estimates. 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.
1
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2 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Economic and Sector Development
BUSINESS PERFORMANCE
In 2018, adidas recorded strong operational and financial
improvements. Revenues increased 8% on a currency-neutral
basis, driven by high-single-digit growth at the adidas brand,
slightly offset by a low-single-digit sales decrease at Reebok.
With regard to major market segments, both North America
and Asia-Pacific recorded double-digit currency-neutral
sales increases, while Europe remained flat. The gross
margin increased 1.4 percentage points to 51.8%, mainly
reflecting positive effects from a better pricing, channel and
product mix. Other operating expenses as a percentage of
sales were up 0.5 percentage points to 41.9%, predominantly
driven by higher marketing expenditure. The company’s
operating margin increased 1.1 percentage points to 10.8%,
mainly reflecting the gross margin increase, which more
than offset the investment-led increase in other operating
expenses as a percentage of sales. Excluding the negative
one-time tax impact recorded in 2017, net income from
continuing operations increased 20% to € 1.709 billion.
This translates into basic EPS from continuing operations of
€ 8.46, representing an increase of 20% versus the prior
year period.
ECONOMIC AND SECTOR
DEVELOPMENT
GLOBAL ECONOMIC GROWTH STEADY IN 2018 1
The global economy kept its pace during 2018, with global
gross domestic product (GDP) growing at 3.0%. However,
international trade and investment have softened, not least
due to increased trade protectionism and tariffs. Moreover,
1 Source: World Bank Global Economic Prospects.
7
6
5
4
3
2
1
0
– 1
– 2
the ongoing withdrawal of monetary policy accommodation in
developed economies has led to some tightening of global
financing conditions. Developed economies grew 2.2% in
2018, supported by robust labor markets and some remaining
fiscal stimuli. Nevertheless, topics around
international
relations such as trade disputes and the ongoing Brexit
negotiations remained a political overhang and a drag on
economic activity. Developing economies in aggregate grew
4.2%, even though macroeconomic conditions deteriorated in
some countries, particularly in Latin America. Furthermore,
the recovery among commodity exporters has lost momentum.
Across the globe, risks of escalating geopolitical tensions, in
particular around trade and tariffs, have increased.
ROBUST GROWTH IN THE SPORTING GOODS
INDUSTRY CONTINUES
The global sporting goods industry continued to grow at
robust rates in 2018. North America returned to stronger
industry growth rates after the slowdown in the two preceding
years. Europe remained steady at a moderate pace, while China
again outgrew the global industry. Most other markets also
expanded, driven by continued 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 a
predominant theme, as community workouts and related
Regional GDP development 1, 2 in %
52
Global
Euro area
Eastern Europe 3
USA
Asia 4
Latin America
6.6
6.3
6.3
3.1
3.0
2.4
2.4
1.9
1.9
4.0
3.1
1.7
2.9
2.2
1.6
2016
2017
2018
1 Real change in percent versus prior year; 2016 and 2017 figures restated compared to prior year.
2 Source: World Bank.
3 Includes Emerging Europe and Central Asia.
4 Includes East Asia and Pacific.
0.8
0.6
(1.5)
1
0
6
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FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Income Statement
social media activities continue to be in favor. The e-commerce
channel continued to see further expansion, as retailers are
leveraging technologies both online and offline in order to be
able to offer a seamless consumer journey. In addition, the
2018 FIFA World Cup provided a modest tailwind to the overall
industry. From a category perspective, athletic footwear
continued to be a strong growth driver for the industry in 2018,
supported by ongoing high demand for various casual and
running styles. Underlying demand for athletic apparel
remained robust, as consumers continued to reallocate wallet
share away from traditional apparel. The equipment category
recorded another mixed year in 2018. For the sporting goods
industry, too, risks related to trade protectionism and
geopolitical tensions have increased.
Exchange rate development 1 € 1 equals
53
Average
rate
2017
1.1266
0.8754
126.24
65.560
7.6116
Q1
2018
Q2
2018
Q3
2018
Q4
2018
1.2321
0.8749
131.15
70.556
7.7476
1.1658
0.8861
129.04
73.162
7.7136
1.1576
0.8873
131.23
75.928
7.9634
1.1450
0.8945
125.85
79.544
7.8584
Average
rate
2018
1.1813
0.8847
130.40
73.920
7.8051
USD
GBP
JPY
RUB
CNY
1 Spot rates at quarter-end.
54
21,915
21,218
18,483
16,915
14,534
INCOME STATEMENT
Net sales 1, 2 € in millions
2018
2017
2016
2015
2014
IMPLEMENTING MORE GRANULAR VIEW OF
OPERATING EXPENSES IN CONTEXT OF
ADOPTION OF IFRS 9
In the context of the adoption of IFRS 9 and consequential
amendments to IAS 1, adidas adjusted the presentation of
other operating income and other operating expenses in
order to allow for a more granular view of the company’s
operating expenses
income
statement. As of 2018, other operating expenses are derived
from a functional logic and reported in the following line
items: marketing and point-of-sale expenses, distribution
and selling expense, general and administration expenses
and sundry expenses. Furthermore, as required by the
amendments to IAS 1, impairments of financial assets are
presented as a separate line item within other operating
expenses in the company’s annual consolidated income
statement. Prior year figures are adjusted accordingly.
in the annual consolidated
SEE CONSOLIDATED INCOME STATEMENT, P. 150,
SEE NOTE 34, P. 212
Net sales
ADIDAS DELIVERS STRONG FINANCIAL
PERFORMANCE IN 2018
In 2018, revenues increased 8% on a currency-neutral basis.
In euro terms, revenues grew 3% to € 21.915 billion from
€ 21.218 billion in 2017.
SEE DIAGRAM 54 From a market segment
perspective, currency-neutral sales grew at
double-digit rates in North America and
Asia-Pacific while increasing at single-digit
rates in Latin America and Russia/CIS.
Currency-neutral sales remained stable in
Europe and declined at a low-single-digit rate in Emerging
Markets.
SEE BUSINESS PERFORMANCE BY SEGMENT, P. 125
€ 21.915 bn
1 2018, 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 and 2014 figures reflect continuing operations as a result of the divestiture of the Rockport
business.
Net sales by segment 1, 2 € in millions
55
Europe
North America
Asia-Pacific
Russia/CIS
Latin America
Emerging Markets
Other Businesses
2018
5,885
4,689
7,141
595
1,634
1,144
829
2017
5,932
4,275
6,403
660
1,907
1,300
739
Total
21,915
21,218
Change
(currency-
neutral)
Change
(1%)
10%
12%
(10%)
(14%)
(12%)
12%
3%
0%
15%
15%
1%
6%
(3%)
15%
8%
1 Figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade,
Adams Golf, Ashworth and CCM Hockey businesses.
2 Segmental structure adjusted compared to prior year, see Note 40.
1
0
7
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Income Statement
BUSINESS PERFORMANCE
Net sales by segment 1,2 in % of net sales
5%
Emerging Markets
7%
Latin America
3%
Russia/CIS
33%
Asia-Pacific
56
4%
Other Businesses
27%
Europe
21%
North America
1 Figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade, Adams
Golf, Ashworth and CCM Hockey businesses.
2 Segmental structure adjusted compared to prior year, see Note 40.
ADIDAS BRAND REVENUES GROW AT A HIGH-
SINGLE-DIGIT RATE
Currency-neutral revenues for the adidas brand increased
9% with a double-digit sales increase in Sport Inspired
SEE GLOSSARY as well as a high-single-
adidas brand net sales
SEE
€ 19.851 bn
digit gain in Sport Performance
GLOSSARY, the latter driven by double-
digit sales growth in the training and
running categories. In euro terms,
adidas brand revenues grew 5% to € 19.851 billion compared
to € 18.993 billion in 2017. Currency-neutral Reebok brand
sales were down 3% versus the prior
year, as double-digit sales growth in
Classics was offset by a decline in
Sport. In euro terms, Reebok sales
decreased 8% to € 1.687 billion (2017:
€ 1.843 billion).
Reebok brand net sales
€ 1.687 bn
SALES GROW IN FOOTWEAR AND APPAREL
Currency-neutral footwear sales grew 8% in 2018 due to
double-digit growth in Sport Inspired and a high-single-digit
gain in Sport Performance, the latter driven by double-digit
sales increases in the training and running categories. Apparel
revenues grew 11% on a currency-neutral basis due to double-
digit increases in both Sport Inspired and Sport Performance,
with the latter driven by double-digit gains in the training and
football categories. Currency-neutral accessory and hardware
sales were down 9%.
SEE DIAGRAM 57
COST OF SALES REMAINS STABLE
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
2018, cost of sales was € 10.552 billion, remaining relatively
stable compared to the prior year level of € 10.514 billion, as the
growth of our business and less favorable exchange rates were
offset by lower input costs due to efficiency gains.
Net sales by product category 1 € in millions
57
2018
12,783
8,223
910
21,915
2017
Change
12,427
7,747
1,044
21,218
3%
6%
(13%)
3%
Change
(currency-
neutral)
8%
11%
(9%)
8%
Footwear
Apparel
Hardware
Total
GROSS MARGIN IMPROVES 1.4 PERCENTAGE
POINTS
In 2018, the gross profit increased 6% to € 11.363 billion from
€ 10.703 billion in 2017, representing a gross margin increase
of 1.4 percentage points to 51.8% (2017: 50.4%).
SEE DIAGRAM 59
This development was due to the positive effects from a better
pricing, channel and product mix as well as lower input costs,
which more than offset significant negative currency effects.
1 Figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade,
Adams Golf, Ashworth and CCM Hockey businesses.
Gross margin 1, 2, 3 in %
Net sales by product category 1 in % of net sales
58
2018
2017
2016
2015
2014
4%
Hardware
38%
Apparel
1 Figures reflect continuing operations as a result of the divestiture of the Rockport, TaylorMade,
Adams Golf, Ashworth and CCM Hockey businesses.
58%
Footwear
1 Gross margin = (gross profit / net sales) × 100.
2 2018, 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 and 2014 figures reflect continuing operations as a result of the divestiture of the Rockport
business.
1
0
8
59
51.8
50.4
49.2
48.3
47.6
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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STATEMENTS
ROYALTY AND COMMISSION INCOME
INCREASES
Royalty and commission income increased 16% on a currency-
neutral basis and 12% in euro terms to € 129 million (2017:
€ 115 million).
OTHER OPERATING INCOME INCREASES
In 2018, other operating
increased 188% to
€ 48 million from € 17 million in 2017, mainly due to higher
income from reimbursements of custom duties and sub-
licensing of trademarks.
income
OTHER OPERATING EXPENSES AS A
PERCENTAGE OF SALES UP 0.5 PERCENTAGE
POINTS
Other operating expenses,
including depreciation and
amortization, mainly consist of marketing and point-of-sale,
distribution and selling as well as general and administration
expenses. In 2018, other operating expenses were up 5% to
€ 9.172 billion (2017: € 8.766 billion), mainly reflecting increases
in marketing investments.
SEE NOTE 34, P. 212 As a percentage
of sales, other operating expenses increased 0.5 percentage
points to 41.9% from 41.3% in 2017.
SEE DIAGRAM 60 Marketing
and point-of-sale expenses amounted to € 3.001 billion in
2018 compared to € 2.724 billion in the prior year, representing
an increase of 10% compared to the 2017 level. This increase
mainly reflects activities related to the 2018 FIFA World Cup
as well as overproportionate investments into our brands and
the sell-through of our products. As a percentage of sales,
increased 0.9
marketing and point-of-sale expenses
percentage points to 13.7% (2017: 12.8%).
SEE DIAGRAM 61
Distribution and selling expenses
to
€ 4.450 billion in 2018 from € 4.307 billion in the prior year, as
investments into e-commerce and logistics infrastructure
were partially offset by leveraging the distribution network. As
a percentage of sales, distribution and selling expenses
remained stable compared to the prior year. General and
increased 3%
BUSINESS PERFORMANCE
Income Statement
Other operating expenses 1, 2 in % of net sales
2018
2017
2016
2015
2014
60
41.9
41.3
41.9
42.6
42.0
1 2018, 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 and 2014 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
amortization expense for tangible and intangible assets
(excluding impairment losses/reversal of impairment losses)
increased 8% to € 486 million in 2018 (2017: € 452 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 and trademarks)
are tested annually and additionally when there are
indications of potential impairment. In this connection, no
impairment of intangible assets with unlimited useful lives
incurred in 2018.
Marketing and point-of-sale expenses 1, 2 in % of net sales
61
EBITDA 1, 2, 3 € in millions
2018
2017
2016
2015
2014
2018
2017
2016
2015
2014
13.7
12.8
13.0
13.9
13.2
62
2,882
2,511
1,953
1,475
1,283
1 2018, 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 and 2014 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
1 EBITDA = Income before taxes (IBT) + net interest expenses + depreciation and amortization.
2 2018, 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 and 2014 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
administration expenses remained stable at € 1.576 billion
(2017: € 1.568 billion), as investments into digital systems and
IT were compensated by overheads cost control. As a
percentage of sales, general and administration expenses
decreased 0.2 percentage points to 7.2% (2017: 7.4%).
EBITDA INCREASES 15%
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 15% to € 2.882 billion in 2018 versus
€ 2.511 billion in 2017.
SEE DIAGRAM 62 Depreciation and
Operating margin
OPERATING MARGIN INCREASES
1.1 PERCENTAGE POINTS
Operating profit grew 14% to € 2.368 billion in 2018 versus
€ 2.070 billion in 2017.
SEE DIAGRAM 63 This represents an
operating margin increase of 1.1 per-
centage points to 10.8% compared to the
prior year level of 9.8%.
SEE DIAGRAM 64
This development was mainly due to the
gross margin increase, which more than
in other operating
investment-led
increase
10.8 %
offset the
expenses as a percentage of sales.
1
0
9
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Income Statement
NET FINANCIAL RESULT IMPROVES
Financial income increased 24% to € 57 million in 2018 (2017:
€ 46 million), while financial expenses were down 50% to
€ 47 million compared
in 2017. This
development was due to lower impairment losses on other
financial assets,
interest expenses and positive
exchange rate effects. As a result, the company recorded net
financial income of € 10 million, compared to net financial
expenses of € 47 million in 2017.
to € 93 million
SEE DIAGRAM 65
lower
Net financial result € in millions
2018
2017
2016
2015
2014
65
10
(47)
(46)
(21)
(48)
Operating profit 1, 2, 3, 4 € in millions
2018
2017
2016
2015
2014
63
2,368
2,070
1,582
1,094
961
TAX RATE DECREASES 1.2 PERCENTAGE POINTS
TO 28.1%
Excluding the negative one-time tax impact recorded in 2017,
the company’s tax rate decreased 1.2 percentage points to
28.1% in 2018 (2017: 29.3%).
Including the negative one-time tax impact in 2017, the
company’s tax rate decreased 4.9 percentage points to 28.1%
(2017: 33.0%).
1 2018, 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 and 2014 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.
Operating margin 1, 2, 3, 4, 5 in %
2018
2017
2016
2015
2014
64
10.8
9.8
8.6
6.5
6.6
1 Operating margin = (operating profit / net sales) × 100.
2 2018, 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 and 2014 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.
NET INCOME FROM CONTINUING OPERATIONS
UP 20% TO € 1.709 BILLION
Excluding the negative one-time tax impact recorded in 2017,
net income from continuing operations increased 20% to
€ 1.709 billion versus € 1.430 billion in
the prior year.
SEE DIAGRAM 66 Basic
from continuing operations
EPS
increased 20% to € 8.46 from € 7.05 in
2017.
SEE DIAGRAM 67 Diluted EPS from
continuing operations was up 21% to
Net income from
continuing operations
€ 1.709 bn
€ 8.45 in 2018 (2017: € 7.00).
Including the negative one-time tax impact in 2017, net
income from continuing operations rose 26% to € 1.709 billion
(2017: € 1.354 billion). Basic EPS from continuing operations
increased 27% from € 6.68 in 2017 to € 8.46 in 2018. Diluted
EPS from continuing operations was up 27% to € 8.45 in 2018
compared to € 6.63 in 2017.
The total number of shares outstanding decreased by
4,689,889 shares in 2018 to 199,171,345. This was a result
of shares repurchased as part of the company's share
buyback program, which was partly offset by the last share
conversions in relation to the company’s 2012 convertible
bond.
SEE FINANCIAL HIGHLIGHTS, P. 4 Consequently, the average
number of shares used in the calculation of basic earnings
per share (EPS) was 201,759,012 (2017: 202,391,673).
Net income from continuing operations 1, 2, 3
€ in millions
2018
2017
2016
2015
2014
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.
Basic earnings per share 1, 2, 3, 4 in €
2018
2017
2016
2015
2014
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.
66
1,709
1,430
1,082
720
642
67
8.46
7.05
5.39
3.54
3.05
1
1
0
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Statement of Financial Position and
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LOSSES FROM DISCONTINUED OPERATIONS
AMOUNT TO € 5 MILLION
In 2018, adidas incurred losses from discontinued operations
of € 5 million, net of tax, mainly related to the Rockport
business (2017: losses of € 254 million).
NET INCOME ATTRIBUTABLE TO
SHAREHOLDERS INCREASES 45% TO
€ 1.702 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 45%
to € 1.702 billion
the
negative one-time tax impact recorded in 2017. As a result,
basic EPS from continuing and discontinued operations
increased 46% to € 8.44 versus € 5.79 in 2017, while diluted
EPS from continuing and discontinued operations grew 46%
to € 8.42 (2017: € 5.75).
(2017: € 1.173 billion), excluding
Including the negative one-time tax impact in 2017, the
company’s net income attributable to shareholders increased
55% to € 1.702 billion (2017: € 1.097 billion). Basic EPS from
continuing and discontinued operations increased 56% to
€ 8.44 (2017: € 5.42) and diluted EPS from continuing and
discontinued operations grew 57% to € 8.42 (2017: € 5.38).
STATEMENT OF FINANCIAL POSITION
AND STATEMENT OF CASH FLOWS
ASSETS
At the end of December 2018, total assets were up 11% to
€ 15.612 billion versus € 14.019 billion in the prior year, as a
result of an increase in both current assets as well as non-
current assets.
SEE DIAGRAM 68
Total current assets increased 14% to € 9.813 billion at the
end of December 2018 compared to € 8.645 billion in 2017.
Cash and cash equivalents were up 64% to € 2.629 billion at
the end of December 2018 from € 1.598 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 € 29 million. Inventories
decreased 7% to € 3.445 billion at the end of December 2018
from € 3.692 billion in 2017.
SEE DIAGRAM 70
On a currency-neutral basis, inventories decreased 5%,
reflecting the company’s focus on tight inventory management.
SEE NOTE 10, P. 173,
Structure of statement of financial position 1
in % of total assets
68
Accounts receivable increased 4% to € 2.418 billion at the end
of December 2018 (2017: € 2.315 billion).
SEE NOTE 08, P. 171,
SEE DIAGRAM 71 On a currency-neutral basis, receivables were
up 5%, mainly reflecting the company’s top-line development
in 2018. Other current financial assets increased 38% to
€ 542 million at the end of December 2018 from € 393 million
in 2017.
SEE NOTE 09, P. 172 This development was mainly due to
an increase in the fair value of financial instruments. Other
current assets were up 46% to € 725 million at the end of
December 2018 (2017: € 498 million), mainly due to the
change in the accounting treatment regarding IFRS 15, which
led to the recognition of return assets.
SEE NOTE 11, P. 173
Total non-current assets increased 8% to € 5.799 billion at
the end of December 2018 from € 5.374 billion in 2017. Fixed
assets increased 9% to € 4.798 billion at the end of December
2018 versus € 4.417 billion in 2017. Additions of € 854 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
and positive currency effects of € 58 million were partly offset
by depreciation and amortization of € 494 million. Other
Structure of statement of financial position 1
in % of total liabilities and equity
69
Assets (€ in millions)
Cash and cash equivalents
Accounts receivable
Inventories
Fixed assets 3
Other assets
2018
2017
2018
15,612
2017 2
14,019
16.8
15.5
22.1
30.7
14.9
11.4
16.5
26.3
31.5
14.2
1 For absolute figures see Consolidated Statement of Financial Position, p. 148.
2 Restated according to IAS 8, see Note 03.
3 Fixed assets = property, plant and equipment + goodwill + trademarks + other intangible assets +
long-term financial assets.
Liabilities and equity (€ in millions)
Short-term borrowings
Accounts payable
Long-term borrowings
Other liabilities
Total equity
2018
2017
2018
15,612
2017 2
14,019
0.4
14.7
10.3
33.8
40.8
1.0
14.1
7.0
35.0
42.9
1
1
1
1 For absolute figures see Consolidated Statement of Financial Position, p. 148.
2 Restated according to IAS 8, see Note 03.
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non-current financial assets increased 17% to € 256 million
from € 219 million at the end of 2017.
SEE NOTE 17, P. 177 This
development was mainly due to an increase in derivatives
used to fully hedge the economic exposure related to the
equity-neutral convertible bond. Deferred tax assets increased
3% to € 651 million from € 630 million in 2017.
Inventories € in millions
2018
2017
2016
2015
2014
Accounts receivable € in millions
2018
2017
2016
2015
2014
Accounts payable € in millions
2018
2017
2016
2015
2014
70
3,445
3,692
3,763
3,113
2,526
71
2,418
2,315
2,200
2,049
1,946
72
2,300
1,975
2,496
2,024
1,652
LIABILITIES AND EQUITY
Total current liabilities increased 9% to € 6.834 billion at the
end of December 2018 from € 6.291 billion in 2017. Short-
term borrowings declined 51% to € 66 million at the end of
December 2018 (2017: € 137 million), reflecting conversions
of the company’s convertible bond into adidas AG shares as
well as a decrease in bank loans. Accounts payable were up
16% to € 2.300 billion at the end of December 2018 versus
€ 1.975 billion in 2017.
SEE DIAGRAM 72 On a currency-neutral
basis, accounts payable
increased 17%, reflecting the
company’s focus on efficient working capital management as
well as improved terms with our suppliers. Other current
financial liabilities were down 49% to € 186 million from
€ 362 million in 2017, mainly as a result of a decrease in the
negative fair value of financial instruments.
SEE NOTE 20, P. 178
Other current provisions increased 66% to € 1.232 billion at
the end of December 2018 versus € 741 million in 2017,
mainly due to the change in the accounting treatment
regarding IFRS 15, which led to an increase in the provision
to
for returns. Current accrued
€ 2.305 billion at
from
€ 2.180 billion in 2017, 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 1% to
€ 477 million at the end of December 2018 from € 473 million
in 2017.
the end of December 2018
liabilities grew 6%
SEE NOTE 23, P. 180
Total non-current liabilities increased 41% to € 2.414 billion
at the end of December 2018 from € 1.711 billion in the prior
year. Long-term borrowings were up 64% to € 1.609 billion at
the end of December 2018 from € 983 million in the prior
year, mainly driven by the issuance of the € 500 million equity-
neutral convertible bond.
SEE NOTE 19, P. 177 Other non-current
financial liabilities were up 358% to € 103 million at the end of
December 2018 from € 22 million in the prior year. This was
two buildings at
the company’s headquarters
mainly due to an increase in finance lease obligations related
to
in
Herzogenaurach. Other non-current provisions increased
60% to € 128 million at the end of December 2018 from
€ 80 million in the prior year, mainly as a result of an increase
in provisions for personnel. Non-current accrued liabilities
decreased 78% to € 19 million from € 85 million in 2017 due
to a decrease in accruals for personnel.
SEE NOTE 22, P. 179
Shareholders’ equity increased to € 6.377 billion at the end of
December 2018 versus € 6.032 billion in 2017, driven by the
net income generated during the year, an increase in hedging
reserves of € 231 million and the reissuance of treasury
shares in the amount of € 53 million. These developments
were partly offset by the repurchase of treasury shares in the
amount of € 1.021 billion, including incidental purchasing
costs, and the dividend of € 528 million paid to shareholders
for the 2017 financial year. The company’s equity ratio
decreased to 40.8% compared to 43.0% in the prior year, as
the increase in shareholders’ equity was more than offset by a
balance sheet extension.
SEE NOTE 27, P. 184,
SEE DIAGRAM 73
Equity ratio in %
2018
2017 1
2016
2015
2014
1 Restated according to IAS 8, see Note 03.
73
40.8
43.0
42.6
42.5
45.3
1
1
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OPERATING WORKING CAPITAL
Operating working capital decreased 12% to € 3.563 billion
at the end of December 2018 compared to € 4.033 billion in
2017. On a currency-neutral basis, operating working capital
was down 10%. Average operating working capital as a
percentage of sales from continuing operations decreased
1.4 percentage points to 19.0% (2017: 20.4%), reflecting the
top-line development during the last twelve months as well as
the company’s continued focus on tight working capital
management.
SEE DIAGRAM 74
Average operating working capital 1, 2, 3 in % of net sales
74
BUSINESS PERFORMANCE
Statement of Financial Position and
Statement of Cash Flows
INVESTMENT ANALYSIS
Capital expenditure is defined as the total cash expenditure
for the purchase of tangible and intangible assets (excluding
acquisitions). Capital expenditure increased 5% to € 794 million
in 2018 (2017: € 755 million). Capital expenditure from
continuing operations increased 6% to € 794 million from
Capital expenditure by type in % of total CAPEX
75
7%
Administration
12%
Logistics
2018
2017
2016
2015
2014
19.0
20.4
21.1
20.5
22.4
13%
IT
36%
Other
32%
Controlled space
1 Average operating working capital = sum of operating working capital at quarter-end / 4.
Operating working capital = accounts receivable + inventories – accounts payable.
2 2018, 2017 and 2016 figures reflect continuing operations as a result of the divestiture of the Rockport,
Capital expenditure by segments in % of total CAPEX
76
TaylorMade, Adams Golf, Ashworth and CCM Hockey businesses.
3 2015 and 2014 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
60%
HQ/Consolidation
1%
Other Businesses
9%
Europe
7%
North America
20%
Asia-Pacific
1%
Russia/CIS
2%
Latin America
2%
Emerging Markets
in the prior year. The company
€ 752 million in 2017. Capital expenditure for property, plant
and equipment was up 3% to € 699 million compared to
€ 681 million
invested
€ 96 million in intangible assets, representing a 29% increase
compared to the prior year (2017: € 74 million). Depreciation
and amortization excluding impairment losses/reversal of
impairment losses of tangible and intangible assets increased
12% to € 470 million in 2018 (2017: € 421 million).
Controlled space initiatives, which comprise 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 32% of total capital
expenditure (2017: 48%). Expenditure for IT and logistics
represented 13% and 12%, respectively (2017: 13% and 9%,
respectively). In addition, expenditure for administration
accounted for 7% (2017: 7%). Other initiatives, which mainly
related to the expansion of the company’s headquarters in
Herzogenaurach, represented 36% of total capital expenditure
(2017: 22%).
SEE DIAGRAM 75 From a segmental perspective,
the majority of the capital expenditure was recorded at the
in Herzogenaurach, Germany,
company’s headquarters
In addition, capital
(2017: 47%).
accounting
expenditure in Asia-Pacific accounted for 20% (2017: 21%) of
the total capital expenditure, followed by Europe with 9%
(2017: 10%), North America with 7% (2017: 8%), Latin America
and Emerging Markets with 2% each (2017: 4% and 3%,
respectively) as well as Russia/CIS with 1% (2017: 5%).
for 60%
SEE DIAGRAM 76
LIQUIDITY ANALYSIS
In 2018, net cash generated from operating activities
increased to € 2.646 billion (2017: € 1.648 billion).
SEE FINANCIAL
HIGHLIGHTS, P. 4 Net cash generated from continuing operating
activities rose to € 2.666 billion (2017: € 1.641 billion), driven by
1
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an increase in income before taxes and lower operating working
capital requirements, partly offset by an increase in income
taxes paid. Net cash used in investing activities decreased to
€ 636 million (2017: € 680 million). Net cash used in continuing
investing activities also decreased to € 636 million (2017:
€ 676 million). The majority of continuing investing activities in
2018 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
further development of the company’s headquarters
in
Herzogenaurach. Net cash used in financing activities and net
cash used
in continuing financing activities grew to
€ 951 million each (2017: € 769 million each), mainly due to
the repurchase of treasury shares as well as the dividend paid
to shareholders, partly offset by proceeds from the issue of a
convertible bond and from long-term borrowings. Exchange
rate effects negatively impacted the company’s cash position by
€ 29 million. As a result of all these developments, cash and
cash equivalents increased by € 1.031 billion to € 2.629 billion
at the end of December 2018 compared to € 1.598 billion at the
end of December 2017.
SEE DIAGRAM 78
Net cash at December 31, 2018 amounted to € 959 million,
compared to net cash of € 484 million in 2017, representing
an improvement of € 475 million compared to the prior year.
This development was driven by the increase in cash
generated from operating activities, partly offset by the
utilization of cash for the purchase of fixed assets as well as
the repurchase of adidas AG shares and the dividend paid
to shareholders. In addition, the conversion of convertible
into adidas AG shares also contributed to this
bonds
improvement.
SEE TREASURY, P. 115 The company’s ratio of net
borrowings over EBITDA amounted to -0.3 at the end of
December 2018 (2017: -0.2), which is within the company’s
mid-term target corridor of below two times.
SEE DIAGRAM 77
Operating cash flow, as described in the Internal Management
System, increased 110% to € 2.529 billion in 2018 from
€ 1.202 billion in 2017, mainly due to the decrease in operating
working capital.
SEE INTERNAL MANAGEMENT SYSTEM, P. 103
Net borrowings/EBITDA 1, 2 € in millions
2018
2017
2016
2015
2014
77
(0.3)
(0.2)
0.1
0.3
0.1
1 2018, 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 and 2014 figures reflect continuing operations as a result of the divestiture of the
Rockport business.
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 € 2.984 billion at December 31, 2018, compared
to € 2.649 billion at the end of December 2017, representing
an increase of 13%.
SEE NOTE 30, P. 192 At the end of December
2018, financial commitments for promotion and advertising
increased 11% to € 5.828 billion in 2018 (2017: € 5.255 billion).
SEE NOTE 42, P. 221
Change in cash and cash equivalents € in millions
78
Cash and cash
equivalents
at the end of
2017
Net cash generated
from operating
activities
2,646
Net cash used in
investing activities
Net cash used in
financing activities
Effect of exchange
rates
Cash and cash
equivalents
at the end of
2018
1,598
(636)
(951)
(29)
2,629
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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.
SEE NOTE 02, P. 158 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.
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, borrowings would become due
and payable immediately. As at December 31, 2018, 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 nine years. In addition, we have an
unused multi-currency commercial paper program in the
amount of € 2.0 billion available (2017: € 2.0 billion). At the
end of 2018, committed and uncommitted bilateral credit
lines amounted to € 2.215 billion (2017: € 2.251 billion), of
which € 2.008 billion was unutilized (2017: € 2.145 billion).
lines represent
Committed and uncommitted credit
approximately 45% and 55% of total short-term bilateral
credit lines, respectively (2017: 47% and 53%, respectively).
SEE DIAGRAM 81 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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Total credit facilities € in millions
79
Bilateral credit lines
Eurobonds
Convertible bond
Equity-neutral
convertible bond
Total
2018
2017
2018
2017
2,215
2,251
984
–
484
983
31
–
3,683
3,265
OUTSTANDING BONDS
The company has two outstanding eurobonds, both issued in
2014, and one outstanding equity-neutral convertible bond,
which was issued in 2018. A convertible bond issued in 2012
was fully converted during 2018. 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 equity-neutral
convertible bond of € 500 million was issued on September 5,
2018, with a coupon of 0.05% and is due on September 12,
2023.
SEE OUR SHARE, P. 57,
SEE NOTE 19, P. 177,
SEE TABLE 82
Remaining time to maturity of available facilities € in millions
80
Issued bonds at a glance € in millions
82
< 1 year
1 to 3 years
3 to 5 years
> 5 years
Total
2018
2017
Volume
Coupon
Maturity
Eurobond
Eurobond
€ 600
€ 400
Equity-neutral convertible bond € 500
fixed
fixed
fixed
2021
2026
2023
2018
2017
1,475
1,601
980
771
457
381
746
537
3,683
3,265
Bilateral credit lines € in millions
81
Committed
Uncommitted
Total
2018
2017
2018
987
1,228
2017
1,055
1,196
2,215
2,251
GROSS BORROWINGS INCREASE
The company’s gross borrowings, the vast majority of which
are denominated in euro, are composed of bank borrowings
as well as the outstanding eurobonds and the equity-neutral
convertible bond. Gross borrowings
increased 50% to
€ 1.676 billion at the end of 2018 from € 1.120 billion in the
prior year. This development was mainly due to the issuance
of the € 500 million equity-neutral convertible bond. Including
the company’s eurobonds, the total amount of bonds
outstanding at the end of 2018 was € 1.469 billion (2017:
€ 1.014 billion). Bank borrowings amounted to € 207 million
compared to € 106 million in the prior year.
SEE TABLE 83
Financing structure € in millions
Cash and short-term financial assets
Bank borrowings
Eurobonds
Convertible bond
Equity-neutral convertible bond
Gross total borrowings
Net cash
83
2017
1,604
106
983
31
–
1,120
484
2018
2,635
207
984
–
484
1,676
959
1
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STABLE DEBT MATURITY PROFILE
Over the course of 2018, the company’s financing maturity
profile remained stable. In 2019, assuming unchanged
maturities, debt instruments of € 66 million will mature. This
compares to € 137 million which matured during the course
of 2018.
SEE DIAGRAM 84
Remaining time to maturity of gross borrowings € in millions
84
NET CASH POSITION OF € 959 MILLION
Net cash at December 31, 2018 amounted to € 959 million,
compared to net cash of € 484 million in 2017, representing
an improvement of € 475 million versus the prior year.
SEE DIAGRAM 85 This development was driven by the increase
in cash generated from operating activities, 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.
Interest rate development 1 in %
2018
2017
2016
2015
2014
1 Weighted average interest rate of gross borrowings.
86
2.1
2.7
2.3
2.4
3.1
< 1 year
1 to 3 years
3 to 5 years
> 5 years
Total
2018
2017
2018
2017
66
635
522
453
137
–
596
387
1,676
1,120
Net cash/(net borrowings) 1 € in millions
2018
2017
2016
2015
2014
85
959
484
(103)
(460)
(185)
1 Net borrowings/Net cash = short-term borrowings + long-term borrowings – cash and cash
equivalents – short-term financial assets.
INTEREST RATE DECREASES
The weighted average interest rate on the company’s gross
borrowings decreased to 2.1% in 2018 (2017: 2.7%).
SEE
DIAGRAM 86 This development was mainly due to conversions of
the convertible bond into adidas AG shares and a reduction of
short-term borrowings. Fixed-rate financing represented
97% of total gross borrowings at the end of 2018 (2017: 91%).
Variable-rate financing accounted for 3% of total gross
borrowings at the end of the year (2017: 9%).
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 2018, our Treasury
department managed a net deficit of around US $ 6.0 billion
related to operational activities (2017: US $ 6.6 billion).
Thereof, around US $ 3.8 billion was against the euro (2017:
US $ 3.8 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 2019 as of
year-end 2018. At the same time, we have already started
hedging our exposure for 2020. The use or combination of
different hedging instruments, such as forward exchange
contracts, currency options and swaps, protects us against
unfavorable currency movements.
SEE NOTE 31, P. 194
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ADIDAS ANNUAL REPORT 2018 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
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,
2018, 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
Allocation to capital reserves
Utilization for the repurchase of treasury
shares
Retained earnings
87
2017
3,732
3,732
503
2018
4,128
4,128
516
(1,538)
(1,292)
(731)
(98)
(692)
(91)
(2,282)
(2,170)
(5)
1,542
(113)
1,424
45
(400)
(9)
(355)
705
(10)
655
(96)
549
24
0
0
0
573
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 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, 46% of total assets as at December 31,
2018 related to financial assets (2017: 49%), which primarily
consist of shares in affiliated companies. Intercompany
accounts, through which transactions between affiliated
companies are settled, represent another 26% of total assets
(2017: 35%) and 45% of total liabilities and equity as at
December 31, 2018 compared to 48% in the prior year.
adidas AG net sales € in millions
Royalty and commission income
adidas Germany
Foreign subsidiaries
Central distribution
Other revenues
Total
88
2017
1,809
1,027
64
209
623
2018
1,900
1,157
60
319
692
4,128
3,732
NET SALES INCREASE 11%
Sales of adidas AG comprise external revenues generated by
adidas Germany with products of the adidas and Reebok
brands as well as revenues from foreign subsidiaries.
Revenues of adidas AG also include royalty and commission
income, mainly from affiliated companies, revenues from
central distribution, and other revenues. In 2018, adidas AG
net sales grew 11%
to
€ 3.732 billion in the prior year. This growth was mainly due to
higher sales at adidas Germany and an increase in revenues
from central distribution.
to € 4.128 billion compared
SEE TABLE 88
OTHER OPERATING INCOME UP 3%
In 2018, other operating income of adidas AG increased 3% to
€ 516 million (2017: € 503 million). This development was
primarily due to positive currency effects.
OTHER OPERATING EXPENSES INCREASE 5%
In 2018, other operating expenses for adidas AG rose 5% to
€ 2.282 billion (2017: € 2.170 billion).
SEE TABLE 87 This was
largely attributable to an increase in expenses for advertising
and promotion, higher maintenance costs and higher other
expenses, partly offset by a decrease in allowances for
doubtful accounts.
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ADIDAS ANNUAL REPORT 2018
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
Financial Statements and Management
Report of adidas AG
BALANCE SHEET
Balance sheet in accordance with HGB
(Condensed) € in millions
89
DEPRECIATION AND AMORTIZATION UP 8%
Depreciation and amortization for adidas AG rose 8% to
€ 98 million in 2018 (2017: € 91 million), mainly as a result of
an increase in depreciation and amortization of software.
OPERATING RESULT INCREASES
In 2018, adidas AG generated an operating loss of € 5 million,
(2017: operating loss of € 10 million).
SEE TABLE 87 This
development was primarily due to an increase in cost of
materials as well as in other operating expenses and
personnel expenses, which offset higher sales.
FINANCIAL RESULT IMPROVES
The
improved 135% to
financial result of adidas AG
€ 1.542 billion in 2018 (2017: € 655 million). The increase was
attributable to higher income from dividends and higher profit
transfers from affiliated companies under profit and loss
transfer agreements.
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
NET INCOME INCREASES SIGNIFICANTLY
Net income, after taxes of € 113 million (2017: € 96 million),
amounted to € 1.424 billion in 2018 and was thus 159% above
the prior year level (2017: € 549 million).
SEE TABLE 87
Equity and liabilities
Shareholders’ equity
Provisions
Liabilities and other items
Total equity and liabilities
Dec. 31,
2018
Dec. 31,
2017
162
688
4,361
5,211
47
2,655
1,478
4,180
100
5
9,496
2,634
699
6,163
9,496
124
610
4,308
5,042
49
3,262
337
3,648
168
5
8,863
2,704
624
5,535
8,863
TOTAL ASSETS ABOVE PRIOR YEAR
At the end of December 2018, total assets grew 7% to
€ 9.496 billion compared to € 8.863 billion in the prior year.
This development was mainly a result of increases in cash and
cash equivalents, securities and fixed assets, partly offset by
the decline in receivables and other assets.
SEE TABLE 89
SHAREHOLDERS’ EQUITY DOWN 3%
Shareholders’ equity declined 3% to € 2.634 billion at the end
of 2018 (2017: € 2.704 billion).
SEE TABLE 89 The equity ratio
decreased to 27.7% (2017: 30.5%).
PROVISIONS INCREASE 12%
Provisions were up 12% to € 699 million at the end of 2018
(2017: € 624 million).
SEE TABLE 89 The increase primarily
resulted from contingent losses from pending transactions as
well as higher marketing provisions.
LIABILITIES AND OTHER ITEMS UP 11%
At the end of December 2018, liabilities and other items
increased 11% to € 6.163 billion (2017: € 5.535 billion).
SEE TABLE 89 This development was mainly a result of the
increase in liabilities related to the convertible bond and
higher liabilities due to banks, partly offset by the decline in
payables to affiliated companies.
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2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
CASH INFLOW FROM OPERATING ACTIVITIES
REFLECTS CHANGE IN CASH AND CASH
EQUIVALENTS
adidas AG generated a positive cash flow from operating
activities of € 1.696 billion (2017: € 1.109 billion). The change
versus the prior year was mainly a result of the increase in net
income as well as the increase in securities classified as
current assets, partly offset by a decrease in payables to
affiliated companies. Net cash outflow from investment
activities was € 270 million (2017: € 330 million). This was
primarily attributable to capital expenditure for tangible fixed
assets in an amount of € 215 million and capital expenditure
for financial assets in an amount of € 53 million. Financing
activities resulted in a net cash outflow of € 889 million (2017:
€ 469 million). The net cash outflow from financing activities
mainly relates to the dividend payment in an amount of
€ 528 million. As a result of all these developments, cash and
cash equivalents of adidas AG increased to € 874 million at
the end of December 2018 compared to € 337 million at the
end of the prior year.
adidas AG has bilateral credit lines of € 1.4 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.
BUSINESS PERFORMANCE
Disclosures pursuant to § 315a Section 1
and § 289a Section 1 of the German
Commercial Code and Explanatory Report
DISCLOSURES PURSUANT TO § 315A
SECTION 1 AND § 289A SECTION 1 OF
THE GERMAN COMMERCIAL CODE
AND EXPLANATORY REPORT
COMPOSITION OF SUBSCRIBED CAPITAL
The nominal capital of adidas AG amounts to € 200,416,186
(as at December 31, 2018) 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’). In the 2018 financial
year, the nominal capital and the number of shares were
reduced due to the cancelation of 8,800,000 treasury shares
and the capital reduction with effect from October 22, 2018.
The shares are fully paid in. Any claim on the part of the
shareholders to the issuance of individual share certificates is
generally excluded pursuant to § 4 section 10 of the Articles of
Association unless such issuance is required in accordance
with the regulations applicable at a stock exchange where the
shares are admitted. Pursuant to § 67 section 2 German Stock
Corporation Act (Aktiengesetz – AktG), in relation to adidas AG,
only a person who is registered as such in the share register
shall be deemed a shareholder. Each share grants one vote at
the Annual General Meeting and determines the shareholders’
share in the company’s profit. All shares carry the same rights
and obligations. The shareholders’ individual rights and
obligations follow from the provisions of the AktG, in particular
from §§ 12, 53a et seq., 118 et seq. and 186 AktG. As at
December 31, 2018, adidas AG held 1,244,841 treasury shares,
which do not confer any rights to the company in accordance
with § 71b AktG.
SEE NOTE 27, P. 184
In the USA, adidas AG has 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 adidas AG 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 and internal
guidelines of adidas AG and based on Article 19 section 11 of
the Regulation (EU) No 596/2014 (Market Abuse Regulation),
however, particular trade prohibitions do exist for Executive
Board members with regard to the purchase and sale of
adidas AG shares, particularly in connection with the (time of)
publication of interim financial reports or year-end reports.
In addition, restrictions of voting rights may exist pursuant to,
inter alia, § 136 AktG or for treasury shares pursuant to
§ 71b AktG as well as due to capital market regulations, in
particular pursuant to §§ 33 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 ceases.
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ADIDAS ANNUAL REPORT 2018 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
Disclosures pursuant to § 315a Section 1
and § 289a Section 1 of the German
Commercial Code and Explanatory Report
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
reaching or 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
on behalf of the participating employees. As long as the
shares are held in trust, the trustee shall take reasonable
measures to enable 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 and 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. 21
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 held in which the Chairman of the Supervisory Board has
two votes.
If the Executive Board does not have the required number of
members, the competent court must, in urgent cases, make
the necessary appointment upon application by a party
involved (§ 85 section 1 AktG).
AMENDMENTS TO THE ARTICLES OF
ASSOCIATION
Pursuant to §§ 119 section 1 number 5, 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 represented when
passing the resolution. If 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,
these
the Supervisory Board
modifications in accordance with § 179 section 1 sentence 2
AktG in conjunction with § 10 section 1 sentence 2 of the
Articles of Association.
is authorized
to make
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,
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). The Executive
Board may, subject to Supervisory Board approval, exclude
shareholders’ subscription rights. The overall volume of
the shares issued based on this authorization with the
exclusion of subscription rights – together with shares issued
against contributions in cash with a simplified exclusion of
subscription rights from the Authorized Capital 2017/III –
must not exceed 10% of the nominal capital existing at the
date of the respective issuance. This deduction clause shall
not apply if residual amounts of shares are excluded from
subscription rights.
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ADIDAS ANNUAL REPORT 2018 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
Disclosures pursuant to § 315a Section 1
and § 289a Section 1 of the German
Commercial Code and Explanatory Report
— 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). Any repurchased
treasury shares of the company which are used by the
company for employee stock purchase plans during
the term of this authorization shall be attributed to the
maximum number of 4,000,000 shares. Shareholders’
subscription rights are excluded. The new shares may only
be issued to (current or former) employees of the company
and its affiliated companies as well as to (current and
former) members of management bodies of the company’s
affiliated companies (‘eligible persons’).
— 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). The Executive
Board may, subject to Supervisory Board approval, exclude
residual amounts from shareholders’ subscription rights.
— 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). The Executive
Board may, subject to Supervisory Board approval, exclude
residual amounts from shareholders’ subscription rights.
Additionally, the Executive Board may, subject to Supervisory
Board approval, exclude shareholders’ subscription rights
when issuing the new shares at a value not significantly
below the stock exchange value of the company’s shares
already quoted 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 may also be associated
with the listing of the company’s shares on a foreign stock
exchange. The authorization to exclude subscription rights
pursuant to the previous sentence, however, may 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 the company 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 pursuant to § 186 section 3 sentence 4 AktG,
does not exceed 10% of the nominal capital existing on the
date of the entry of this authorization with the commercial
register or – if this amount is lower – at the respective date
on which the resolution on utilization of the authorization
is adopted. The overall volume of the shares issued based
on this authorization with the exclusion of subscription
rights – together with shares issued from the Authorized
Capital 2017/II – must not exceed 10% of the nominal
capital existing at the date of the respective issuance. This
deduction clause shall not apply if residual amounts of
shares are excluded from subscription rights.
The above-mentioned authorizations are,
cumulative authorizations.
SEE NOTE 27, P. 184
in principle,
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
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 share-
holders’ subscription rights, on March 21, 2012. In the 2018
financial year, the company exercised its right to redeem
outstanding bonds early. The convertible bond was thus fully
converted or redeemed and no more shares can be issued
from the Contingent Capital 2010. The total number of shares
issued to the bondholders amounted to a total of 6,139,227
shares.
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 2018). 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 9, 2018 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 9, 2018, the Executive Board is authorized to issue bonds
with warrants and/or convertible bonds in an aggregate
nominal value of up to € 2,500,000,000 with or without a
limited term against contributions in cash once or several
times until May 8, 2023, 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
1
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
BUSINESS PERFORMANCE
Disclosures pursuant to § 315a Section 1
and § 289a Section 1 of the German
Commercial Code and Explanatory Report
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. Treasury
shares which are or will be sold in accordance with § 71
section 1 number 8 in conjunction with § 186 section 3
sentence 4 AktG between the starting date of the term
of this authorization and the issuance of the respective
bonds are attributed to the above-mentioned limit of 10%.
Shares which are or will be issued, subject to the exclusion
of subscription rights, in accordance with § 186 section 3
sentence 4 AktG or § 203 section 1 in conjunction with
§ 186 section 3 sentence 4 AktG between the starting date
of the term of this authorization and the issuance of the
respective bonds in the context of a cash capital increase
are also attributed to the above-mentioned limit of 10%.
Finally, shares for which there are option or conversion
rights or obligations or a right to delivery of shares of
the company in favor of the company due to bonds with
warrants or convertible bonds issued by the company or
its subordinated Group companies, subject to the exclusion
of subscription rights, in accordance with § 221 section 4
sentence 2 in conjunction with § 186 section 3 sentence 4
AktG during the term of this authorization based on other
authorizations are attributed to the above-mentioned limit
of 10%. Notwithstanding the Supervisory Board’s right to
determine further approval requirements, the Executive
Board requires the Supervisory Board’s approval for
the issuance of bonds with warrants and/or convertible
bonds based on this authorization of the Annual General
Meeting on May 9, 2018 with the exclusion of shareholders’
subscription rights.
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 9, 2018.
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. The authorization furthermore sets out
the lowest and highest nominal value that may be granted
in each case.
The purposes for which treasury 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 on the stock exchange or through
a public offer to all shareholders in relation to
their shareholding quota; in case of an offer to all
shareholders, subscription rights for residual amounts
are excluded. The shares may also be sold differently,
provided the shares are sold in exchange for a cash
payment and at a price that, at the time of the sale, is
not significantly below the stock market price of the
company’s shares with the same features; the prorated
amount of the nominal capital which is attributable
to the aggregate number of shares sold under this
authorization may not exceed 10% of the nominal capital.
The prorated amount of the nominal capital attributable
to the new shares issued between May 12, 2016 and
the sale of the shares based on an authorized capital
with the exclusion of shareholders’ subscription rights
pursuant to § 203 section 1 in conjunction with § 186
section 3 sentence 4 AktG is taken into account in the
limit of 10%. Likewise, the prorated amount of the
nominal capital that is attributable to shares which may
be issued due to bonds with warrants and/or convertible
bonds which are linked to subscription or conversion
rights or obligations or the company’s right to delivery
of shares, provided these bonds are issued on the
basis of authorizations pursuant to §§ 221 section 4,
186 section 3 sentence 4 AktG between May 12, 2016
and the sale of the shares, shall also be attributed to
the limit of 10%.
— 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
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Disclosures pursuant to § 315a Section 1
and § 289a Section 1 of the German
Commercial Code and Explanatory Report
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 the material 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.
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
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. The number of shares the company issues
to eligible persons by partially utilizing the Authorized
Capital 2016 must be attributed to the maximum
number of 4,000,000 shares.
— They may be canceled without such cancelation
requiring an additional resolution of the Annual General
Meeting.
Furthermore, the shares may be promised or 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
lies with the
Supervisory Board.
in this case
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 determine 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 2016 and 2017 financial years, the Executive Board
partly utilized the authorization to repurchase adidas AG
shares in the context of the share buyback program 2014 –
2017. In the year under review, the Executive Board resolved,
following the approval of the Supervisory Board, to initiate
another multi-year share buyback program and thus once
again utilized the authorization to repurchase adidas AG
shares. In a first tranche (total period from March 22, 2018 up
to and including December 4, 2018) of this share buyback
program, adidas AG bought back 5,089,879 adidas AG shares
via the stock exchange in the year under review.
SEE NOTE 27, P. 184
— In the scope of the authorization resolved upon 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 the shares delivered for these equity derivatives
were purchased in compliance with the principle of equal
treatment. 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.
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BUSINESS PERFORMANCE BY SEGMENT
BUSINESS PERFORMANCE
BY SEGMENT
adidas has divided its operating activities into the following
operating segments: Europe (formerly called Western
Europe), North America adidas, North America Reebok,
Asia-Pacific, Russia/CIS, Latin America, Emerging Markets
(formerly called Middle East), adidas Golf, Runtastic and
Other centrally managed businesses. The four former
operating segments Greater China, Japan, South Korea and
Southeast Asia/Pacific were consolidated to one operating
segment Asia-Pacific effective January 1, 2018. While the
operating segments Europe, Asia-Pacific, Russia/CIS, Latin
America and Emerging Markets are reported separately,
North America adidas and North America Reebok are
combined to the reportable segment North America. Each
reportable segment 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. The remaining operating
segments are aggregated under Other Businesses due to
their only subordinate materiality.
Net sales in Europe
EUROPE
In 2018, sales in Europe remained stable on a currency-
neutral basis. In euro terms, sales in Europe declined 1% to
€ 5.885 billion from € 5.932 billion in
2017. adidas brand revenues remained
stable on a currency-neutral basis, as
growth in Sport Inspired was offset by a
in Sport
low-single-digit decrease
Performance. Reebok brand revenues in Europe decreased
3% on a currency-neutral basis, as mid-single-digit sales
growth in Classics was offset by a double-digit decline in
Sport.
SEE TABLE 90
€ 5.885 bn
Europe at a glance € in millions
90
2018
5,885
5,405
480
2017
5,932
5,434
499
47.7%
45.7%
Change
(1%)
(1%)
(4%)
2.0pp
1,176
1,192
(1%)
20.0%
20.1%
(0.1pp)
Change
(currency-
neutral)
0%
0%
(3%)
–
–
–
Net sales
adidas brand
Reebok brand
Gross margin
Segmental
operating profit
Segmental
operating margin
Net sales in North America
NORTH AMERICA
Revenues in North America grew 15% on a currency-neutral
in euro terms to € 4.689 billion from
basis and 10%
€ 4.275 billion
in 2017. adidas
brand sales increased 17% on a
currency-neutral basis with double-
digit sales growth in both Sport
Inspired and Sport Performance,
the latter driven by double-digit sales growth in the running,
training and football categories. Revenues of the Reebok
brand in North America remained stable on a currency-
neutral basis, as double-digit sales growth in Classics was
offset by a double-digit decline in Sport.
SEE TABLE 91
€ 4.689 bn
Gross margin in Europe increased 2.0 percentage points to
47.7% from 45.7% in 2017 as positive effects from a more
favorable pricing, product and channel mix as well as lower
input costs more than offset the significant negative impact
from unfavorable currency developments. Operating expenses
were up 7% to € 1.628 billion versus € 1.519 billion in 2017.
This development reflects an
in marketing
expenditure as well as higher operating overhead costs.
Operating expenses as a percentage of sales were up 2.1 per-
centage points to 27.7% (2017: 25.6%). The operating margin
decreased 0.1 percentage points to 20.0% (2017: 20.1%), as
the gross margin improvement was offset by the negative
effect of higher operating expenses as a percentage of sales.
Operating profit in Europe decreased 1% to € 1.176 billion
versus € 1.192 billion in the prior year.
SEE TABLE 90
increase
North America at a glance € in millions
91
2018
4,689
4,277
411
2017
4,275
3,843
432
41.2%
39.5%
Change
10%
11%
(5%)
1.7pp
698
468
49%
14.9%
10.9%
3.9pp
Change
(currency-
neutral)
15%
17%
0%
–
–
–
Net sales
adidas brand
Reebok brand
Gross margin
Segmental
operating profit
Segmental
operating margin
Gross margin in North America increased 1.7 percentage
points to 41.2% (2017: 39.5%), driven by an improved pricing,
product and channel mix, as well as lower input costs.
Operating expenses were up 2% to € 1.305 billion versus
€ 1.280 billion in 2017, mainly reflecting an increase in
marketing expenditure. Operating expenses as a percentage
of sales decreased 2.1 percentage points to 27.8% (2017:
29.9%). As a result of the gross margin increase as well as the
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positive effect of lower operating expenses as a percentage of
sales, the operating margin improved 3.9 percentage points to
14.9% from 10.9% in 2017. Operating profit in North America
increased 49% to € 698 million from € 468 million in 2017.
SEE TABLE 91
Net sales in Asia-Pacific
ASIA-PACIFIC
Sales in Asia-Pacific grew 15% on a currency-neutral basis. In
euro terms, sales in Asia-Pacific were up 12% to € 7.141 billion
from € 6.403 billion in 2017. Revenues of brand adidas
increased 16% on a currency-
neutral basis. This development
was due
to double-digit sales
growth in both Sport Inspired and
Sport Performance, with the latter
driven by double-digit gains in the training and running
categories. Reebok brand sales in Asia-Pacific grew 3% on a
currency-neutral basis, driven by high-single-digit sales
increases in Classics, partly offset by a low-single-digit sales
decline in Sport.
SEE TABLE 92
€ 7.141 bn
Asia-Pacific at a glance € in millions
92
2018
7,141
6,805
336
2017
6,403
6,067
337
56.2%
55.7%
Change
12%
12%
0%
0.5pp
2,339
2,115
11%
32.7%
33.0%
(0.3pp)
Change
(currency-
neutral)
15%
16%
3%
–
–
–
Net sales
adidas brand
Reebok brand
Gross margin
Segmental
operating profit
Segmental
operating margin
Gross margin in Asia-Pacific increased 0.5 percentage points
to 56.2% (2017: 55.7%), as a more favorable pricing, product,
and channel mix and lower input costs more than offset the
negative impact from unfavorable currency developments.
Operating expenses were up 15% to € 1.688 billion versus
€ 1.466 billion in 2017. This development reflects an increase
in both marketing expenditure as well as operating overhead
costs. Operating expenses as a percentage of sales were up
0.7 percentage points to 23.6% (2017: 22.9%). As a result of
higher operating expenses as a percentage of sales, which
more than offset the increase in gross margin, the operating
margin was down 0.3 percentage points to 32.7% versus
33.0% in 2017. Operating profit in Asia-Pacific increased 11%
to € 2.339 billion from € 2.115 billion in 2017.
SEE TABLE 92
€ 595 m
Net sales in Russia / CIS
RUSSIA/CIS
Sales in Russia/CIS increased 1% on a currency-neutral
basis, despite a significant amount of store closures in 2018.
In euro terms, sales in Russia/CIS
declined 10% to € 595 million from
€ 660 million in 2017. adidas brand
revenues were up 5% on a currency-
neutral basis, as Sport Performance
grew at a mid-single-digit rate while Sport Inspired remained
stable. The former was due to exceptional growth in the
football category, reflecting revenues generated through
leveraging the 2018 FIFA World Cup. Revenues of the Reebok
brand in Russia/CIS decreased 8% on a currency-neutral
basis, driven by declines in Sport and, to a lesser extent,
Classics.
SEE TABLE 93
Russia/CIS at a glance € in millions
93
2017
Change
Change
(currency-
neutral)
2018
595
446
149
660
478
182
(10%)
(7%)
(18%)
0.9pp
65.8%
64.9%
146
136
7%
24.6%
20.6%
4.0pp
1%
5%
(8%)
–
–
–
Net sales
adidas brand
Reebok brand
Gross margin
Segmental
operating profit
Segmental
operating margin
Gross margin in Russia/CIS increased 0.9 percentage points
to 65.8% from 64.9% in 2017, despite a less favorable pricing
and channel mix as well as significant negative currency
effects. Operating expenses were down 16% to € 245 million
(2017: € 292 million), mainly reflecting a decline in operating
overhead costs. Operating expenses as a percentage of sales
decreased 3.0 percentage points to 41.2% versus 44.3% in
the prior year. As a result of the gross margin increase and
the positive effect of lower operating expenses as a percentage
of sales, the operating margin improved 4.0 per centage points
to 24.6% from 20.6% in 2017. Operating profit in Russia/CIS
increased 7% to € 146 million versus € 136 million in 2017.
SEE TABLE 93
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€ 1.634 bn
Net sales in Latin America
LATIN AMERICA
Revenues in Latin America increased 6% on a currency-
neutral basis. In euro terms, sales in Latin America
declined 14%
to € 1.634 billion
from € 1.907 billion in 2017. The
first-time application of hyper-
inflation accounting according to
in Argentina negatively
IAS 29
impacted reported sales of the Latin America segment,
whereas the impact on currency-neutral sales growth was
slightly positive. Revenues of brand adidas were up 8% on a
currency-neutral basis. This development was driven by a
mid-single-digit sales increase at Sport Inspired while Sport
Performance remained stable, despite a double-digit increase
in the football category. Reebok brand sales in Latin America
declined 12% on a currency-neutral basis, driven by a double-
digit decline in Sport and a mid-single-digit decline in
Classics.
SEE TABLE 94
Latin America at a glance € in millions
94
2018
1,634
1,463
171
2017
1,907
1,673
235
44.9%
42.1%
Change
(14%)
(13%)
(27%)
2.8pp
279
268
4%
17.1%
14.0%
3.0pp
Change
(currency-
neutral)
6%
8%
(12%)
–
–
–
Net sales
adidas brand
Reebok brand
Gross margin
Segmental
operating profit
Segmental
operating margin
Gross margin in Latin America increased 2.8 percentage
points to 44.9% (2017: 42.1%), as the very positive effect from
a more favorable pricing mix and lower input costs was only
partly offset by significant negative currency effects. Operating
expenses decreased 15% to € 454 million from € 535 million
in 2017, reflecting a decrease in operating overhead costs.
Operating expenses as a percentage of sales declined
0.3 percentage points to 27.8% (2017: 28.1%). As a result of
lower operating expenses as a percentage of sales and the
gross margin increase, the operating margin improved
3.0 percentage points to 17.1% from 14.0% in 2017. Operating
profit in Latin America increased 4% to € 279 million versus
€ 268 million in 2017.
SEE TABLE 94
Emerging Markets at a glance € in millions
95
2018
1,144
1,010
134
2017
1,300
1,153
147
52.8%
49.2%
Change
(12%)
(12%)
(9%)
3.6pp
318
325
(2%)
27.8%
25.0%
2.8pp
Change
(currency-
neutral)
(3%)
(4%)
0%
–
–
–
Net sales
adidas brand
Reebok brand
Gross margin
Segmental
operating profit
Segmental
operating margin
Net sales in
Emerging Markets
EMERGING MARKETS
Revenues in Emerging Markets were down 3% on a currency-
neutral basis. In euro terms, sales in Emerging Markets
declined 12% to € 1.144 billion from
€ 1.300 billion
in 2017. Sales of the
adidas brand decreased 4% on a
currency-neutral basis, driven by single-
digit sales decreases in Sport Inspired
extent, Sport
lesser
and,
Performance. Reebok brand revenues in Emerging Markets
remained stable on a currency-neutral basis, as exceptional
double-digit growth in Classics was offset by a high-single-digit
decline in Sport.
SEE TABLE 95
€ 1.144 bn
to
a
Gross margin in Emerging Markets increased 3.6 percentage
points to 52.8% (2017: 49.2%), driven by an improved pricing
and channel mix as well as lower input costs, partly offset by
significant negative currency effects. Operating expenses
were down 9% to € 286 million versus € 315 million in 2017,
reflecting a decrease in marketing expenditure as well as
operating overhead costs. As a percentage of sales, operating
expenses increased 0.7 percentage points to 25.0% from
24.2% in 2017. The operating margin was up 2.8 per centage
points to 27.8% (2017: 25.0%), as a result of the higher gross
margin, which more than offset the negative effect of higher
operating expenses as a percentage of sales. Operating profit
in Emerging Markets decreased 2% to € 318 million versus
€ 325 million in 2017.
SEE TABLE 95
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OUTLOOK
OUTLOOK
In 2019, we expect growth of the global economy and
consumer spending to moderate slightly, yet still to provide
a positive backdrop for robust 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 significant revenue growth and strong bottom-line
improvements in 2019. We forecast sales to increase at a
rate between 5% and 8% on a currency-neutral basis. Gross
margin is projected to increase to a level around 52.0%,
while operating margin is expected to increase between
0.5 percentage points and 0.7 percentage points to a level
between 11.3% and 11.5%. As a result, we project net income
from continuing operations, excluding the impact from the
application of the new reporting standard IFRS 16, to
increase between 10% and 14% to a level between
€ 1.880 billion and € 1.950 billion.
GLOBAL ECONOMIC GROWTH TO SLOW IN 20191
Global GDP growth is projected to moderate slightly to 2.9% in
2019, not least due to a decrease in industrial activity and
trade. Furthermore, ongoing trade disputes could become
more widespread, adversely affecting economies involved and
leading to negative global spillovers. In addition, the global
GDP growth projection conceals differences between the pace
of growth in developed and developing economies. Developing
economies are forecast to see a stabilization of growth at
4.2%, as commodity-exporting economies are expected to
benefit from a continued stabilization of oil and other
commodity prices. In contrast, growth in developed economies
is projected to slow to 2.0%, as further gradual monetary
tightening appears likely and capacity constraints become
increasingly binding. On a global level, additional downside
risks include a rise in borrowing costs and financial market
turbulences. Furthermore, ongoing
instances of trade
protectionism or geopolitical conflicts might dampen
consumer confidence, trade and growth.
contains
FORWARD-LOOKING STATEMENTS
This Management Report
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.
SPORTING GOODS INDUSTRY EXPANSION TO
CONTINUE IN 2019
In the absence of any major macroeconomic shocks, we
expect the global sporting goods industry to grow at a mid-
single-digit rate in 2019. North America, the biggest market
by size globally, will continue to drive the industry growth in
absolute terms. At the same time, most markets globally look
set to continue expanding at robust rates. Progressing
urbanization and a growing middle class in many developing
economies are predicted to further contribute to a growing
industry. 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 projected
to continue to boost demand for athletic performance
1 Source: World Bank Global Economic Prospects.
products. In addition, sportswear penetration rates are
forecast to edge up further as sports-inspired apparel and
footwear (‘athleisure’
SEE GLOSSARY) has become a structural
component of the broader fashion landscape, fueling the
demand
for athletic casual and activewear products.
Collaborations between sportswear brands and non-athlete
influencers are tending to intensify and multiply. Within the
supply chain, innovation such as the application of new
manufacturing techniques is projected to enhance speed-to-
market capabilities of sports brands, which will favorably
impact sales growth and inventory levels 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
the digital
broaden out
transformation continue. For the sporting goods industry, too,
risks related to trade protectionism and geopolitical tensions
might intensify.
investments
further as
into
CURRENCY-NEUTRAL SALES TO INCREASE
BETWEEN 5% AND 8% IN 2019
We expect sales to increase at a rate between 5% and 8% on a
currency-neutral basis in 2019.
SEE TABLE 96 Despite con-
tinued 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. 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.
CURRENCY-NEUTRAL REVENUES TO INCREASE
IN ALL MARKET SEGMENTS
In 2019, we expect currency-neutral revenues to increase in
all market segments. While currency-neutral sales are
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projected to grow at a double-digit rate in Asia-Pacific,
currency-neutral revenues in North America and Emerging
Markets are expected to grow at a high-single-digit rate.
Sales in Latin America and Russia/CIS are forecast to improve
at a low-single-digit rate in currency-neutral terms. In
Europe, we expect to return to growth in the course of the year
and forecast a slight increase in currency-neutral revenues in
2019.
SEE TABLE 96
GROSS MARGIN EXPECTED TO INCREASE
In 2019, the gross margin is forecast to increase to a level
around 52.0%.
SEE TABLE 96 Gross margin will benefit from the
positive effects of favorable currency movements as well as a
better channel and regional mix. These improvements will be
largely offset by a less favorable pricing mix due to selective
price investments, the negative impact from higher labor
expenditures in our sourcing countries and higher commodity
prices.
OPERATING MARGIN TO EXPAND TO A LEVEL
BETWEEN 11.3% AND 11.5%
In 2019, the operating margin is expected to increase between
0.5 percentage points and 0.7 percentage points to a level
between 11.3% and 11.5% compared to the prior year level of
10.8%. This, together with continued top-line growth, is
expected to drive a double-digit-rate improvement of the
bottom line. Excluding the impact from the application of the
new reporting standard IFRS 16, net income from continuing
operations is projected to increase to a level between
€ 1.880 billion and € 1.950 billion, reflecting an increase of
between 10% and 14% compared to the prior year level of
€ 1.709 billion.
2019 Outlook
96
Currency-neutral sales development (in %):
adidas
Europe 1
North America 1
Asia-Pacific 1
Russia/CIS 1
Latin America 1
Emerging Markets 1
Gross margin
Operating margin
to increase at a rate between 5% and 8%
slight increase
high-single-digit increase
double-digit increase
low-single-digit increase
low-single-digit increase
high-single-digit increase
to increase to a level of around 52.0%
to increase between 0.5pp and 0.7pp to a level between 11.3% and 11.5%
Net income from continuing operations 2
to increase at a rate between 10% and 14% to a level between € 1.880 billion and € 1.950 billion
Average operating working capital in % of sales
slight increase
Capital expenditure
to increase to a level of up to € 900 million
1 Combined sales of the adidas and Reebok brands.
2 2019 excluding negative impact from accounting change according to IFRS 16 of around € 35 million (based on lease contracts as per January 1, 2019); including this impact, net income from continuing operations
is currently expected to increase at a rate between 8% and 12% to a level between € 1.845 billion and € 1.915 billion.
NEW REPORTING STANDARD TO IMPACT
REPORTED EARNINGS
The change in recognition of lease obligations with the first-
time application of IFRS 16 as of January 1, 2019, will impact
reported earnings. Based on lease contracts as of January 1,
2019, the new reporting standard is projected to have a
negative impact of around € 35 million on the company’s net
income from continuing operations. Including this accounting
effect, net income from continuing operations is currently
expected to increase to a level between € 1.845 billion and
€ 1.915 billion. This equals a year-on-year
increase of
between 8% and 12% compared to the prior year level of
€ 1.709 billion.
SEE NOTE 01, P. 155
AVERAGE OPERATING WORKING CAPITAL AS A
PERCENTAGE OF SALES TO INCREASE SLIGHTLY
In 2019, average operating working capital as a percentage of
sales is projected to slightly increase compared to the
significantly better-than-expected prior year level of 19.0%.
CAPITAL EXPENDITURE TO INCREASE TO UP TO
€ 900 MILLION
In 2019, capital expenditure is expected to increase to up to
€ 900 million (2018: € 794 million). Investments will mainly
focus on controlled space initiatives of the adidas and Reebok
brands in both e-commerce and physical retail, the company’s
infrastructure as well as the further
IT and logistics
development of state-of-the-art corporate
in
Herzogenaurach, Germany, and Portland, Oregon/USA.
facilities
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MANAGEMENT TO PROPOSE DIVIDEND OF € 3.35
As a result of the strong operational and financial performance
in 2018, our robust 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 € 3.35 per dividend-entitled
share for 2018 (2017: € 2.60) to shareholders at the Annual
General Meeting (AGM) on May 9, 2019. This represents a
payout ratio of 39.0% based on the company’s net income
from continuing operations (2017: 37.0%). This is 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
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RISK AND OPPORTUNITY
REPORT
In order to remain competitive and ensure sustainable
success, adidas consciously takes 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 97 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
functions of
independently of all other
the
Working
organizations,
Internal Audit department provides
objective assurance to the Executive Board and the Audit
Committee regarding the adequacy and effectiveness of the
company’s risk and opportunity management system on a
regular basis. In addition, the Internal Audit department
includes an assessment of the effectiveness of risk manage-
ment processes and compliance with the company’s Risk
Management Policy as part of its regular auditing activities
with selected adidas subsidiaries or functions each year.
Our risk and opportunity management system is based on
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 system focuses on the identification,
evaluation, handling, monitoring and systematic reporting of
adidas risk and opportunity management system
97
Supervisory and Executive Boards
Risk Management
Risk Management Policy and Methodology / Support
Monitoring
and reporting
Identification
Risk Owners
Handling
Evaluation
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.
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 (at least 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
growth at a local and global level. Equally, our analysis
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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 company culture, processes, projects, human
resources and compliance aspects.
— Risk and opportunity evaluation: We assess 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. Based on
this evaluation, we classify risks and opportunities into
three categories: minor, moderate and major (previously:
marginal, minor, moderate, significant, major).
The potential impact is evaluated using five categories:
marginal, low, medium, high and significant. These
categories represent financial or equivalent non-financial
measurements. The financial measurements are based
on the potential effect on the company’s net income.
Non-financial measurements used are the degree of media
exposure affecting the company’s reputation, brand image
and employer value proposition, the degree of damage to
people’s health and safety, and the degree of legal and
judicial consequences at the corporate and personal level.
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: below
15%, 15% - 30%, 30% - 50%, 50% - 85% and above 85%.
SEE DIAGRAM 98
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
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3
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Risk evaluation categories98Likelihood>85%50% – 85%30% – 50%15% – 30%<15%MarginalLowMediumHighSignificantFinancial equivalent 1€ 1 million – € 10 million€ 10 million – € 35 million€ 35 million – € 60 million€ 60 million – € 100 million> € 100 millionQualitative equivalentAlmost no media coverage. Minor harm to employees or third parties such as consumers, customers, vendors, athletes that does not require medical treatment. Internal corrective actions required.Limited local media coverage. Minor harm to employees or third parties such as consumers, customers, vendors, athletes that requires medical treatment. Judicial investigations leading to no direct sanctions but requiring internal corrective actions, including dismissal of employees.Local and limited national media coverage. Harm to employees or third parties such as consumers, customers, vendors, athletes that leads to hospitalization. Judicial investigations leading to imprisonment of employees and/or business interruption.Several weeks of national media coverage and some international media coverage. Serious, life-changing harm to employees or third parties such as consumers, customers, vendors, athletes. Judicial investigations leading to imprisonment of senior leadership and/or significant business interruption including due to ongoing investigations.More than a month of extensive international media coverage. Fatalities of employees or third parties such as consumers, customers, vendors, athletes. Litigation (including class action), imprisonment of Board member(s), monitorship and/or cessation of business operations due to court order.Potential impactRisk classification: Minor Moderate Major1 Based on net income.ADIDAS ANNUAL REPORT 2018
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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
risk before any mitigating action, the net risk reflects the
residual risk after all mitigating action. On the one hand,
this approach allows for a good understanding of the
impact of mitigating 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 is appraised with respect to viability,
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.
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 major 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 Manage-
ment presents the final risk and opportunity assessment
results to the Audit Committee of the Supervisory Board.
reported
in previously
Material changes
risks and
opportunities and/or newly identified risks and opportunities
that are classified as moderate 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.
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
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. The Executive
Board sets the tone right from the top – every employee is
required to act ethically and in compliance with the law as
well as with external and internal regulations while executing
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the company’s business. Violations must be avoided under all
circumstances. As a company with worldwide operations and
around 57,000 employees, however, we realize that it will
never be possible to exclude compliance violations with
absolute certainty.
The adidas Fair Play Compliance Framework is overseen by
the company’s Chief Compliance Officer. We see compliance
as all-encompassing, spanning all business
functions
throughout the entire value chain. Our central Compliance
team works closely with Regional Compliance Managers and
Local Compliance Officers to conduct a systematic assessment
of key compliance risks on a yearly basis. In addition, the
central Compliance team regularly conducts compliance
reviews within selected entities.
The company’s Compliance Management System (CMS) 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;
Entertainment, Anti-Fraud and Theft, Antitrust and
Competition Law, Conflict of Interests, Non-Retaliation, and
Consequence Management. ↗ ADIDAS-GROUP.COM/S/CODE-OF-CONDUCT
The Code of Conduct and our CMS are organized around three
pillars: prevent, detect and respond.
— Prevention: The foundation of our CMS is the adoption
and implementation of our Fair Play Code of Conduct,
the Compliance Policy, and the Privacy Policy. adidas
issues targeted compliance-related communication
by management and the Compliance department and
provides mandatory training to all employees globally
during onboarding as well as in regular, repeated cycles.
In 2018, we updated the online Code of Conduct training,
which more than 18,000 employees completed. Additionally,
nearly 18,000 employees completed our web-based
Preventing Fraud and Theft training. Furthermore, we
conducted in-person compliance training seminars with
members of the Executive Board, senior management
and newly promoted or hired senior executives across the
globe in order to further enhance the compliance ‘tone from
the top’, as well as the ‘tone from the middle’. We closely
monitor the completion rates for these training measures
and continuously update our web-based training.
— Detection: We implemented whistleblowing procedures
to ensure timely detection of potential infringements of
statutory regulations or internal guidelines. Employees can
report compliance concerns internally to their supervisor,
the Chief Compliance Officer, Regional Compliance
Managers or Local Compliance Officers, the relevant
HR manager or the Works Council. Employees can also
report externally via an independent, confidential reporting
hotline, website, or email service, and can choose to do so
anonymously through the Fair Play hotline. The hotline is
available at all times worldwide.
— Response: Appropriate and timely response to compliance
violations is essential. The Chief Compliance Officer leads
all investigations in cooperation with an established team
of Regional Compliance Managers and a global network of
Local Compliance Officers. We track, monitor, and report
— reduce and mitigate the risk of financial losses or damage
Potential compliance violations
Financial,
including theft
Malfeasance, including
conflicts of interest
and corruption
Competition
Behavioral
caused by non-compliant conduct;
— protect and further enhance the value and reputation of the
company and its brands through compliant conduct; and
— preserve diversity by
fighting harassment and
discrimination.
The adidas Fair Play Code of Conduct stipulates guidelines for
behavior in everyday work, which all employees are obliged to
comply with. It is applicable globally and for all business
areas, accessible on our website and on our intranet. In 2018,
we improved the usability of the Code of Conduct and
refreshed its design. We also consolidated five compliance
policies into one user-friendly Compliance Policy that covers
topics including Anti-Bribery and Corruption, Gifts and
200
175
150
125
100
75
50
25
0
54
40
2
1 Includes payroll issues, intellectual property and leaks of confidential information, inter alia.
99
Other 1
177
137
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SEE DIAGRAM 99,
potential incidents of non-compliance worldwide. In 2018,
we recorded 410 potential compliance violations (2017:
SEE DIAGRAM 100 Most importantly,
419).
insights gained from the investigation of past violations are
used to continuously improve the CMS. Where necessary,
we react promptly to confirmed compliance violations,
through appropriate and effective sanctions ranging from
warnings to termination of employment contracts.
Reporting of potential compliance violations in %
100
20%
Named call
to hotline
39%
Compliance
Officer
41%
Anonymous call
to hotline
In 2018, we reinforced the adidas compliance organization
and activities, and enhanced cooperation with other
governance functions, e.g. Internal Audit, Internal Controls,
and Risk Management.
The company’s General Counsel and the Chief Compliance
Officer regularly report to the Executive Board on the further
development of the compliance program and on major
compliance cases. In addition, the Chief Compliance Officer
reports to the Audit Committee on a regular basis. In 2018, the
Chief Compliance Officer attended five meetings of the Audit
Committee of the Supervisory Board to report on the further
development of the compliance program, major compliance
cases and other relevant compliance topics.
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, assess, limit and
control risks identified in the consolidated financial reporting
process which might result in the 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. 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 assesses the effectiveness of selected
internal controls, including IT controls. 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. 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
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
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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
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.
Corporate risks overview
101
Strategic risks
Consumer demand risks
Risks related to distribution strategy
Macroeconomic, sociopolitical and regulatory risks
Competition risks
Risks related to technology change
Operational risks
Business partner risks
IT and cyber security risks
Hazard risks
Project risks
Inventory risks
Personnel risks
Legal and compliance risks
Risks related to customs and tax regulations
Risks related to product counterfeiting and imitation
Fraud and corruption risks
Data privacy risks
Financial risks
Currency risks
Credit risks
Potential impact
Change
(2017 rating)
Likelihood
Change
(2017 rating)
High
↓ (Significant)
Medium
↓ (Significant)
Significant
Medium
Medium
↓ (High)
15% – 30%
30% – 50%
< 15%
15% – 30%
15% – 30%
High
↓ (Significant)
15% – 30%
↑ (High)
↓ (High)
↓ (High)
Significant
Significant
Significant
Medium
Medium
High
Significant
Significant
High
↓ (Significant)
Significant
Significant
< 15%
< 15%
< 15%
15% – 30%
< 15%
15% – 30%
< 15%
< 15%
< 15%
< 15%
< 15%
↓ (30% – 50%)
↓ (15% – 30%)
↑ (< 15%)
↓ (30% – 50%)
↓ (15% – 30%)
↓ (15% – 30%)
↓ (15% – 30%)
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.
ILLUSTRATION OF RISKS
This report includes an explanation of risks that we deem to
be relevant to the achievement of the company’s objectives in
the time period from 2019 to 2021. According to our risk
assessment methodology, only consumer demand risks,
business partner risks and risks related to customs and tax
regulations are considered material. Our presentation of risks
in this year’s Annual Report differs slightly from the 2017
Annual Report as we have adjusted financial and non-financial
measurements to assess the potential impact. The risks
overview table shows the assessment of all risks described
below.
SEE TABLE 101
STRATEGIC RISKS
Consumer demand risks
Success in the sporting goods industry largely depends on the
ability to continuously create new, innovative footwear and
apparel products. In that respect, anticipating and quickly
responding to changes in consumer demand or consumer
trends is essential. Consumer demand changes can be
sudden and unexpected, particularly when it comes to the
more fashion-related part of our business. 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, especially
considering our strategy to focus on key product franchises.
SEE ADIDAS BRAND STRATEGY, P. 67 Because of average lead times
of 12 to 18 months, we face a risk of short-term revenue loss
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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
in our risk and
secondary research tools as outlined
opportunity identification process. By putting the consumer at
the center of our decision-making we intend to create higher
brand advocacy. As part of our adidas brand advocacy
program, we continuously monitor the Net Promoter Score
(NPS)
SEE GLOSSARY and strive to understand consumers’
perception.
SEE ADIDAS BRAND STRATEGY, P. 67 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. Our Speed programs also help us
mitigate the risk as they enable us to be faster in case of
demand shifts.
SEE CORPORATE STRATEGY, P. 62 By leveraging our
promotion partnerships for launches of key product franchises
and by carefully orchestrating launch events across markets
and channels, we intend to maintain brand desire and
consumer demand at a constantly high level. Our collaboration-
based innovation model Open Source also helps us to utilize
external insights to drive consumer demand, brand desire,
market share and profitability.
Risks related to distribution strategy
The retail industry has seen continuous change over the last
few years, with consumers demanding a seamless shopping
experience across various distribution channels. The inability
to adjust our distribution strategy in a timely manner to this
changing retail industry, which is experiencing increasing
substitution of physical retail stores by digital commerce
platforms as well as an increasing connection of physical and
digital retail, could result in sales and profit shortfalls. A
decline in the attractiveness of particular shopping locations
such as shopping malls could lead to sales shortfalls in our
customers’ and our own stores, higher inventory in the
marketplace,
increased clearance activity and margin
pressure. 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. 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
in worse-than-expected sales
locations may
development and lower profitability.
result
To mitigate these risks, adidas has developed and implemented
clearly defined distribution policies and procedures to avoid
overdistribution of products in a particular channel. We
continuously and closely monitor numerous indicators (e.g.
order placement, sell-through rates at point of sale, average
selling prices, discounts, store traffic) that help us identify
changes in the retail environment and quickly take appropriate
action such as closing or remodeling own stores. New store
openings are managed according to a standardized company-
wide business plan model, taking into account best practices
from around the world. We constantly adjust our segmentation
strategies to ensure that the right product is sold at the right
point of sale to the right consumer at an appropriate price.
Our omni-channel initiatives help us leverage learnings
across our distribution channels and prevent cannibalization.
SEE SALES AND DISTRIBUTION STRATEGY, P. 72
Macroeconomic, sociopolitical and regulatory risks
Growth in the sporting goods industry is highly dependent on
consumer spending and consumer confidence. Economic
downturns, financial market turbulence 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, regulations concerning
product safety) could lead to potential sales shortfalls or cost
increases. For example, the UK’s withdrawal from the
European Union (‘Brexit’) could cause business and consumer
uncertainty and create an additional administrative burden to
adhere to changes in regulatory frameworks concerning
critical areas such as the movement of goods or the movement
of people. The ongoing trade dispute between the US and
China could result in the imposition of additional trade tariffs
also affecting athletic footwear and apparel and could have
substantial effects on economic growth not only in two of the
company’s key markets but also globally.
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
manufacturing of our products to alternative countries, a
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reallocation of 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.
For example, to best serve the UK market after ‘Brexit’ and
minimize business disruption resulting from potentially more
burdensome customs procedures, we have pro-actively
adjusted our supply chain and logistics set-up by increasing
our distribution capacity in the UK and reducing the portion of
cross-border shipments from the EU. 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.
Competition risks
Strategic alliances amongst competitors and/or retailers, the
increase in retailers’ own private label businesses and intense
competition
for consumers, production capacity and
promotion partnerships between well-established industry
peers and new market entrants 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.
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
activities (e.g. product launches, selective pricing adjustments)
investment
when needed. Continuous
in research and
development ensures that we remain innovative and distinct
from competitors.
SEE INNOVATION, P. 78 We also pursue a
strategy of entering into long-term agreements with key
promotion partners such as the German Football Association
(DFB) or James Harden, as well as adding new partners to
refresh and diversify our portfolio, e.g. Paulo Dybala or
Cardi B. In addition, our product and communication initiatives
are designed to increase brand desire, drive market share
growth and strengthen our brands’ market position.
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, 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. We have established processes for technology
scouting and technology lifecycle management which ensure
a continuous assessment of the technology landscape and
timely replacement of outdated technology. Furthermore, we
build partnerships with technology and business leaders
around the world such as BASF, Carbon or Oechsler to stay
connected to the latest advancements.
SEE INNOVATION, P. 78
OPERATIONAL RISKS
Business partner risks
adidas interacts and enters into partnerships with various
third parties, such as athletes, creative partners, innovation
partners, retail partners or suppliers of goods or services. 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
research and
(e.g. product creation, manufacturing,
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 on the part of business partners
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or improper behavior of individual athletes, influencers or
partners in the entertainment industry could have a negative
spill-over effect on the company’s reputation, lead to higher
costs or liabilities or even disrupt business activities.
particular supplier, the company follows a strategy of
diversification. In this context, adidas works with a broad
network of suppliers in different countries and, for the vast
majority of its products, does not have a single-sourcing model.
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 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 as well as entertainers and
influencers 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 mutually successful business relationship.
Customer 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 2018. To reduce risk in the supply
chain, we work with suppliers who demonstrate reliability,
quality and innovation. Furthermore, in order to 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.
SEE 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
SEE GLOSSARY
IT and cyber security risks
Theft,
leakage, corruption or unavailability of critical
information (e.g. consumer data, employee data, product
data) could lead to reputational damage, regulatory penalties
or the inability to perform key business processes. Key
business processes, including product marketing, order
management, warehouse management, invoice processing,
customer support and financial reporting, are all dependent
on IT systems. Significant outages, application failures or
cyber security threats to our infrastructure, or that of our
business partners, could therefore result in considerable
business disruption or impact to business-critical data.
To mitigate these risks, our IT organization proactively
engages in system preventive maintenance, service continuity
planning, adherence to applicable IT policies and maintenance
of a comprehensive information security program. Information
security governance, data security, security architecture
design, continuity management and employee awareness
programs are aligned with industry-best practices in order to
protect the company adequately.
Hazard risks
adidas is exposed to external risks such as natural disasters,
unfavorable or extreme weather conditions, epidemics, fire,
accidents and malicious acts. Those events may cause
physical damage to our own or our suppliers’ premises,
production units, warehouses and stock in transit and result
in business interruption. In addition, any such event could
threaten the safety or security of our employees.
To minimize potential negative effects, we have secured
insurance coverage for property damage and business
interruption and implement loss prevention (e.g. sprinklers in
facilities) and contingency plans to quickly recover business
activities. We also work with reliable suppliers and logistics
providers who guarantee high safety standards in their
facilities. In addition, we are strengthening our own safety and
security measures worldwide by establishing global and local
policies as well as standardized processes and common
systems for safety and security management.
Project risks
To effectively support further business growth and improve
efficiency, adidas continuously invests in new projects such as
the creation, implementation, expansion or harmonization of
IT systems and distribution centers or the construction of
office buildings. Ineffective project management could delay
the execution of critical projects and lead to higher
expenditures. Inadequate project planning and controlling as
well as executional mistakes could cause inefficiencies,
delays or business disruption, resulting in higher costs and
sales
governance,
prioritization and oversight of the project portfolio may lead to
suboptimal resource allocation and undesired project results.
Inappropriate
shortfalls.
project
We manage projects utilizing reviews by project teams as well
as project steering committees to evaluate the progress,
quality and costs of those projects on a regular basis. This
approach allows early detection of project risks and quick
implementation of corrective action or timely cancelation of
projects with a low chance of success. To ensure true end-to-
end management of key projects we have established a
network of program and project management departments
across all main functions (i.e. Sales, Marketing, Operations,
Finance, IT and Human Resources). We also work with external
partners for project management support in areas where we
do not have the required expertise or experience in-house.
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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
reputation. In addition,
faces potential
profitability impacts from additional costs such as airfreight in
efforts to speed up replenishment.
the company
respect, strong leadership and a performance-enhancing
culture are critical to the company’s success. Therefore,
ineffective leadership as well as the failure to install and
maintain a performance-oriented culture that fosters diversity
and inclusion and 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 highly qualified and skilled talents who best meet the
specific needs of our company pose 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.
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.
SEE INTERNAL MANAGEMENT SYSTEM, P. 103 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.
SEE GLOBAL OPERATIONS, P. 74 In this context,
the company’s strategic choice ‘Speed’ is an important driver,
enabling 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
Personnel risks
Achieving the company’s strategic and financial objectives is
highly dependent on our employees and their talents. In this
Our People Strategy is an essential part of our strategic
business plan ‘Creating the New’ and is designed to reduce
these risks. To optimize staffing levels and resource allocation
(i.e. having the right people with the right skillsets in the right
roles at the right time), we have established a strategic
workforce management process. 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 established a global recruiting organization to
enhance our internal and external recruiting services and
capabilities. To ensure effective leadership across the
company, we defined and activated our global Leadership
Framework
SEE GLOSSARY that articulates the behaviors
expected of our leaders. Our global succession management
helps create strong internal talent pipelines for critical
leadership positions and reduce succession risk. We also
strengthen employee retention by providing attractive
leadership development and learning programs as well as
global career opportunities. Numerous initiatives such as our
global ‘BIG Deal’ gender intelligence training foster diversity
and inclusion. We also have attractive reward and incentive
schemes in place, designed to further support long-term
employee commitment.
SEE PEOPLE AND CULTURE, P. 81
LEGAL AND COMPLIANCE RISKS
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
with regulations concerning product
imports (including
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.
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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. We have also stepped up product security labeling
with our authorized suppliers.
Fraud and corruption risks
We face the risk that members of top management 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.
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 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.
To mitigate these risks, we have established a global privacy
management policy that outlines the company’s privacy
principles and provides the framework for the use of personal
information. In addition, we have implemented a global
deletion policy that governs the deletion of personal
information at adidas. These policies apply to all adidas
businesses worldwide and set our expectations of third-party
business partners for managing personal information for or
on behalf of adidas. Our global privacy officer and the global
privacy department are establishing a monitoring framework
to track and report adherence to data protection and privacy
standards. They are continuously providing
further
implementation guidance and training. We are also working
with external partners and law firms to ensure we are
informed about legal requirements across the globe, and we
take appropriate action to ensure compliance.
FINANCIAL RISKS
Currency risks
Currency risks for adidas are a direct result of multi-currency
cash flows within the company, in particular the mismatch of
the currencies required for sourcing our products versus the
denominations of our sales. Furthermore, translation impacts
from the conversion of non-euro-denominated results into
the company’s functional currency, the euro, might lead to a
material negative
financial
performance.
impact on our company’s
SEE NOTE 31, P. 194
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-months horizon.
SEE TREASURY, P. 115
Credit risks
A credit risk arises if a customer or other counterparty to a
financial instrument fails to meet its contractual obligations.
SEE NOTE 31, P. 194 adidas is exposed to credit risks from its
operating activities and from certain financing activities.
Credit risks arise principally from accounts receivable and
from other third-party contractual financial obligations.
We analyze the creditworthiness of our customers and
establish tolerance limits for accounts receivable. 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.
adidas subsidiaries are typically only authorized to work with
banks rated BBB+ or higher.
SEE TREASURY, P. 115 We monitor
credit default swap premiums of our partner banks on a
monthly basis and shift credit balances to banks compliant
with our limits if a defined threshold is exceeded.
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ILLUSTRATION OF OPPORTUNITIES
In this report, we illustrate opportunities considered material
in the time period from 2019 to 2021. Our presentation of
opportunities in this year’s Annual Report differs slightly from
the 2017 Annual Report as we have adjusted financial and
non-financial measurements to assess the potential impact.
The assessment is shown in the opportunities overview table.
SEE TABLE 102
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.
This includes the further expansion of our own e-commerce
activities, the optimization of our network of wholesale
partners with a clear focus on partners that provide consumers
with the best shopping experience and customer service,
retail space management with key accounts (online and brick
& mortar), as well as the introduction and roll-out of new
own-retail store formats. Successful results from these
initiatives could enable us to accelerate top- and bottom-line
growth.
SEE SALES AND DISTRIBUTION STRATEGY, P. 72
Product portfolio: 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. The further
expansion of our women’s business could result in additional
market share and net sales growth and lead to further
profitability improvements.
Corporate opportunities overview
102
Potential impact
Change
(2017 rating)
Likelihood
Change
(2017 rating)
Strategic and operational opportunities
Organic growth opportunities
Opportunities related to organizational and process
improvements
Macroeconomic, sociopolitical and regulatory opportunities
Financial opportunities
Favorable financial market changes
High
↓ (Significant)
15% – 30%
High
High
Significant
15% – 30%
↓ (30% – 50%)
> 85%
15% – 30%
Major sports events: Major sports events such as the
upcoming Olympic Summer Games in Tokyo provide adidas
with an ideal platform to showcase its strength as a sports
brand and demonstrate its role as a leader in innovation to a
worldwide audience. In addition, a major sports event also
always represents a commercial opportunity in the host
country which typically benefits from the influx of foreign
tourists and increased consumer spending. As a result, we
see potential for additional sales growth and consequently
stronger bottom-line performance in connection with major
sports events.
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 Data & Analytics team to drive
business decision-making by leveraging the power of data.
The continuous enhancement of our existing capabilities to
build and scale insights-driven use cases and the use of the
latest technology could bring value to our business operations
across the entire company. As a result, we see the opportunity
to 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
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Macroeconomic, sociopolitical and regulatory opportunities
Legislative and regulatory changes such as the elimination of
trade barriers due to free trade agreements (e.g. between the
European Union and Vietnam) can create cost savings or
potentially open up new channels of distribution and, as a
result, positively impact profitability. Changes in local tax or
customs regulations (e.g. reduction of tax rates on private
incomes, reduction of import duties) could lead to increased
consumer spending and consequently positively affect our
sales or result in additional cost savings.
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
financial markets to
identify and exploit opportunities.
Translation effects
from the conversion of non-euro-
denominated results into our company’s functional currency,
the euro, might positively impact our company’s financial
performance.
SEE TREASURY, P. 115
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MANAGEMENT
ASSESSMENT OF
PERFORMANCE, RISKS
AND OPPORTUNITIES,
AND OUTLOOK
SEE ECONOMIC AND SECTOR DEVELOPMENT, P. 106
ASSESSMENT OF PERFORMANCE VERSUS TARGETS
We communicate our financial targets on an annual basis. We
also provide updates throughout the year as appropriate. In
2018, 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.
The continued 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 significant sales
growth and strong profitability improvements throughout the
year. While some company-specific weaknesses in our home
market Europe led to a slight downward revision of our top-
line guidance in November 2018, we were able to increase our
bottom-line guidance at the same time. The better-than-
expected profitability increase was largely driven by the strong
gross margin improvement, which reflects the high quality of
our revenue growth.
SEE TABLE 103
In 2018, revenues increased 8% on a currency-neutral basis,
driven by double-digit growth in North America and Asia-
Pacific. Revenues in Europe and Emerging Markets grew at a
lower rate than initially expected, which led to a revenue
increase at the lower end of our initial guidance range of
around 10% currency-neutral sales growth. Gross margin
increased 1.4 percentage points to 51.8%, significantly
MANAGEMENT ASSESSMENT OF
PERFORMANCE, RISKS AND
OPPORTUNITIES, AND OUTLOOK
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,
channel and product mix as well as lower input costs, which
more than offset strong headwinds from unfavorable currency
movements. The operating margin increased 1.1 percentage
points to a level of 10.8%, which was above our initial guidance
of an increase of between 0.5 and 0.7 percentage points. This
development was mainly due to the gross margin increase,
which more than offset an increase in other operating
expenses as a percentage of sales. The increase in other
operating expenses as a percentage of sales, compared to our
initial expectation of a slight decline, was driven by additional
investments into marketing and scalability initiatives that
were funded by the better-than-expected gross margin
development. As a result, net income from continuing
operations was up 20% to € 1.709 billion, excluding the
negative one-time tax impact in 2017, and thus exceeded our
initial guidance of an improvement at a rate between 13% and
17%.
SEE INCOME STATEMENT, P. 107
In 2018, average operating working capital as a percentage of
sales ended the year at a level of 19.0%. This development
represents a significant decrease compared to the prior year
level of 20.4%, while our initial guidance was for a largely
stable year-over-year development. The better-than-expected
development mainly reflects the company’s successful efforts
on
tightening working capital management. Capital
expenditure amounted to € 794 million in 2018, below our
initial guidance of around € 900 million, 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 both
in own
e-commerce and our stores, 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
Herzogenaurach, Germany.
SEE STATEMENT OF FINANCIAL POSITION
in
AND STATEMENT OF CASH FLOWS, P. 111
(NPS) saw
SEE INTERNAL MANAGEMENT SYSTEM, P. 103
Beyond our financial performance, we also actively monitor
In
non-financial KPIs.
further
2018, our Net Promoter Score
improvements, reflecting the strength of our brands. 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 2018, adidas AG
was again represented in a variety of high-profile sustainability
indices. For the 19th consecutive time, adidas AG was selected
to join the Dow Jones Sustainability Indices (DJSI), the world’s
first global sustainability
the
performance of the leading sustainability-driven companies
worldwide. adidas received ‘Gold Class’ distinction for its
excellent sustainability performance and was rated as overall
leader in the ‘Textiles, Apparel & Luxury Goods’ industry,
receiving industry-best scores in criteria including Human
Rights, Supply Chain Management, Innovation Management,
and Operational Eco-Efficiency.
SEE SUSTAINABILITY, P. 88 As we
are convinced that our employees’ feedback plays a crucial
role in our pursuit of creating a desirable work environment,
in 2018 we fully embedded ‘People Pulse’, our approach and
system platform for a quarterly measurement of the level of
employee satisfaction, within the organization globally. We
saw People Pulse gain significant traction, with participation
rates toward year-end exceeding our minimum participation
rate target.
SEE PEOPLE AND CULTURE, P. 81
tracking
family
index
1
4
4
ADIDAS ANNUAL REPORT 2018
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
MANAGEMENT ASSESSMENT OF
PERFORMANCE, RISKS AND
OPPORTUNITIES, AND OUTLOOK
Finally, despite some challenges in the North American
market, we continue to enjoy an overall strong level of on-
time in-full (OTIF) deliveries to our customers and own-retail
stores. In 2018, OTIF remained stable compared to the prior
year level.
SEE GLOBAL OPERATIONS, P. 74
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
Company targets versus actual key metrics
Sales (year-over-year change,
currency-neutral)
2017
Results1
16%
2018
Initial targets1,2
2018
Updated targets1,3
2018
Results1
103
2019
Outlook
to increase at a rate of
around 10%
to increase at a rate
between 8% and 9%
8% to increase at a rate between
5% and 8%
Gross margin
50.4%
to increase up to 0.3pp
to increase up to 1.0pp
Other operating expenses 4
(in % of net sales)
Operating profit (€ in millions)
Operating margin
Net income from continuing
operations 5, 6 (€ in millions)
41.3%
below prior year level
below prior year level
2,070
9.8%
1,430
to increase at a rate
between 9% and 13%
to increase at a rate
between 12% and 16%
to increase between
0.5pp and 0.7pp
to increase around 1.0pp
to increase at a rate
between 13% and 17%
to increase at a rate
between 16% and 20%
Basic earnings per share from
continuing operations 5 (in €)
7.05
to increase at a rate
between 12% and 16%
to increase at a rate
between 15% and 19%
Average operating working
capital (in % of net sales)
20.4%
around prior year level
around prior year level
Capital expenditure 7 (€ in millions)
752
around € 900 million
around € 900 million
51.8% to increase to a level of around
52.0%
1.4pp
41.9%
0.5pp
2,368
14%
–
–
10.8% to increase between 0.5pp and
0.7pp to a level between 11.3%
and 11.5%
1.1pp
1,709
20%
8.46
20%
19.0%
(1.4pp)
794
6%
to increase at a rate between
10% and 14% to a level
between € 1.880 billion and
€ 1.950 billion
–
slight increase
to increase to a level of up to
€ 900 million
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 14, 2018.
3 As published on November 7, 2018.
4 Figures reflect the adjusted consolidated income statement structure introduced in 2018.
5 2017 excluding negative one-time tax impact of € 76 million.
6 2019 excluding negative impact from accounting change according to IFRS 16 of around € 35 million (based on lease contracts as per January 1, 2019); including this impact, net income from continuing operations
is currently expected to increase at a rate between 8% and 12% to a level between € 1.845 billion and € 1.915 billion.
7 Excluding acquisitions and finance leases.
SEE RISK AND OPPORTUNITY
opportunities on a regular basis.
REPORT, P. 131 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
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. As a result of
these changes, we believe the overall adidas risk profile has
improved slightly 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
1
4
5
ADIDAS ANNUAL REPORT 2018
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
MANAGEMENT ASSESSMENT OF
PERFORMANCE, RISKS AND
OPPORTUNITIES, AND OUTLOOK
Assuming no significant deterioration in the global economy,
we are confident that we will achieve further top- and bottom-
line improvements in 2019. 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. 106 No other material
event between the end of 2018 and the publication of this
report has altered our view.
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 are expected to 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 income from continuing operations to expand by 20% to
22% on average per year during the five-year period, we once
again upgraded our long-term profitability target in March
2018
financial
performance in 2017. As a result, we expect net income from
continuing operations to grow by 22% to 24% on average per
year.
the strong operational and
SEE CORPORATE STRATEGY, P. 62
following
Against the background of rising consumer spending,
increasing penetration of sportswear (‘athleisure’) and
growing health awareness in most geographical areas, we
project further top-line improvements in 2019. The revenue
increase is to be driven by our extensive pipeline of new
product launches paired with brand-building activities. 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 the
sales growth. In combination with tight control of inventory
levels and stringent cost management, we expect to once
again generate profitability improvements in 2019. Supported
by a further expansion in gross and operating margin,
our net income is expected to improve strongly in 2019.
SEE OUTLOOK, P. 128 We believe that our outlook for 2019 is
realistic within the scope of the current trading and economic
environment.
1
4
6
ADIDAS ANNUAL REPORT 2018
Consolidated Statement of Financial Position
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
148
150
151
152
153
155
171
211
217
224
226
231
232
237
1
4
7
8
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
S
A
D
D
A
I
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) 1 € in millions
Note
Dec. 31, 2018
Dec. 31, 2017 2
Change in %
Jan. 1, 2017 2
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
06
07
08
09
10
38
11
12
13
14
15
15
16
17
38
18
2,629
6
2,418
542
3,445
48
725
–
9,813
2,237
1,245
844
196
276
256
651
94
5,799
15,612
1,598
5
2,315
393
3,692
71
498
72
8,645
2,000
1,220
806
154
236
219
630
108
5,374
14,019
64.5
5.3
4.4
38.1
(6.7)
(32.3)
45.6
(100.0)
13.5
11.8
2.0
4.7
27.0
16.9
16.9
3.4
(13.5)
7.9
11.4
1 IFRS 9 and IFRS 15 are initially applied at January 1, 2018. Under the transition methods chosen, comparative information is not restated except for certain hedging requirements.
2 Restated according to IAS 8, see Note 03.
The accompanying Notes are an integral part of these consolidated financial statements.
1,510
5
2,200
729
3,763
98
580
–
8,886
1,915
1,412
1,108
167
194
96
732
94
5,718
14,604
1
4
8
ADIDAS ANNUAL REPORT 2018 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
adidas AG Consolidated Statement of Financial Position (IFRS) 1 € in millions
Note
Dec. 31, 2018
Dec. 31, 2017 2
Change in %
Jan. 1, 2017 2
Liabilities and equity
Short-term borrowings
Accounts payable
Other current financial liabilities
Income taxes
Other current provisions
Current accrued liabilities
Other current liabilities
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
19
20
38
21
22
23
19
24
25
38
21
22
26
27
29
66
2,300
186
268
1,232
2,305
477
6,834
1,609
103
246
241
128
19
68
2,414
199
123
6,054
6,377
(13)
6,364
137
1,975
362
424
741
2,180
473
6,291
983
22
298
190
80
85
53
1,711
204
(29)
5,858
6,032
(15)
6,017
15,612
14,019
(51.5)
16.5
(48.6)
(36.8)
66.2
5.7
1.0
8.6
63.7
357.7
(17.3)
26.8
60.2
(77.7)
29.2
41.1
(2.3)
n.a.
3.4
5.7
15.3
5.8
11.4
1 IFRS 9 and IFRS 15 are initially applied at January 1, 2018. Under the transition methods chosen, comparative information is not restated except for certain hedging requirements.
2 Restated according to IAS 8, see Note 03.
The accompanying Notes are an integral part of these consolidated financial statements.
636
2,496
201
402
573
2,023
434
6,765
982
22
355
289
44
120
46
1,859
201
743
5,053
5,997
(17)
5,980
14,604
1
4
9
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
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)
Marketing and point-of-sale expenses
(% of net sales)
Distribution and selling expenses
(% of net sales)
General and administration expenses
(% of net sales)
Sundry expenses
(% of net sales)
Impairment losses (net) on accounts receivable and contract assets
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
40
33
13, 15, 34
36
36
38
04
39
39
39
39
Year ending
Dec. 31, 2018
Year ending
Dec. 31, 2017
Change
21,915
10,552
11,363
51.8%
129
48
9,172
41.9%
3,001
13.7%
4,450
20.3%
1,576
7.2%
105
0.5%
41
2,368
10.8%
57
47
2,378
10.9%
669
28.1%
1,709
7.8%
5
1,704
7.8%
1,702
7.8%
3
8.46
8.45
8.44
8.42
21,218
10,514
10,703
50.4%
115
17
8,766
41.3%
2,724
12.8%
4,307
20.3%
1,568
7.4%
130
0.6%
37
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
3.3%
0.4%
6.2%
1.4pp
12.0%
187.9%
4.6%
0.5pp
10.2%
0.9pp
3.3%
0.0pp
0.5%
(0.2pp)
(19.7%)
(0.1pp)
12.0%
14.4%
1.1pp
24.1%
(49.6%)
17.6%
1.3pp
0.1%
(4.9pp)
26.2%
1.4pp
(98.2%)
55.0%
2.6pp
55.1%
2.6pp
(6.1%)
26.7%
27.4%
55.6%
56.5%
1
5
0
ADIDAS ANNUAL REPORT 2018 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
COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
adidas AG Consolidated Statement of Comprehensive Income (IFRS) 1 € 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 tax 2
Net loss on other equity investments (IFRS 9), net of tax
Subtotal of items of other comprehensive income that will not be reclassified subsequently to profit or loss
Items of other comprehensive income that will be reclassified to profit or loss when specific conditions are met
Net gain/(loss) on cash flow hedges and net foreign investment hedges, net of tax
Net gain on cost of hedging reserve, net of tax – options
Net loss on cost of hedging reserve, net of tax – forward contracts
Reclassification of foreign currency differences on loss of significant influence
Currency translation differences
Subtotal of items of other comprehensive income that 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 IFRS 9 and IFRS 15 are initially applied at January 1, 2018. Under the transition methods chosen, comparative information is not restated except for certain hedging requirements.
2 Includes actuarial gains or losses relating to defined benefit obligations, return on plan assets (excluding interest income) and the asset ceiling effect.
3 Restated according to IAS 8, see Note 03.
The accompanying Notes are an integral part of these consolidated financial statements.
Note
25
31
31
31
31
Year ending
Dec. 31, 2018
1,704
Year ending
Dec. 31, 2017
1,100
(13)
(8)
(21)
232
3
(10)
(4)
(49)
171
150
1,855
1,851
4
23
–
23
(375)
1
–
15
(481) 3
(840)
(818)
282
278
4
1
5
1
ADIDAS ANNUAL REPORT 2018 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
CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
adidas AG Consolidated Statement of Changes in Equity (IFRS) 1 € in millions
Note
Share
capital
Capital
reserve
Cumulative
currency
translation
differences
Hedging
reserve
Cost of
hedging
reserve –
options
Cost of
hedging
reserve –
forward
contracts
Other
reserves 2
Retained
earnings
Share-
holders’
equity
Non-
controlling
interests Total equity
Balance at December 31, 2016
IFRS 9 transition effect, net of tax
Adjustment according to IAS 8, net of tax
Balance at January 1, 2017
Other comprehensive income
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
IFRS 9 transition effect, net of tax
IFRS 15 transition effect, net of tax
Balance at January 1, 2018
Other comprehensive income
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, 2018
201
838
(52)
146
(52)
(468) 3
146
(375)
(468)
(375)
201
838
46
3
(0)
(0)
0
204
884
(520)
204
884
(520)
(54)
(229)
(6)
(234)
231
(54)
231
3
0
(5)
(0)
0
31
03
27
27
27
27
28
31
32
27
27
27
27
28
–
(6)
(6)
1
1
(5)
(5)
3
3
–
–
–
–
6
6
(10)
(10)
(182)
(182)
23
23
(159)
(159)
(21)
(21)
199
887
(574)
(3)
(3)
(5)
(180)
5,521
6
(475)
5,053
(1)
1,097
1,096
180
(73)
(15)
19
(405)
2
5,858
3
(25)
5,836
1,702
1,702
27
(996)
(19)
22
(528)
11
6,054
6,472
–
(475)
5,997
(819)
1,097
278
229
(73)
(15)
20
(405)
2
6,032
3
(25)
6,011
149
1,702
1,851
30
(1,001)
(19)
23
(528)
11
6,377
(17)
(17)
1
3
4
(1)
(15)
(0)
(0)
(15)
1
3
4
(1)
(13)
6,455
–
(475)
5,980
(818)
1,100
282
229
(73)
(15)
20
(406)
2
6,017
3
(25)
5,996
150
1,704
1,855
30
(1,001)
(19)
23
(530)
11
6,364
1
5
2
1 IFRS 9 and IFRS 15 are initially applied at January 1, 2018. Under the transition methods chosen, comparative information is not restated except for certain hedging requirements.
2 Reserves for remeasurements of defined benefit plans (IAS 19), option plans and acquisition of shares from non-controlling interest shareholders.
3 Adjusted according to IAS 8 with an amount of € 57 million, see Note 03.
The accompanying Notes are an integral part of these consolidated financial statements.
ADIDAS ANNUAL REPORT 2018 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
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 on sale of property, plant and equipment and intangible assets, net
Other non-cash expenses
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
Decrease/(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 (used in)/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, 2018
Year ending
Dec. 31, 2017
2,378
2,023
13, 14, 15, 34, 36
33
36
36
33, 34
05, 33
490
(3)
(10)
(24)
42
9
17
(90)
–
2,808
(209)
180
741
3,520
(40)
(815)
2,666
(20)
2,646
484
(1)
(75)
(25)
62
17
3
(30)
76
2,534
(477)
(216)
422
2,263
(65)
(556)
1,641
6
1,648
1
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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 sale 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:
Proceeds from long-term borrowings
Proceeds from issuance of a convertible bond
Payments for options related to a convertible bond
Repayments of finance lease obligations
Dividend paid to shareholders of adidas AG
Dividend paid to non-controlling interest shareholders
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, 2018
Year ending
Dec. 31, 2017
(96)
2
(611)
13
71
18
–
(0)
(56)
24
(636)
–
(636)
141
518
(35)
(2)
(528)
(1)
(1,000)
(22)
19
9
(49)
(951)
–
(951)
(29)
1,031
1,598
2,629
12
12
19
19
27
27
19
19
06
06
(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
1
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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
Herzogenaurach, 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.
01 » GENERAL
The consolidated financial statements of adidas AG as at
December 31, 2018 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, 2018, 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, 2018 and
have been applied for the first time to these consolidated
financial statements:
— IFRS 2 Amendment – Classification and Measurement of
Share-Based Payment Transactions (EU 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 previously accounted for
cash-settled share-based payment transactions with
performance conditions in line with the clarified guidance.
Additionally, adidas does not currently have share-based
payment transactions with net settlement features, nor
does the company regularly modify terms and conditions
of share-based payment transactions. Thus, this
amendment did not have any impact on the company’s
consolidated financial statements.
— 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 did not 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
former 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. The
standard eliminates the previous IAS 39 categories for
financial assets, which include held to maturity, loans and
receivables and available for sale. Instead, upon initial
recognition under IFRS 9, a financial asset is classified and
measured as follows: amortized cost, fair value through
other comprehensive income (equity), fair value through
other comprehensive income (debt instrument) or fair value
through profit or loss. In contrast, IFRS 9 largely retains
the existing requirements in IAS 39 for classification and
measurement of financial liabilities.
The respective classification is generally based on the
business model for managing financial assets or a group
of financial assets and its contractual cash flow
characteristics. On initial recognition of an equity
investment that is not held for trading, it is possible to
irrevocably elect to present subsequent changes of the
investment’s fair value in other comprehensive income.
This election is made on an investment-by-investment
basis. When these equity investments are sold or written
off, any unrealized gains and losses are reclassified to
retained earnings and not presented under profit or loss.
The standard introduces new requirements for the
impairment of financial instruments, contract assets, lease
receivables, loan commitments and financial guarantees
as well as revised requirements for hedging instruments.
The standard requires that not only historical data, but also
future expectations and projections are taken into
consideration when accounting for impairment losses
(‘expected credit loss’ model).
For transition purposes, adidas applied the modified
retrospective method and thus did not restate prior periods
regarding the classification and measurement (including
impairment). Comparative information was only restated
for the retrospective application of certain hedging
requirements. Changes to hedge accounting policies have
been applied prospectively except for the cost of hedging
(time value) of options. All hedging relationships designated
under IAS 39 at December 31, 2017 met the criteria for
hedge accounting under IFRS 9 at January 1, 2018 and are
therefore regarded as continuing hedging relationships.
The determination of the business model within which a
financial asset is held and the designation of certain
investments in equity instruments not held for trading as
at fair value through other comprehensive income have
been made on the basis of the facts and circumstances that
existed at the date of initial application.
Further details on the company’s categories, the treatment
of financial liabilities and hedges, and the impairment
methods according to IFRS 9 are presented in these
Notes.
SEE NOTE 02 Further information about the
changes and effects from the first-time application of
IFRS 9 on January 1, 2018 is contained in the respective
Notes.
SEE NOTES 02, 06, 07, 08, 09, 16, 17, 19, 20, 24, 31 AND 36
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NOTES
— 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 previous guidance on recognizing revenue in
accordance with IFRS, in particular IAS 18 'Revenue', IAS 11
'Construction Contracts' and IFRIC 13 'Customer Loyalty
Programmes'. The new standard provides a holistic
framework for all aspects of revenue recognition. IFRS 15
creates a single five-step model for recognizing revenue
arising from contracts with customers.
Under IFRS 15, revenue is recognized at the transfer of
control of the goods to the customer whereas under IAS 18
revenue recognition was dependent on the transfer of risks
and rewards. adidas determined that the accounting for
revenue recognition at the transfer of control is comparable
to previous practice in accordance with IAS 18. It was also
determined that customer incentives and options such as
volume rebates, cooperative advertising allowances and
slotting fees as well as any obligation of adidas to pay for
the delivery of goods to the customer do not create
performance obligations under IFRS 15. Under IAS 18,
customer incentives which were contractually agreed upon
were accounted for as sales discounts and were accrued
over the financial year. Customer incentives which were
not contractually agreed upon as well as promises that
were implied by adidas’ customary business practice and
did not bear the characteristics of a discount were
accounted for as marketing and point-of-sale expenses.
According to IFRS 15, customer incentives are now
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 accrued revenue related
to estimated returns based on past experience. adidas
previously recognized the return provision on a net basis
in the amount of the gross margin (i.e. the difference
between gross sales and cost of sales) for the products sold
which are expected to be returned. Under IFRS 15, a gross
presentation of the return provision is required. Therefore,
an asset for the right to recover products from customers
upon settling the refund liability is recognized.
The timing and measurement of sales-based licensing-out
of trademarks and royalties is similar to the previous
practice in accordance with IAS 18. Under IFRS 15, adidas
recognizes contract assets and liabilities in relation to
licensing-out contracts with fixed consideration. Except for
the separate 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.
adidas applied the modified retrospective method (also
called ‘cumulative effect method’) for transition to IFRS 15,
whereby the cumulative effect of the initial application of
IFRS 15 is presented in the opening balance as at
January 1, 2018. Accordingly, the comparative information
presented for 2017 was not restated. Instead, it was
accounted for according to the standards for revenue
recognition effective during the 2017 financial year.
Additionally, adidas applied the practical expedient for
transition with respect to contract modifications offered
in the IFRS 15 Amendment ‘Clarifications to IFRS 15’,
effective January 1, 2018. This expedient is only applicable
for the modified retrospective method. By applying this
practical expedient, on January 1, 2018, the company
reflected the effect of all contract modifications which
occurred before the date of initial application of IFRS 15 on
an aggregate basis. More information about the quantitative
impact from the application of IFRS 15 is provided in these
Notes.
SEE NOTE 32
— IAS 40 Amendment – Transfers of Investment Property
(EU 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 did not have an
effect on the company’s financial statements.
— IFRIC 22 – Foreign Currency Transactions and Advance
Consideration (EU effective date: January 1, 2018): This
new interpretation clarifies the accounting for transactions
that include the receipt or payment of advance 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 at the initial
recognition date. Therefore, this interpretation did not have
an impact on the consolidated financial statements.
— 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 did not have any 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, 2018, and which have not been applied in preparing
these consolidated financial statements are:
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NOTES
— 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'. For lessees, 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 term of more than twelve months. In contrast,
IFRS 16 substantially carries forward the lessor accounting
requirements in IAS 17.
adidas will apply IFRS 16 as of January 1, 2019 and
transition to IFRS 16 in accordance with the modified
retrospective approach with no adjustments to comparative
financial information and using practical expedients as
described below.
adidas has identified the main classes of leases where
adidas acts as a lessee, which include the following: land
and buildings, technical equipment and machinery,
furniture and fixtures, motor vehicles, computer hardware,
advertising spaces and other equipment. The company has
collected real estate lease contracts in its global real estate
lease management system, which captures the relevant
information from real estate lease contracts. Additionally,
adidas successfully implemented a technical system to
ensure the storage of data from non-real estate lease
contracts and a lease engine to guarantee IFRS 16-
compliant accounting valuations and measurements.
The company will make use of the recognition exemption
for leases of low value assets (i.e. value of the underlying
asset, when new, is € 5,000 or less) and short-term leases
(shorter than twelve months) resulting in an accounting
method which is similar to that previously used for
operating leases under IAS 17 for those leases.
According to the option offered in IFRS 16.4, adidas decided
to exclude leases for software from the scope of the new
standard. Instead, software leases are accounted for in
accordance with IAS 38.
IFRS 16 offers the lessee the option to combine lease
payments with payments for non-lease components in the
calculation of the lease liability and right-of-use asset per
class of asset. adidas will apply the option for all asset
classes except for real estate leases. For leases that have
been classified to date as operating leases in accordance
with IAS 17, the lease liability will be recognized at the
present value of the remaining lease payments, discounted
using incremental borrowing rates (in case the interest rate
implicit in the lease is not available) at the time the standard
is first adopted. The right-of-use assets will be initially
measured at the amount of the lease liabilities at
January 1, 2019 by making use of the exemption to exclude
initial direct costs from the measurement of the right-
of-use assets at the date of initial application.
The new standard will have a significant impact on the
company’s consolidated statement of financial position
upon initial application. adidas has a significant number of
operating leases worldwide – mainly pertaining to more
than 2,300 rented own-retail stores as well as rented offices
and warehouses.
As part of the group-wide implementation project, adidas
conducted an impact analysis indicating, at the date of
transition, an initial recognition of right-of-use assets and
lease liabilities in the statement of financial position in an
amount of around € 2.5 billion as a result of the transition
to IFRS 16 and the application of the practical expedient
described above.
The lease expenses will be presented by straight-line
depreciation charges on the right-of-use assets and
interest expenses due to the compounding of the lease
liabilities in accordance with the effective interest method.
Fixed payments on operating leases that were expensed
SEE NOTE 30
under IAS 17 will be eliminated under IFRS 16. These
changes will result in an expected decrease in net income
from continuing operations of around € 35 million in 2019
based on lease contracts as of January 1, 2019.
Due to the future presentation of lease payments as
financing activities under IFRS 16, the cash flows from
operating activities will increase and the cash flows from
financing activities will decline accordingly.
— IFRS 9 Amendment – Prepayment Features with Negative
Compensation (EU 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.
— IFRIC 23 – Uncertainty over Income Tax Treatments (EU
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 must be applied. This interpretation is
not expected to have an impact on the consolidated financial
statements.
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.
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NOTES
— IFRS 3 Amendment – Definition of a Business (IASB
effective date: January 1, 2020): The amendment adds
additional guidance in order to help entities determine
whether they have acquired a business or a group of assets.
This amendment is not expected to have any material
impact on the 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 1 and IAS 8 Amendments – Definition of Material (IASB
effective date: January 1, 2020): The amendment clarifies
the definition of ‘material’ and aligns the definition used in
the Conceptual Framework with the accounting standards
themselves. This amendment is not expected to have any
material impact on the consolidated financial statements.
— IAS 19 Amendment – Plan Amendment, Curtailment or
Settlement (IASB effective date: January 1, 2019): The
amendment makes it mandatory to determine the current
service cost and net interest for the period using the
assumptions used for remeasurement when a plan
amendment, curtailment or settlement occurs. This
amendment is not expected to have any material 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.
improvements
— Improvements to IFRSs (2015–2017) – Amendments to
IFRS 3, IFRS 11, IAS 12 and IAS 23 (IASB effective date:
January 1, 2019): These
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, derivative financial instruments and
plan assets which are measured at fair value.
The consolidated financial statements are presented in euro
(€) and, unless otherwise stated, all values are presented in
millions of euro (€ in millions). Due to rounding principles,
numbers presented may not exactly sum up to totals provided.
02 » SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
in
The consolidated financial statements are prepared
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.
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NOTES
The number of consolidated subsidiaries developed as follows
for the years ending December 31, 2018 and December 31,
2017, respectively:
income statement after a reassessment of the fair value of the
assets, liabilities and contingent liabilities has been performed.
Number of consolidated subsidiaries
January 1
First-time consolidated subsidiaries
Thereof: newly founded
Thereof: purchased
Deconsolidated/divested subsidiaries
Intercompany mergers
December 31
2018
129
–
–
–
(1)
–
128
2017
143
3
3
–
(17)
–
129
The subsidiaries are held either directly by adidas AG or indirectly
via the two holding companies adidas Beteiligungsgesellschaft
mbH in Germany or adidas International B.V. in the Netherlands.
A schedule of the shareholdings of adidas AG is shown in
Attachment II to the consolidated financial statements.
SEE SHAREHOLDINGS, P. 226 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
recognized as goodwill. A credit difference is recorded in the
The financial effects of intercompany transactions as well as
any unrealized gains and losses arising from intercompany
the
business relations are eliminated
consolidated financial statements.
in preparing
Principles of measurement
includes an overview of selected
The following table
subsequent measurement principles used in the preparation
of the consolidated financial statements.
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.
Overview of selected subsequent measurement principles
Item
Assets
Cash and cash equivalents
Cash and cash equivalents (investments in
money market funds)
Short-term financial assets
Accounts receivable
Contract assets
Inventories
Assets classified as held for sale
Property, plant and equipment
Goodwill
Intangible assets (except goodwill):
With definite useful life
With indefinite useful life
Financial assets
Liabilities
Borrowings
Accounts payable
Liabilities/provisions for cash-settled share-
based payment arrangements
Contract liabilities
Other financial liabilities
Provisions:
Pensions
Other provisions
Accrued liabilities
Subsequent measurement principle
Subsequent measurement principle IAS 39
Nominal amount
Nominal amount
Fair value through profit or loss
Fair value through profit or loss
Amortized cost
Impairment-only approach
Lower of cost and net realizable value
Lower of carrying amount and fair value less costs to sell
Amortized cost
Impairment-only approach
Nominal amount
Fair value through profit or loss
Amortized cost
Amortized cost
Impairment-only approach
See separate table
Amortized cost
Amortized cost
Fair value
Expected settlement amount
Amortized cost
Projected unit credit method
Expected settlement amount
Amortized cost
See separate table
Amortized cost
Amortized cost
Amortized cost
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NOTES
Financial assets are classified and measured according to
IFRS 9. Purchase and sale of financial assets are recognized
on the trade date and initially measured at fair value.
Subsequently a financial asset is measured at amortized cost,
fair value through other comprehensive
(debt
investment), fair value through other comprehensive income
(equity investment) or fair value through profit or loss.
income
A financial asset is measured at amortized cost if it meets
both of the following conditions and is not designated as at fair
value through profit or loss: financial asset which is held
within a business model whose objective is to hold assets to
collect contractual cash flows and its contractual terms give
rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.
A debt security is measured at fair value through other
comprehensive income if it meets both of the following
conditions and is not designated as at fair value through profit
or loss: financial asset which is held within a business model
whose objective is achieved by both collecting contractual
cash flows and selling financial assets and its contractual
terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount
outstanding.
On initial recognition of an equity investment that is not held
for trading, it is possible to make an irrevocable election to
present subsequent changes in the investment´s fair value in
other comprehensive income. This election is made on an
investment-by-investment basis.
All financial assets which are not classified as measured at
amortized cost or at fair value through other comprehensive
income as described above are measured at fair value through
profit or loss.
Financial assets are not reclassified to their initial recognition
unless the business model for managing financial assets is
changed, in which case all affected financial assets are
reclassified.
The subsequent measurement of financial assets is as follows:
Overview of financial asset subsequent measurement principles according to IFRS 9
IFRS 9 category
Subsequent measurement principle
Subsequent measurement
Fair value through profit or loss
Amortized cost
Fair value through other comprehensive income
(debt investment)
Fair value through other comprehensive income
(equity investment)
These assets are subsequently measured at fair value. Net
gains and losses, including any interest or dividend income,
are recognized in profit or loss.
These assets are subsequently measured at amortized cost
using the effective interest method. The amortized cost is
reduced by impairment losses. Interest income, foreign
exchange gains and losses and impairment are recognized
in profit or loss. Any gain or loss on derecognition is
recognized in profit or loss.
These assets are subsequently measured at fair value.
Interest income calculated using the effective interest
method, foreign exchange gains and losses and impairment
are recognized in profit or loss. Other net gains and losses
are recognized in other comprehensive income. On
derecognition, accumulated gains and losses are reclassified
to profit or loss.
These assets are subsequently measured at fair value.
Dividends are recognized as income in profit or loss unless
the dividend clearly represents a recovery of part of the cost
of the investment. Other gains and losses are recognized in
other comprehensive income and are never reclassified to
profit or loss.
Fair value through profit or loss
Amortized cost
Fair value through other comprehensive
income
Fair value through other comprehensive
income
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Overview of financial asset subsequent measurement principles according to IAS 39
IAS 39 category
Subsequent measurement principle
Subsequent measurement
At fair value through profit or loss
Held to maturity
Loans and receivables
Available-for-sale
Available-for-sale
These assets are subsequently measured at fair value. Net
gains and losses, including any interest or dividend income,
are recognized in profit or loss.
These assets are subsequently measured at amortized cost
using the effective interest method. The amortized cost is
reduced by impairment losses. Interest income, foreign
exchange gains and losses and impairment are recognized
in profit or loss. Any gain or loss on derecognition is recog-
nized in profit or loss.
These assets are subsequently measured at amortized cost
using the effective interest method. The amortized cost is
reduced by impairment losses. Interest income, foreign
exchange gains and losses and impairment are recognized
in profit or loss. Any gain or loss on derecognition is recog-
nized in profit or loss.
These assets are subsequently measured at fair value. Net
gains and losses are recognized in other comprehensive
income except dividends and impairment losses which are
shown in profit or loss.
At fair value through profit or loss
Amortized cost
Amortized cost
At fair value in other comprehensive
income
These assets are based on inputs other than quoted prices
that are observable for the asset either directly or indirectly
and subsequently measured at cost less impairment losses
and dividend receivables.
At cost
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
foreign
subsidiaries resulting from changes in exchange rates are
included in a separate item within shareholders’ equity
without affecting the income statement.
from the translation of equity of
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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
2018
1.1813
0.8847
2017
1.1266
0.8754
2018
1.1450
0.8945
2017
1.1993
0.8872
130.4030
126.2381
125.8500
135.0100
7.8051
73.9202
7.6116
65.5601
7.8584
79.5438
7.8365
69.0799
Hyperinflation
To reflect changes in purchasing power at the balance sheet
date, the carrying amounts of non-monetary assets and
liabilities, shareholders’ equity and comprehensive income at
subsidiaries in hyperinflationary economies are restated in
terms of a measuring unit current at the balance sheet date.
SEE NOTE 37 These are indexed using a general price index
in accordance with IAS 29 ‘Financial Reporting in Hyper-
inflationary Economies’. However, no restatement is required
for monetary assets and liabilities carried at amounts current
at the end of the balance sheet date, such as net realizable
value or fair value as well as for monetary items, because they
represent money held, to be received or to be paid.
Gains and losses from hyperinflation are included in the
financial result.
Non-monetary assets that have been restated following the
guidance in IAS 29 are still subject to impairment assessment
in accordance with the guidance in the relevant IFRSs.
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. Only the spot element of foreign
exchange deals and the intrinsic value of currency options are
designated in a hedge-relationship (spot-to-spot designation).
Changes in the fair value of derivatives that are designated
and qualify as cash flow hedges, and that are effective, as
defined in IFRS 9, are recognized in equity.
adidas applies the ‘cost of hedging’ approach for dedicated
cash flow hedges. Changes in the fair value of the time value
component of options, as well as the forward element in
forward contracts are recognized separately in equity. When
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.
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 IFRS 9. 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 with the exception of the cross-currency basis spread.
adidas documents
the relationship between hedging
instruments and hedge objects at transaction inception, as
well as the risk management objectives and strategies for
transactions. This process
undertaking various hedge
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includes linking all derivatives designated as hedges to
specific firm commitments and forecast transactions. adidas
also assesses the effectiveness and possible ineffectiveness
of its derivatives by using different methods of effectiveness
testing, such as the ‘dollar offset method’ or the ‘hypothetical
derivative method’.
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.
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 such as commercial
papers and investments in money market funds.
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.
Part of cash equivalents includes investments in money
market funds. Classification and measurement under IFRS 9
were performed based on the respective business model for
managing these investments and the contractual cash flow
characteristics. Money market funds contain cash flows other
than those of principal and interest on principal. As a result,
those investments are measured at fair value through profit
or loss.
Accounts receivable
Accounts receivable are recognized at the transaction price,
which represents the amount of consideration to which an
entity expects to be entitled in exchange for transferring
promised goods or services to a customer, excluding amounts
collected on behalf of third parties. Subsequently, these are
measured at amortized cost.
Other financial assets
Other financial assets are classified under IFRS 9 based on
the business model for managing these assets and the
contractual cash flow characteristics. Those other financial
assets that give rise to cash flows consisting only of payments
of principal and interest are classified in accordance with the
respective business model for managing the financial assets.
Financial assets that are held in a business model with the
objective to hold them until maturity and collect the
contractual cash flows are measured at amortized cost.
adidas mainly has security deposits and receivables from
credit cards/marketplaces which fall under this category.
Long-term financial assets which were previously classified
as available-for-sale and measured at fair value through
comprehensive income are now distinguished between debt
and equity instruments and classified according to IFRS 9
as follows:
Debt instruments are measured dependent on the business
model and the contractual cash flows. Only financial assets
that are held within the business model with the objective to
collect the contractual cash flows which represent solely
payments of principal and interest on the principal amount
outstanding are measured at amortized cost. adidas classifies
certain loans within this category. All other financial assets
which do not fulfill both of these criteria are measured at fair
value – either at fair value through profit or loss or at fair
value through other comprehensive income (debt). adidas has
no long-term financial assets in the category fair value
through comprehensive income (debt instrument) and shows
loans in the category fair value through profit or loss which do
not fulfill the characteristic cash flow criteria.
Other financial assets which are not managed within a
business model to collect contractual cash flows nor within a
business model to collect contractual cash flows and sell
financial assets are measured at fair value through profit or
loss. This mainly includes secured promissory notes and
earn-out components.
Generally, all investments in equity instruments are measured
at fair value through profit or loss. An irrevocable election can
be made at initial recognition to capture fair value changes in
other comprehensive income for instruments that are neither
held for trading nor contingent considerations recognized by
an acquirer.
Long-term financial assets
The purchase and sale of long-term financial assets is recognized
on the trade date and initially measured at fair value.
adidas has designated certain investments as equity securities
as at fair value through other comprehensive income (equity),
because these investments represent investments that the
company intends to hold for the long term for strategic
purposes. The designation of certain equity instruments at
fair value through other comprehensive income (equity) is
based on a strategic Management decision.
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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.
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
accumulated depreciation and accumulated
impairment
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.
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.
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
Expenditure for repairs and maintenance is expensed as
incurred. Renewals and improvements are capitalized and
depreciated separately, if the recognition criteria are met.
Impairment losses on non-financial assets
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’.
An impairment loss is recognized in other operating expenses
or reported in goodwill impairment losses if the carrying
amount exceeds the recoverable amount.
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. In
allocating an impairment loss, the carrying amount of an
individual asset is not reduced below its fair value. The amount
of the impairment loss that would otherwise have been
allocated to the asset is allocated pro rata to the other assets
of the cash-generating unit and groups of cash-generating
units, respectively.
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The impairment test for trademarks with indefinite useful lives
is performed on the relevant level 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 on financial assets
Impairment losses for debt financial assets measured at
amortized cost or at fair value through other comprehensive
income (debt) are recognized in accordance with IFRS 9
‘Financial Instruments’. The standard requires that not only
historical data, but also future expectations and projections
are taken into consideration when accounting for impairment
losses (‘expected credit loss’ model).
adidas consistently applies the simplified approach and
recognizes lifetime expected credit losses for all accounts
receivable. In order to calculate a collective loss allowance, all
accounts receivable sharing similar credit risk characteristics
are allocated into several portfolios based on geographical
regions and macroeconomic indicators. Historical payment
and aging patterns are analyzed individually for each of the
portfolios to determine the probability of default which is
further adjusted by forward-looking factors derived primarily
from the Credit Default Swap (CDS) spreads of the countries
where adidas runs its operations. The adjusted probability of
default is then applied in combination with a loss given default
and exposure at default to calculate the expected credit loss
for each portfolio and aging bucket. The rates are reviewed on
a regular basis to ensure that they reflect latest data on credit
risk. In case objective evidence of credit impairment is
observed for accounts receivable from a specific customer, a
detailed analysis of the credit risk is performed and an
appropriate individual loss allowance is recognized for this
customer. Accounts receivable are considered to be in default
when it is expected that the debtor will not fulfill its credit
obligations toward adidas.
Cash and cash equivalents measured at amortized cost are
subject to a general impairment approach under IFRS 9.
adidas applies the low credit risk exemption for a vast majority
of such instruments due to the investment grade of their
counterparties (defined by the company as equivalent of BBB+
or higher). A significant increase of credit risk is assumed
when the instruments are more than 30 days past due. The
company monitors the credit risk associated with cash and
cash equivalents taking into consideration the economic
environment, observing external credit ratings and/or CDS
spreads of counterparty financial institutions and establishing
exposure limits. Expected credit loss of cash and cash
equivalents is calculated based on the probability of default
and recovery rates derived from CDS spreads or external
credit ratings of the counterparties. Cash and cash equivalents
are considered to be in default when they are more than 90
days past due.
Other financial assets within the scope of IFRS 9 impairment
include mainly security deposits as well as accounts receivable
regarding credit card companies and electronic marketplaces.
Objective evidence that credit impairment of financial assets
has occurred includes, for instance, significant financial
difficulty of the debtor/issuer, indications of their potential
bankruptcy, the deterioration of the market for their products
and general macroeconomic problems. The gross carrying
amount of financial assets is written off when adidas, based
on a case-by-case assessment, assumes that their recovery
is no longer possible.
Impairment losses on accounts receivable are presented in
the line item ‘Impairment loses (net) on accounts receivable
and contract assets’ while impairment losses on all other
financial assets are shown in the line item ‘Financial expenses’
in the consolidated income statement.
Under previous policy based on IAS 39, which was in place
before January 1, 2018, adidas applied the ‘incurred credit
loss’ model for a calculation of impairment losses on its
accounts receivable. The rates used for recognizing the loss
allowances were determined based on the past due status of
the accounts receivable. However, unlike the company’s
current approach according to IFRS 9, there was no further
distinguishing between various asset portfolios according to
IAS 39. They also did not reflect any forward-looking
assumptions but rather focused on past experience.
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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 the minimum 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.
Intangible assets (except goodwill)
Intangible assets with indefinite useful lives (in particular
trademarks) are recognized at purchase cost and are subject
to an impairment test at least on an annual basis (‘impairment-
only’ approach).
Intangible assets with definite useful lives 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:
Under operating lease agreements, rent expenses are
recognized on a straight-line basis over the term of the lease.
Estimated useful lives of intangible assets
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 acquired identifiable assets, liabilities and contingent
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.
Goodwill is carried in the functional currency of the acquired
foreign entity.
Trademarks
Software
Patents, trademarks and licenses
Websites
1 For exceptions see Note 15.
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.
(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 recognition, directly
attributable transaction costs are assigned to the equity and
liability component pro rata on the basis of the respective
carrying amounts.
Provisions and accrued liabilities
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. Non-current provisions are discounted if
the effect of discounting is material.
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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 42
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.
Contract assets and contract liabilities
Contract assets and liabilities are recognized in connection
with revenues arising from the licensing-out of the right to
use the adidas and Reebok brands as well as various other
trademarks to third parties. Contract assets represent the
company’s right to consideration in exchange for rights that
adidas has transferred to a third party and contract liabilities
represent the company’s obligation to transfer rights to a
third party for which adidas has received consideration from
the third party. The subsequent measurement of contract
assets follows the impairment-only approach for financial
assets within the scope of IFRS 9. Contract liabilities are
measured at the expected settlement amount.
Revenue
Revenue derived from the sale of goods is recognized when
adidas has satisfied the respective performance obligation by
transferring the promised goods to the customer. The goods
are transferred when the customer obtains control of the
respective goods. The timing of the transfer of control depends
on the individual terms of the sales agreement (terms of
delivery).
Revenue is measured at the fair value of the consideration
received or receivable, net of returns, early payment discounts
and rebates.
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. Amounts for estimated returns related to revenues
are accrued based on past experience on average return rates
and average actual return periods by means of a refund
liability. The return assets are measured at the former
carrying amount of the inventory/product, less any handling
cost and any potential impairment.
Provided that the customers meet certain predefined
conditions, adidas grants its customers different types of
globally aligned performance-based rebates. Examples are
customers’ 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
require ments for being granted the rebate, this amount is
accrued by means of an accrued liability for marketing and sales.
Customer incentives and options as well as any obligation for
adidas to pay for the delivery of goods to the customer do not
create separate performance obligations under IFRS 15 and
are separated from revenue.
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 sales-
based royalty and commission income is recognized based on
the contract terms on an accrual basis. Contracts with
guaranteed minimum income result in contract assets and
contract liabilities depending on the timing of yearly payments
received from customers. The performance obligation related
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to these contract assets and liabilities is satisfied over the life
of the contract, whereby payments are received as arranged
in the contract with the customer.
Advertising and promotional expenditure
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.
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
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.
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.
Income taxes
Current income taxes are computed in accordance with the
applicable taxation rules established in the countries in which
adidas operates.
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.
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.
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.
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 28 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.
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,
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.
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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
SEE NOTE 15,
other provisions
SEE NOTE 25, derivatives
SEE NOTE 38, as well as litigation
SEE NOTE 14,
SEE NOTE 21, pensions
SEE NOTE 31, deferred taxes
trademarks
and other legal risks
SEE NOTE 42.
Judgments have also been used in classifying leasing
arrangements as well as in determining valuation methods
for intangible assets.
03» ADJUSTMENTS ACCORDING TO IAS 8
The German Financial Reporting Enforcement Panel (FREP)
performed an examination in accordance with § 342b section 2
sentence 3 No. 3 HGB (unlimited scope examination on a
sampling basis) of the consolidated financial statements of
adidas AG at December 31, 2016 and the related 2016 Group
management report. The responsible panel concluded that
the consolidated financial statements at December 31, 2016
were erroneous:
“The recoverability of the Reebok brand with a book value of
€ 1.47 billion could not be proven based on the documentation
provided by the company as at December 31, 2016. Although
losses of around € 150 million and restructurings indicate an
impairment of the cash-generating units Reebok with the
Reebok brand as a major asset, no impairment test was
conducted on the basis of the relevant cash-generating
Reebok business units. This violates IAS 36.12 in conjunction
with IAS 36.22, IAS 36.66 et seq. and § 238 German Commercial
Code (Handelsgesetzbuch – HGB).
The company conducted a test for impairment of the intangible
asset of the brand by determining the fair value of the Reebok
brand based on notional royalty savings (relief-from-royalty
method). The estimate is based on the assumption of strong
sales growth. Moreover, since the acquisition, an unchanged
royalty rate of 4.5% has been used although the brand has
sustainably failed to meet the sales targets and has regularly
not met its profitability targets since the acquisition of the
brand in 2006. Thus, in the present case, the use of non-
market-driven input factors and the valuation method
applied do not lead to the most reliable estimate of the fair
value of the Reebok brand. This violates IFRS 13.2, IFRS 13.9,
IFRS 13.61 et seqq. and IFRS 13.69 as well as IAS 36.105.”
After detailed examination, the Executive Board accepted
the findings. The error finding resulted in a retrospective
correction of the 2016 consolidated financial statements
according to IAS 8.41 et seqq.
The following table provides an overview of the impact of all
corrections:
Adjustment of the adidas AG opening consolidated statement of
financial position (IFRS) as at January 1, 2017 € in millions
Assets
Total current assets
Trademarks
Total non-current assets
Dec. 31, 2016
(as reported)
Adjustment
IAS 8
Opening
balance
Jan. 1, 2017 1
8,886
1,680
6,290
–
8,886
572
572
1,108
5,718
Total assets
15,176
572
14,604
Liabilities and equity
Total current liabilities
Deferred tax liabilities
Total non-current liabilities
Share capital
Reserves
Retained earnings
Shareholders’ equity
Non-controlling interests
Total equity
6,765
387
1,957
201
749
5,521
6,472
(17)
6,455
–
97
97
–
–
475
475
–
475
6,765
289
1,859
201
749
5,047
5,997
(17)
5,980
Total liabilities and equity
15,176
572
14,604
1 Excluding transition effect according to IFRS 9.
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Whereas the impairment test for the Reebok trademark was
initially performed based on its fair value using the relief-
from-royalty method, adidas re-performed the test for the
2016 financial year using the value-in-use concept for the
Reebok cash-generating units. The carrying amount of the
Reebok brand was therefore classified as a corporate asset
and allocated to the individual Reebok markets based on the
planned revenues. To fulfill the requirements set by the FREP
in its error statement, the projections required for performing
the impairment test on the level of the regional Reebok
markets were prepared for the first time at January 1, 2017
since the management and planning logic of the company did
not include such information for the regional Reebok markets
until the end of 2016 and such information cannot be
generated for the past.
The recoverable amount of the individual Reebok markets
was determined on the basis of value in use based on the
present value of the expected future cash flows. The individual
Reebok markets are defined as the regional markets which
are responsible for the distribution of the Reebok brand. In
the financial years 2016 and 2017, the regional markets were:
Western Europe, North America, Greater China, Russia/CIS,
Latin America, Japan, Middle East, South Korea and Southeast
Asia/Pacific. The number of cash-generating Reebok business
units amounted to a total of nine at the end of 2016. The
respective discount rates applied to the cash flow projections
of the respective cash-generating Reebok business units
range from 6.6% to 11.2%.
This calculation uses cash flow projections based on the
financial planning covering a four-year period in total. The
planning is based on long-term expectations of the company
and reflects in total for the Reebok markets an average annual
mid-single- to low-double-digit sales increase with varying
forecast growth prospects for the different Reebok markets.
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 of 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 Reebok markets. Cash flows beyond the
detailed planning period of the respective Reebok markets
are extrapolated using a steady growth rate of 1.7%. According
to the company’s expectations, this growth rate does not
exceed the long-term average growth rate of the business
sector in the individual markets in which Reebok 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 each Reebok market. The discount rates used
are after-tax rates and reflect the specific equity and country
risk of the relevant Reebok markets.
In total, trademark impairment losses of € 572 million were
retrospectively recognized in 2016 and the carrying amount of
the Reebok trademark at December 31, 2016 (as reported) in
the amount of € 1,470 million was adjusted according to IAS 8
to € 898 million at December 31, 2016. Deferred tax liabilities
related to the Reebok trademark were reduced by € 97 million.
cash-generating Reebok business units. In this context, there
was no need for any additional impairment or reversal of
impairment losses of the Reebok trademark in 2017.
The adjustments according to IAS 8 at January 1, 2017 impacted
December 31, 2017 as follows: Compared to the carrying
amount as reported at December 31, 2017, the Reebok
trademark decreased accordingly by € 503 million, deferred
tax liabilities by € 85 million and shareholders’ equity by
€ 417 million. Any changes in the adjustments compared to
January 1, 2017, solely relate to currency translation
differences.
04» DISCONTINUED OPERATIONS
The results of the Rockport, TaylorMade and CCM Hockey
operations that were sold in previous periods are shown as
discontinued operations
income
statement.
the consolidated
in
income statement
The net result of discontinued operations presented in the
consolidated
the year ending
December 31, 2018 mainly relates to the loss from the
operational business in an amount of € 5 million (2017:
losses of € 254 million). This is entirely attributable to the
shareholders of adidas AG.
for
A change in the discount rate by 1.0 percentage points or
a reduction of planned free cash inflows by 15% would result
in an additional impairment requirement of approximately
€ 90 million and € 100 million, respectively.
05 » DISPOSAL OF SUBSIDIARIES AS WELL AS
ASSETS AND LIABILITIES
In 2018, no disposal of subsidiaries took place.
Future changes in expected cash flows and discount rates
may lead to impairments and reversals of impairment losses
of the Reebok trademark.
For the 2017 financial year, an
impairment test was
retrospectively performed based on the respective groups of
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
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The credit risk of cash and cash equivalents measured at
amortized cost is insignificant due to their short-term
maturity, counterparties’ investment grade credit ratings and
established exposure limits. Therefore, adidas did not recognize
any credit impairment losses of those financial assets.
Information about cash and cash equivalents is presented in
these Notes.
SEE NOTE 31
07 » 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.
08 » ACCOUNTS RECEIVABLE
Accounts receivable consist mainly of the currencies US
dollar, euro as well as Chinese renminbi and are as follows:
Accounts receivable € in millions
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 at October 2, 2017. In 2019, the final
net working capital as well as other items of the agreement
were negotiated and agreed with the buyer. This had no
material impact on the consolidated income statement and
the consolidated statement of financial position.
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 at September 1, 2017. In 2018, no subsequent
material effects occurred in connection with the divestiture of
the CCM Hockey business.
NOTES TO THE CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
06 » CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash at banks, cash on
hand and short-term deposits.
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.
Accounts receivable, gross
Weighted average loss rate
Loss allowance
Accounts receivable, net
Collective loss allowance
Not yet
due
Past due
31 – 90 days
Past due
> 90 days
Dec. 31, 2018 Dec. 31, 2017
Individual
loss
allowance
Total
Total
Not credit-
impaired
Not credit-
impaired
Not credit-
impaired
Credit-
impaired
Credit-
impaired
2,069
0.8%
(17)
2,052
341
3.6%
(12)
328
32
31.2%
(10)
22
32
64.7%
(21)
11
138
96.5%
(133)
5
2,612
7.4%
(193)
2,418
2,484
6.8%
(169)
2,315
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Movement in loss allowances for accounts receivable € in millions
09 » OTHER CURRENT FINANCIAL ASSETS
Other current financial assets consist of the following:
Loss allowances at January 1 under IAS 39
Transition effect on initial application of
IFRS 9
Loss allowances at January 1 under IFRS 9
Net remeasurement of loss allowance
Write-offs charged against the loss
allowance accounts
Currency translation differences
Other changes
Loss allowances at December 31
2018
169
5
174
25
(4)
(1)
(0)
193
2017
177
–
–
7
(9)
(7)
0
169
Other current financial assets € in millions
Currency options
Forward exchange contracts
Security deposits
Sundry
Other current financial assets
Dec. 31,
2018
Dec. 31,
2017
19
200
56
268
542
12
98
44
239
393
An increase in the loss allowance mainly resulted from the
increase in the gross accounts receivable balance following
the net sales expansion.
In 2018, there were no material balances of accounts
receivable written-off but subject to enforcement activity.
Further information about credit risks is contained in these
Notes.
SEE NOTE 31
The line item ‘Sundry’ mainly relates to a secured promissory
note in the amount of € 26 million (2017: € 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 2019.
Other current financial assets include loss allowances in the
amount of € 3 million (2017: € 51 million). Loss allowances
mainly reflect credit impairment of security deposits.
Further information about currency options and forward
exchange contracts is contained in these Notes.
SEE NOTE 31
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10 » INVENTORIES
Inventories by major classification are as follows:
13 » PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Inventories € in millions
Property, plant and equipment € in millions
Merchandise and finished goods on hand
Goods in transit
Raw materials
Work in progress
Inventories
Dec. 31, 2018
Dec. 31, 2017
Allowance
for
obsoles-
cence
(117)
–
–
–
Gross value
2,588
966
7
0
Allowance
for
obsoles-
cence
(132)
–
–
–
Gross
value
2,716
1,103
5
0
Net
value
2,471
966
7
0
Net
value
2,584
1,103
5
0
3,562
(117)
3,445
3,824
(132)
3,692
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.
Prepaid expenses mainly relate to promotion and service
contracts as well as rents. Upon the adoption of IFRS 15,
return assets are recognized in relation to products sold with
right of return based on expected returns.
11 » OTHER CURRENT ASSETS
Other current assets consist of the following:
Other current assets € in millions
Prepaid expenses
Tax receivables other than income taxes
Return assets
Sundry
Other current assets, gross
Less: accumulated allowances
Other current assets, net
Dec. 31,
2018
Dec. 31,
2017
242
124
258
107
731
(6)
725
261
146
–
99
506
(8)
498
At December 31, 2018, the line item ‘Sundry’ includes contract
assets in an amount of € 10 million.
12 » ASSETS/LIABILITIES AND DISPOSAL
GROUPS CLASSIFIED AS HELD FOR SALE
At December 31, 2018, no assets/liabilities and disposal
groups classified as held for sale were reported.
At December 31, 2017, assets/liabilities held for sale comprised
a building of Reebok International Ltd. in an amount of
€ 72 million. The transaction was completed in March 2018.
At December 31, 2017, impairment loses (before transaction
costs) of € 1 million were included in operating profit.
Land, land leases, buildings and leasehold
improvements
Technical equipment and machinery
Other equipment as well as furniture and
fixtures
Less: accumulated depreciation and
impairment losses
Construction in progress, net
Property, plant and equipment, net
Dec. 31,
2018
Dec. 31,
2017
1,408
357
1,817
3,582
1,242
288
1,721
3,251
(1,824)
(1,629)
1,758
480
2,237
1,622
378
2,000
Depreciation expenses were € 409 million and € 358 million
for the years ending December 31, 2018 and 2017, respectively.
SEE NOTE 34
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 € 19 million and € 13 million for the years
ending December 31, 2018 and 2017, respectively.
SEE NOTE 34
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
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economic benefits. In 2018, reversals of impairment losses
were recorded in an amount of € 3 million (2017: € 1 million).
The increase in the line item ‘Construction in progress, net’
mainly relates to investments in the company’s headquarters
in Herzogenaurach and to intangible assets.
Additionally, borrowing costs in an amount of € 3 million
(2017: € 1 million) related to the construction of qualifying
assets at adidas AG were capitalized using a capitalization
rate of 1.3% (2017 1.3%).
Details are presented in Attachment I to the consolidated
financial statements.
SEE STATEMENT OF MOVEMENTS OF INTANGIBLE
AND TANGIBLE ASSETS, P. 224
14 » GOODWILL
Goodwill primarily relates to the acquisitions of the Reebok
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,
2018
Dec. 31,
2017
1,642
(396)
1,245
1,604
(383)
1,220
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 positive
€ 25 million and negative € 78 million was recorded for the
years ending December 31, 2018 and 2017, 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 based on its 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 to calculate the present value of those cash flows.
This calculation uses cash flow projections based on the
financial planning covering a four-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 low-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 four-year
period are extrapolated using steady growth rates of 1.7%
(2017: 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
the specific equity and country risk of the respective group of
cash-generating units.
Following the change
in the company’s management
reporting, effective January 1, 2018, as a result of the
consolidation of the four former markets Greater China,
Japan, South Korea and South East Asia & Pacific into one
market Asia-Pacific, the number of cash-generating units
decreased from twelve to nine in 2018.
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: Europe, North America adidas, North
America Reebok, Asia-Pacific, Russia/CIS, Latin America, and
Emerging Markets.
The carrying amounts of goodwill were reallocated to the new
cash-generating unit. The re-allocation of goodwill was
performed in the first quarter of 2018 by aggregating goodwill
so far allocated to the former single markets into the market
Asia-Pacific.
Due to a change in the composition of the company’s operating
segments and associated cash-generating units respectively,
adidas assessed in the first quarter of 2018 whether goodwill
impairment was required. In this context, there was no need
for goodwill impairment.
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, 2018 and 2017, respectively.
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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:
The reconciliation of goodwill is as follows:
Reconciliation of goodwill, net € in millions
Allocation of goodwill
Goodwill
(€ in millions)
Discount rate
(after taxes)
Dec. 31,
2018
Dec. 31,
2017
Dec. 31,
2018
Dec. 31,
2017
January 1, 2018
Re-allocation of goodwill
Currency translation differences
Decrease in companies consolidated
December 31, 2018
Europe
Asia-Pacific
adidas Golf
600
–
14
–
614
365
–
9
–
375
178
–
–
–
178
Emerging
Markets
77
–
2
–
78
Total
1,220
–
25
–
1,245
Europe
Asia-Pacific
adidas Golf
Emerging Markets
614
375
178
78
600
365
178
77
7.9%
7.9%
7.6%
9.1%
8.2%
8.1%
7.7%
9.5%
Total
1,245
1,220
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 45% would not result in any
impairment requirement.
15» TRADEMARKS AND OTHER INTANGIBLE
ASSETS
Trademarks and other intangible assets consist of the
following:
Trademarks and other intangible assets € in millions
At December 31, 2018, 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.
Future changes in expected cash flows and discount rates
may lead to impairments of the reported goodwill in the
future.
Reebok
Runtastic
Other
Details are presented in Attachment I to the consolidated
financial statements.
SEE STATEMENT OF MOVEMENTS OF INTANGIBLE
AND TANGIBLE ASSETS, P. 224
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,
2018
Dec. 31.
2017
1,353
1,292
adidas tests at least on an annual basis whether trademarks
are impaired based on the value-in-use concept on the basis
of the relevant cash-generating units.
31
10
(550)
844
912
(716)
196
1,039
31
9
(526)
806
839
(685)
154
960
The impairment test for the Reebok trademark is performed
based on Reebok cash-generating units in the individual
markets. This requires an estimate of the recoverable amount
of the Reebok groups of cash-generating units to which the
Reebok brand as corporate asset is allocated based on
planned revenues of the respective Reebok markets. The
recoverable amount of the respective Reebok markets was
determined on the basis of value in use based on the present
1
7
5
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value of the expected future cash flows. The individual Reebok
markets are defined as the regional markets which are
responsible for the distribution of the Reebok brand. The
regional Reebok markets are: Europe, North America, Asia-
Pacific, Russia/CIS, Latin America and Emerging Markets.
The number of cash-generating Reebok business units
amounted to a total of six at the end of 2018 (2017: nine).
This calculation uses cash flow projections based on the
financial planning covering a four-year period in total. The
planning is based on long-term expectations of the company
and reflects in total for the Reebok markets an average annual
low-single- to low-double-digit sales increase with varying
forecast growth prospects for the different Reebok markets.
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 of 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 Reebok markets. Cash flows beyond the
detailed planning period of the respective Reebok markets
are extrapolated using a steady growth rate of 1.7%. According
to the company’s expectations, this growth rate does not
exceed the long-term average growth rate of the business
sector in the individual markets in which Reebok 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 each Reebok market. The discount rates used
are after-tax rates and reflect the specific equity and country
risk of the relevant Reebok markets. The respective discount
rates applied to the cash flow projections of the respective
cash-generating Reebok business units range from 7.2% to
10.2% (2017: 7.2% to 11.1%).
For the Reebok trademark, there was no indication of a
potential impairment in 2018. A change in the discount rate by
up to approximately 1.25 percentage points or a reduction of
planned free cash inflows by up to approximately 22% would
not result in any impairment requirement. However, future
changes in expected cash flows and discount rates may lead
to impairments and reversals of impairment losses of the
Reebok trademark.
As part of the impairment tests, 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
Europe (€ 382 million), Asia-Pacific (€ 234 million), Emerging
Markets (€ 80 million), Russia/CIS (€ 73 million) and North
America Reebok (€ 59 million). All other trademarks are part
of the respective groups of cash-generating units.
The impairment test for the Runtastic trademark is likewise
performed based on the value-in-use concept on the relevant
cash-generating unit level. The cash-flow projections are
based on financial planning covering a five-year period in total
and reflect an average low- to mid-single-digit increase in
revenues and improved profitability, mainly driven by expected
economies of scale. The discount rate of 9.9% (2017: 9.6%)
used is an after-tax rate and reflects the specific equity and
country risk of Runtastic. There was no indication of a potential
impairment of the Runtastic trademark. A change in the
discount rate by up to approximately 0.2 percentage points or
a reduction of planned free cash inflows by up to approximately
2% would not result in any impairment requirement.
Amortization expenses for intangible assets with definite
useful lives were € 61 million and € 63 million for the years
ending December 31, 2018 and 2017, respectively. In 2018,
there were no impairment losses on other intangible assets
(2017: € 10 million).
SEE NOTE 34
Details are presented in Attachment I to the consolidated
financial statements.
SEE STATEMENT OF MOVEMENTS OF INTANGIBLE
AND TANGIBLE ASSETS, P. 224
16 » LONG-TERM FINANCIAL ASSETS
Long-term financial assets primarily include an 8.33% invest-
ment in FC Bayern München AG (2017: 8.33%) of € 83 million
(2017: € 82 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, 2018.
Other equity investments include minority shareholdings.
These shares are unlisted and do not have any active market
price. There is currently no intention to sell these shares.
Other minority shareholdings include negative fair value
adjustments in an amount of € 8 million in 2018 (2017:
€ 31 million). The minority shareholdings in Immobilieninvest
und Betriebsgesellschaft Herzo-Base GmbH & Co. KG were
sold in 2018.
The line item ‘Other investments’ comprises investments
which are mainly invested in insurance products, which are
measured at fair value, and securities for long-term variable
compensation components. Other
include
positive fair value adjustments in an amount of € 2 million in
2018 (2017: € 4 million).
investments
1
7
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Long-term financial assets € in millions
18 » OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
Gross borrowings as at December 31, 2018 € in millions
Investment in FC Bayern München AG
Other equity investments
Other investments
Loans
Long-term financial assets
Dec. 31,
2018
Dec. 31,
2017
83
61
131
1
276
82
64
89
1
236
Other non-current assets € in millions
Prepaid expenses
Sundry
Other non-current assets
Dec. 31,
2018
Dec. 31,
2017
87
7
94
108
0
108
Bank borrowings incl.
commercial paper
Eurobond
Equity-neutral
convertible bond
Total
Between
1 and 3
years
Between
3 and 5
years
More
than
5 years
Up to
1 year
66
–
–
66
38
597
–
635
38
–
484
522
66
387
–
453
Total
207
984
484
1,676
17 » 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
Revaluation of total return swap
Options
Security deposits
Earn-out components
Promissory notes
Sundry
Other non-current financial assets
Dec. 31,
2018
Dec. 31,
2017
8
8
3
20
74
21
122
0
256
14
1
–
–
67
19
118
0
219
Options are related to the hedging of the equity-neutral
convertible bond which was issued on September 5, 2018.
Further information about currency options and forward
exchange contracts is contained in these Notes.
SEE NOTE 31
Prepaid expenses mainly include prepayments for long-term
promotion contracts and rents.
SEE NOTES 42 AND 30
19 » 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, 2018 are
denominated in euro (2018: 97%; 2017: 91%).
The weighted average interest rate on the Group’s gross
borrowings decreased to 2.1% in 2018 (2017: 2.7%).
As at December 31, 2018, adidas had cash credit lines and
other long-term financing arrangements totaling € 3.7 billion
(2017: € 3.3 billion); thereof unused credit lines accounted
for € 2.0 billion (2017: € 2.1 billion). In addition, as at
December 31, 2018, adidas had separate lines for the issuance
of letters of credit and guarantees
in an amount of
approximately € 0.5 billion (2017: € 0.2 billion).
The above table includes two Eurobonds amounting to
€ 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 convertible bond issued on March 21, 2012 has been fully
converted (aggregate notional amount in 2017: € 31 million).
The bond was redeemed in 2018 prior to the maximum
maturity (including prolongation options) of June 14, 2019.
The bond was, 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 new or existing adidas AG
shares. In 2018, the bondholders converted an aggregate
notional amount of € 30.4 million of the convertible bond into
377,630 adidas AG shares.
SEE NOTE 27
1
7
7
Further information about promissory notes and earn-out
components is provided in these Notes.
SEE NOTE 05
The amounts disclosed as gross borrowings represent
outstanding borrowings under the following arrangements
with aggregated expiration dates as follows:
adidas AG was entitled to redeem all remaining bonds as a
whole if, at any time, the aggregate principal amount of bonds
outstanding fell below 15% of the aggregate principal amount
ADIDAS ANNUAL REPORT 2018
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of the bonds that were initially issued. Furthermore, as at
July 14, 2017, adidas AG was entitled to redeem all remaining
bonds as a whole if, on 20 of 30 consecutive trading days, the
adidas AG share price exceeded the current conversion price
of € 80.48 by at least 30%. adidas AG exercised the right to
redeem all bonds so that the main conversion was triggered.
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 € 81.13 to € 80.48
following a similar adjustment in 2017 (2017: € 81.57 to
€ 81.13). This adjustment became effective on May 10, 2018.
On September 5, 2018, adidas AG issued a € 500 million
equity-neutral convertible bond with a coupon of 0.05% due
on September 12, 2023. The issue price was fixed at 104% of
the notional amount, corresponding to an annual yield to
maturity of negative 0.73%. The initial conversion price was
determined to be € 291.84, a conversion premium of 40% over
the reference share price of € 208.46. The economic risk
exposure of share price movements was hedged by purchased
call options on ordinary adidas AG shares.
Gross borrowings as at December 31, 2017 € in millions
20 » OTHER CURRENT FINANCIAL LIABILITIES
Other current financial liabilities consist of the following:
Between
1 and 3
years
Between
3 and 5
years
More
than
5 years
Up to
1 year
Bank borrowings incl.
commercial paper
Eurobond
Convertible bond
Total
106
–
31
137
–
–
–
–
–
596
–
596
–
387
–
387
Total
106
983
31
1,120
Further details on future cash outflows are provided in the Risk
and Opportunity Report.
SEE RISK AND OPPORTUNITY REPORT, P. 131
Other current financial liabilities € in millions
Currency options
Forward exchange contracts
Finance lease obligations
Earn-out components
Sundry
Other current financial liabilities
Dec. 31,
2018
Dec. 31,
2017
0
94
10
15
68
186
3
271
0
21
67
362
The line item ‘Sundry’ mainly relates to payables due to
customs duties.
Further information about currency options and forward
exchange contracts is contained in these Notes.
SEE NOTE 31
Further information about finance lease obligations is
provided in these Notes.
SEE NOTE 30
1
7
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21 » OTHER PROVISIONS
Other provisions consist of the following:
22 » ACCRUED LIABILITIES
Accrued liabilities consist of the following:
Other provisions € in millions
Accrued liabilities € in millions
Marketing
Personnel
Returns and warranty1
Taxes, other than income taxes
Sundry
Other provisions
Jan. 1,
2018
Currency
translation
differences
Usage
Reversals
Additions
Transfers
Dec. 31,
2018
Thereof
non-current
27
117
261
27
391
821
(1)
2
4
0
(6)
(1)
(21)
(56)
(236)
(5)
(102)
(419)
(1)
(10)
(7)
(4)
(28)
(50)
24
130
583
10
219
965
–
6
4
(0)
34
44
28
188
608
28
508
1,360
–
78
–
–
50
128
Dec. 31,
2018
Thereof
non-current
Dec. 31,
2017
Thereof
non-current
Goods and services
not yet invoiced
Marketing and sales
Personnel
Sundry
917
893
488
25
Accrued liabilities
2,324
1
3
10
5
19
833
806
595
30
2,265
1
3
76
5
85
1 The additions include an IFRS 15 implementation effect in an amount of € 237 million.
Marketing provisions mainly consist of provisions
for
promotion contracts, which are comprised of obligations to
clubs and athletes.
Provisions for taxes other than income taxes mainly relate to
value added tax, real estate tax and motor vehicle tax.
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.
Provisions for returns and warranty primarily arise due to 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 and warranty as
well as current agreements. Further information on the
effects from the implementation of IFRS 15 is provided in
these Notes.
SEE NOTE 32
Sundry provisions mainly include provisions for customs
risks, onerous contracts as well as for dismantling and
restoration costs.
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
until the preparation of the consolidated financial statements
is taken into account.
transfers
The
liabilities’.
include reclassifications
from
‘Accrued
Accrued liabilities for marketing and sales mainly consist of
accruals for distribution, such as discounts, rebates and sales
commissions.
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.
1
7
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23 » OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
24 » OTHER NON-CURRENT FINANCIAL
LIABILITIES
Other non-current financial liabilities consist of the following:
25 » 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.
Other current liabilities € in millions
Tax liabilities other than income taxes
Liabilities due to personnel
Liabilities due to social security
Deferred income
Customers with credit balances
Sundry
Other current liabilities
Other non-current financial liabilities € in millions
Dec. 31,
2018
Dec. 31,
2017
178
49
23
73
113
41
477
200
65
22
53
54
78
473
Currency options
Forward exchange contracts
Revaluation of total return swap
Embedded derivatives
Finance lease obligations
Earn-out components
Sundry
Dec. 31,
2018
Dec. 31,
2017
Pensions and similar obligations € in millions
0
2
–
20
81
–
0
0
9
4
–
3
5
1
Liability arising from defined benefit pension
plans
Similar obligations
Pensions and similar obligations
Dec. 31,
2018
Dec. 31,
2017
244
2
246
295
2
298
Contract liabilities arising from the licensing-out of the right
to use the adidas and Reebok brands as well as various
other trademarks to third parties initially recognized as at
January 1, 2018 amounted to € 1 million and were recognized
as revenue for the year ending December 31, 2018. Contract
liabilities are included in the line item ‘Sundry’.
Other non-current financial liabilities
103
22
Embedded derivatives relate to the equity-neutral convertible
bond which was issued on September 5, 2018. Finance lease
obligations are mainly related to two buildings at the adidas
headquarters in Herzogenaurach.
The line item ‘Sundry’ mainly consists of liabilities relating to
advance payments from customers.
Further information about currency options and forward
exchange contracts is provided in these Notes.
SEE NOTE 31
information about finance lease obligations
is
Further
provided in these Notes.
SEE NOTE 30
Defined contribution pension plans
The total expense for defined contribution plans amounted to
€ 74 million in 2018 (2017: € 67 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.
1
8
0
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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. 41
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
setting
the
contributions with the company and determining the
investment strategy of the scheme.
funding objective, agreeing
the scheme’s
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.
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
Dec. 31, 2018
Dec. 31, 2017
Germany
UK South Korea
Germany
UK South Korea
231
114
78
424
–
45
6
51
22
–
–
22
203
106
77
386
–
52
7
59
18
–
–
18
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.
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.
Amounts for defined benefit pension plans recognized in the
consolidated statement of financial position € in millions
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,
2018
Dec. 31,
2017
515
(303)
212
32
–
244
244
202
(0)
–
482
(218)
264
31
0
295
295
248
(0)
–
1
8
1
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NOTES
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
turnover). The actuarial
as mortality and employee
the actual
assumptions may differ significantly
circumstances and could lead to different cash flows.
from
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 € 24 million
(2017:
€ 25 million) relates to employees of adidas AG, € 1 million
(2017: € 1 million) relates to employees in the UK and
€ 4 million (2017: € 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.
Weighted average actuarial assumptions in %
Present value of the defined benefit obligation € in millions
Pension expenses for defined benefit pension plans € in millions
Discount rate
Expected rate of salary increases
Expected pension increases
Dec. 31,
2018
Dec. 31,
2017
2.3
3.6
1.7
2.3
3.7
1.6
Current service cost
Net interest expense
Thereof: interest cost
Thereof: interest income
Past service cost
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 2018 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.
Loss/(gain) on plan settlements
Expenses for defined benefit pension plans
(recognized in the consolidated income
statement)
Actuarial losses/(gains)
Thereof: due to changes in financial
assumptions
Thereof: due to changes in demographic
assumptions
Thereof: due to experience adjustments
Loss/(return) on plan assets (not included in
net interest income)
Asset ceiling effect
Remeasurements for defined benefit pension
plans (recognized as decrease/(increase) in
other reserves in the consolidated statement
of comprehensive income)
Total
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
2018
2017
26
6
11
(5)
1
0
33
10
(18)
(0)
28
11
(0)
20
54
27
7
11
(4)
1
(0)
34
(21)
(22)
(2)
2
(7)
(0)
(29)
5
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 losses/(gains)
Thereof: due to changes in financial
assumptions
Thereof: due to changes in demographic
assumptions
Thereof: due to experience adjustments
Past service cost
Loss/(gain) on plan settlements
Business combinations/transfers/divestitures
Present value of the obligation from defined
benefit pension plans as at December 31
513
1
26
11
0
(15)
(0)
10
(18)
(0)
28
1
0
0
516
(7)
27
11
0
(11)
(0)
(21)
(22)
(2)
2
1
(0)
(2)
547
513
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
for Germany, the UK and South Korea. In addition, the average
duration of the obligation is shown.
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ADIDAS ANNUAL REPORT 2018
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5 ADDITIONAL INFORMATION
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STATEMENTS
NOTES
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)
Dec. 31, 2018
Dec. 31, 2017
Germany
UK South Korea
Germany
UK South Korea
424
390
462
17
51
45
59
26
22
21
23
7
386
355
422
17
59
51
67
28
18
18
19
7
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
(Loss)/return on plan assets (not included in
net interest income)
Settlement payments
Business combinations/transfers/divestitures
Fair value of plan assets at December 31
2018
218
(0)
(6)
97
0
5
(11)
–
–
303
2017
178
(3)
(4)
36
0
4
7
–
(1)
218
Approximately 95% (2017: 93%) of the total plan assets are
allocated to plan assets in the three major countries: Germany
(2018: 73%, 2017: 63%), UK (2018: 16%, 2017: 23%) and South
Korea (2018: 6%, 2017: 7%).
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 2018, an amount of
€ 90 million in cash was transferred to the trustee. The plan
assets in the registered association are mainly invested in real
estate, cash and cash equivalents, equity index funds and
hybrid bonds. Another part of the plan assets in Germany is
invested in insurance contracts via a pension fund and a
provident fund. For this portion, an insurance entity is
responsible for the determination and the implementation of
the investment strategy.
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.
The expected payments for the 2019 financial year amount to
€ 16 million. Thereof, € 10 million relates to benefits directly
paid to pensioners by the subsidiaries and € 6 million to
employer contributions paid into the plan assets. In 2018, the
actual loss on plan assets (including interest income) was
€ 6 million (2017: return of € 11 million).
Composition of plan assets € in millions
Cash and cash equivalents
Equity instruments
Bonds
Real estate
Pension plan reinsurance
Investment funds
Other assets
Dec. 31,
2018
Dec. 31,
2017
58
30
33
85
48
50
0
19
26
26
50
46
51
0
Fair value of plan assets
303
218
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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NOTES
26 » OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
Other non-current liabilities € in millions
(Aktiengesetz – AktG). As at the balance sheet date, adidas AG
held 1,244,841 treasury shares, corresponding to a notional
amount of € 1,244,841 in the nominal capital and consequently
to 0.62% of the nominal capital.
Association) – must not exceed 10% of the nominal capital
existing at the date of the respective issuance. This
deduction clause shall not apply if residual amounts of
shares are excluded from subscription rights;
Liabilities due to personnel
Deferred income
Sundry
Other non-current liabilities
Dec. 31,
2018
Dec. 31,
2017
2
64
2
68
2
51
0
53
27 » SHAREHOLDERS’ EQUITY
As at December 31, 2017, the nominal capital of adidas AG
amounted to € 209,216,186 divided into 209,216,186 registered
no-par-value shares and was fully paid in.
With legal effect as at October 22, 2018, the nominal capital
was reduced from € 209,216,186 to € 200,416,186 by
cancelation of 8,800,000 treasury shares. The change in the
nominal capital due to the cancelation of shares and the
capital reduction was registered for declaratory entry in the
commercial register. The entry was made on December 14,
2018.
Authorized Capital
The Executive Board of adidas AG did not utilize the existing
amount of authorized capital of up to € 90 million in the 2018
financial year or in the period beyond the balance sheet date.
The authorized capital of adidas AG, which is set out in § 4
sections 2, 3, 4, and 5 of the Articles of Association as at the
balance sheet date, entitles the Executive Board, subject to
Supervisory Board approval, to increase the nominal capital
based on the authorization granted by resolution of the Annual
General Meeting of May 11, 2017 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);
based on the authorization granted by resolution of the Annual
General Meeting of May 11, 2017 until June 7, 2020
There were no other changes to the nominal capital. Thus, as
at the balance sheet date, and in the period beyond, the
nominal capital of adidas AG amounted to a total of
€ 200,416,186 divided into 200,416,186 registered no-par-
value shares and is fully paid in.
— 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);
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
The overall volume of the shares issued based on this
authorization with the exclusion of subscription rights –
together with shares issued against contributions in cash
with a simplified exclusion of subscription rights from the
Authorized Capital 2017/III (§ 4 section 4 of the Articles of
based on the authorization granted by resolution of the Annual
General Meeting of May 11, 2017 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
pursuant to § 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
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NOTES
which the resolution on utilization of the authorization is
adopted;
The overall volume of the shares issued based on this
authorization with the exclusion of subscription rights –
together with shares issued against contributions in kind
with the exclusion of subscription rights from the Authorized
Capital 2017/II (§ 4 section 3 of the Articles of Association)
– must not exceed 10% of the nominal capital existing at
the date of the respective issuance. This deduction clause
shall not apply if residual amounts of shares are excluded
from subscription rights;
based on the authorization granted by resolution of the Annual
General Meeting of May 12, 2016 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
(Authorized Capital 2016). Shareholders’ subscription
rights shall be excluded. 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 adidas AG’s affiliated companies.
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 9, 2018. It does not
comprise the contingent capital 2014 canceled by the Annual
General Meeting on May 9, 2018, which had not been utilized
up to and including May 9, 2018. 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 a
total of 36,000,000 shares
the
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
in compliance with
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 with the exclusion of shareholders’ subscription rights.
The bonds were listed on the Open Market segment of the
Frankfurt Stock Exchange. The conversion rights were
time between May 21, 2012 and
exercisable at any
June 5, 2019, subject to lapsed conversion rights as set out
under § 6 section 3 of the bond terms and conditions 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 of the bond terms and conditions or a change
of control in accordance with § 13 of the bond terms and
conditions) the convertible bond could be converted into
6,212,778 shares of adidas AG based on a conversion price of
most recently € 80.48 per share. The convertible bond bore an
interest rate of 0.25% per annum. Bondholders were entitled
to demand early redemption of the bonds as at June 14, 2017.
As of July 14, 2017, adidas AG had the right to conduct an
early redemption of the bond, if, on 20 of 30 consecutive
trading days, the share price of adidas AG exceeded the
current conversion price of most recently € 80.48 by at least
30%. In the year under review, the company exercised its right
to redeem outstanding bonds early. The convertible bond
was thus fully converted or redeemed and no more shares
can be issued from the Contingent Capital 2010. Details
regarding the servicing of the convertible bond with treasury
shares are provided in this Note.
SEE REPURCHASE AND USE OF
TREASURY SHARES, P. 186
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 until the balance sheet date and
in the period beyond.
Contingent Capital 2018
The nominal capital is conditionally increased by up to
€ 12.5 million divided into not more than 12,500,000 no-par-
value shares (Contingent Capital 2018). The contingent capital
increase serves the issuance of no-par-value shares when
exercising option or conversion rights or fulfilling the
respective option and/or conversion duties or when exercising
the company’s right to choose to partially or in total deliver
no-par-value shares of the company instead of paying the due
amount to the holders or creditors of bonds issued by the
company or a subordinated Group company up to May 8, 2023
on the basis of the authorization resolution adopted by the
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ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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NOTES
in accordance with
Annual General Meeting on May 9, 2018. The new shares will be
issued at the respective option or conversion price to be
the aforementioned
established
authorization resolution. 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 the
company 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 9, 2018 (Agenda
Item 8), up to May 8, 2023 and guaranteed by the company,
exercise their option or conversion rights or, if they are obligated
to exercise the option or conversion duties, fulfill their
obligations to exercise the warrant or convert the bond, or to
the extent that the company exercises its rights to choose to
deliver shares in the company 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 public
listed company are used to service these rights. 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.
fractional amounts and
The Executive Board is also authorized, subject to Supervisory
Board approval, to exclude shareholders’ subscription rights
for
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. Finally, 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. Treasury shares
which are or will be sold with the exclusion of subscription
rights, pursuant
rights in accordance with § 71 section 1 no. 8 in conjunction
with § 186 section 3 sentence 4 AktG between the starting date
of the term of this authorization and the issuance of the
respective bonds are attributed to the above-mentioned limit of
10%. Shares which are or will be issued, subject to the exclusion
of subscription
to § 186 section 3
sentence 4 AktG or pursuant to § 203 section 1 in conjunction
with § 186 section 3 sentence 4 AktG between the starting date
of the term of this authorization and the issuance of the
respective bonds in the context of a cash capital increase are
also attributed to the above-mentioned limit of 10%. Finally,
shares for which there are option or conversion rights or
obligations or a right to delivery of shares of the company in
favor of the company due to bonds with warrants or convertible
bonds issued by the company or its subordinated Group
companies, subject to the exclusion of subscription rights, in
accordance with § 221 section 4 sentence 2 in conjunction with
§ 186 section 3 sentence 4 AktG during the term of this
authorization based on other authoriza tions are attributed to
the above-mentioned limit of 10%.
In the period up until the balance sheet date and beyond, the
Executive Board of adidas AG did not issue any bonds based
on the authorization granted on May 9, 2018 and consequently
did not issue any shares from the Contingent Capital 2018.
Repurchase and use of treasury shares
The Annual General Meeting on May 12, 2016 granted the
Executive Board an authorization to repurchase adidas AG
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 above-mentioned authorization, the Executive
Board of adidas AG commenced a share buyback program on
March 22, 2018. While the company may use the repurchased
shares for all purposes admissible under the authorization
granted on May 12, 2016 with the exception of the transfer of
shares as a compensation component for the company’s
Executive Board members, adidas AG plans to cancel the
majority of the repurchased shares.
In March 2018, 161,888 shares were purchased for a total
price of € 31,570,000 (excluding incidental purchasing costs),
i.e. for an average price of € 195.01 per share. This
corresponded to a notional amount of € 161,888 in the
nominal capital and consequently to 0.08% of the nominal
capital. In April 2018, 479,177 shares were purchased for a
total price of € 98,679,134 (excluding incidental purchasing
costs), i.e. for an average price of € 205.93 per share. This
corresponded to a notional amount of € 479,177 in the nominal
capital and consequently to 0.23% of the nominal capital. In
May 2018, 617,854 shares were purchased for a total price of
€ 120,189,124 (excluding incidental purchasing costs), i.e. for
an average price of € 194.53 per share. This corresponded to
a notional amount of € 617,854 in the nominal capital and
consequently to 0.3% of the nominal capital.
On May 24, 2018, the company (including the shares purchased
since 2014) exceeded the reportable threshold of 3% of the
shares in adidas AG as defined by § 40 section 1 sentence 2
German Securities Trading Act (Wertpapierhandelsgesetz –
WpHG). The share of voting rights amounted to 3.008%
(6,293,433 shares) at that time.
In June 2018, 1,539,068 shares were purchased for a total
price of € 293,306,320 (excluding incidental purchasing costs),
i. e. for an average price of € 190.57 per share. This
corresponded to a notional amount of € 1,539,068 in the
nominal capital and consequently to 0.74% of the nominal
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OUR COMPANY
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STATEMENTS
NOTES
capital. In July 2018, 336,046 shares were purchased for a
total price of € 62,777,49 (excluding incidental purchasing
costs), i.e. for an average price of € 186.81 per share. This
corresponded to a notional amount of € 336,046 in the nominal
capital and consequently to 0.16% of the nominal capital. In
August 2018, 345,975 shares were purchased for a total price
of € 70,279,340 (excluding incidental purchasing costs), i.e.
for an average price of € 203.13 per share. This corresponded
to a notional amount of € 345,975 in the nominal capital and
consequently to 0.17% of the nominal capital. In September
2018, 270,019 shares were purchased for a total price of
€ 6,546,586 (excluding incidental purchasing costs), i. e. for an
average price of € 209.42 per share. This corresponded to a
notional amount of € 270,019 in the nominal capital and
consequently to 0.13% of the nominal capital. In October 2018,
508,407 shares were purchased for a total price of
€ 101,380,438 (excluding incidental purchasing costs), i.e. for
an average price of € 199.41 per share. This corresponded to
a notional amount of € 508,407 in the nominal capital which
was reduced from € 209,216,186 to € 200,416,186 with legal
effect from October 22, 2018 and consequently to 0.25% of the
nominal capital.
On October 22, 2018, adidas AG fell below the reportable
threshold of 3% of the shares in adidas AG as defined by § 40
section 1 sentence 2 WpHG due to the cancelation of treasury
shares and the capital reduction. The share of voting rights
amounted to 0.2226% (446,196 shares) at that time.
In November 2018, 640,749 shares were purchased for a total
price of € 127,377,313 (excluding incidental purchasing costs),
i.e. for an average price of € 198.79 per share. This
corresponded to a notional amount of € 640,749 in the nominal
capital and consequently to 0.32% of the nominal capital. In
December 2018, 190,696 shares were purchased for a total
price of € 37,779,261 (excluding incidental purchasing costs),
i.e. for an average price of € 198.11 per share. This
corresponded to a notional amount of € 190,696 in the nominal
capital and consequently to 0.10% of the nominal capital.
Under the authorization granted, adidas AG repurchased a
total of 5,089,879 shares for a total price of € 999,885,165
(excluding incidental purchasing costs), i.e. for an average
price of € 196.45 per share, in a first tranche between
March
2, 2018 and December 4, 2018 inclusive. This
corresponded to a notional amount of € 5,089,879 in the
nominal capital which was reduced from € 209,216,186 to
€ 200,416,186 with legal effect from October 22, 2018 and
consequently to 2.54% of the nominal capital. adidas AG
reserves the right to continue the share buyback program in
the future in alignment with the published parameters.
SEE DISCLOSURES PURSUANT TO § 315A SECTION 1 AND § 289A SECTION 1 OF THE
GERMAN COMMERCIAL CODE, P. 120
In the 2018 financial year, a total of 377,630 treasury shares
were used to meet obligations arising from the convertible
bond issued by adidas AG. The convertible bond was fully
converted or redeemed.
Moreover, in the 2018 financial year, 22,360 treasury shares
were used as consideration, inter alia for the transfer or
licensing of
intangible
property rights due to contractual obligations.
intellectual property rights and
In the 2018 financial year and beyond, adidas AG used a total
of 9,199,990 treasury shares (including the treasury shares
canceled).
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.
Outside the share buyback program initiated in March 2018,
the company purchased adidas AG shares in connection with
this employee stock purchase plan. 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 also purchased a
further 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.
On April 9, 2018, adidas AG purchased a further 24,104
adidas AG shares at an average price of € 201.88 in connection
with the employee stock purchase plan. This corresponded to
a total price of € 4,866,054 (excluding incidental purchasing
costs) with a pro rata amount or an amount in the nominal
capital of € 24,104 or 0.012%. At the same time, adidas AG
also purchased a further 2,751 adidas AG shares at an average
price of € 201.88, which were used as matching shares. This
corresponded to a total price of € 555,365 (excluding incidental
purchasing costs) with a pro rata amount or an amount in the
nominal capital of € 2,751 or 0.0013%. All shares purchased
for this purpose on April 9, 2018 were issued to eligible
employees on April 11, 2018.
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NOTES
On July 6, 2018, adidas AG purchased a further 30,504
adidas AG shares at an average price of € 182.47 in connection
with the employee stock purchase plan. This corresponded to
a total price of € 5,566,187 (excluding incidental purchasing
costs) with a pro rata amount or an amount in the nominal
capital of € 30,504 or 0.015%. At the same time, adidas AG
also purchased a further 3,040 adidas AG shares at an average
price of € 182.47, which were used as matching shares. This
corresponded to a total price of € 554,721 (excluding incidental
purchasing costs) with a pro rata amount or an amount in the
nominal capital of € 3,040 or 0.0014%. All shares purchased
for this purpose on July 6, 2018 were issued to eligible
employees on July 10, 2018.
On October 8, 2018, adidas AG purchased a further 25,863
adidas AG shares at an average price of € 205.91 in connection
with the employee stock purchase plan. This corresponded to
a total price of € 5,325,449 (excluding incidental purchasing
costs) with a pro rata amount or an amount in the nominal
capital of € 25,863 or 0.012%. At the same time, adidas AG
also purchased a further 2,689 adidas AG shares at an average
price of € 205.91, which were used as matching shares. This
corresponded to a total price of € 553,673 (excluding incidental
purchasing costs) with a pro rata amount or an amount in the
nominal capital of € 2,689 or 0.0013%. All shares purchased
for this purpose on October 8, 2018 were issued to eligible
employees on October 12, 2018.
On January 8, 2019, adidas AG purchased a further 29,328
adidas AG shares at an average price of € 195.72 in connection
with the employee stock purchase plan. This corresponded to
a total price of € 5,739,980 (excluding incidental purchasing
costs) with a pro rata amount or an amount of € 29,328 in the
nominal capital which was reduced from € 209,216,186 to
€ 200,416,186 with legal effect from October 22, 2018 or
0.015%. At the same time, adidas AG also purchased a further
3,349 adidas AG shares at an average price of € 195.72, which
were used as matching shares. This corresponded to a total
price of € 655,455 (excluding incidental purchasing costs) with
a pro rata amount or an amount of € 3,349 in the nominal
capital which was reduced from € 209,216,186 to € 200,416,186
with legal effect from October 22, 2018 or 0.002%. All shares
purchased for this purpose on January 8, 2019 were issued to
eligible employees on January 10, 2019.
SEE DISCLOSURES
PURSUANT TO § 315A SECTION 1 AND § 289A SECTION 1 OF THE GERMAN
The following table reflects reportable shareholdings in
adidas AG, Herzogenaurach, as at the balance sheet date and
beyond which have each been notified to adidas AG in written
form. In each case, the details relate to the most recent voting
rights notification received by adidas AG from the parties
obligated to notify. All voting rights notifications disclosed
by adidas AG in the year under review and beyond are available
the corporate website. ↗ ADIDAS-GROUP.COM/S/VOTING-RIGHTS-
on
COMMERCIAL CODE, P. 120,
SEE NOTES 02 AND 28
NOTIFICATIONS
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 WpHG need to be disclosed.
The details on the percentage of shareholdings and voting
rights may no longer be up to date.
Notified reportable shareholdings
Notifying party
Date of reaching,
exceeding or
falling below
Reporting
threshold
BlackRock, Inc., Wilmington, DE, USA
December 28, 2018
Exceeding 5%
Notification
obligations and
attributions in
accordance with
WpHG 1
§§ 34, 38 sec. 1
no. 1, 38 sec. 1
no. 2
Ségolène Gallienne
Gérald Frère
The Desmarais Family Residuary Trust, Montreal, Canada
Elian Corporate Trustee (Cayman) Limited, Grand Cayman,
Cayman Islands
December 3, 2018
Exceeding 5%
December 3, 2018
Exceeding 5%
November 19,
2018
Exceeding 5%
§ 34
§ 34
§ 34
December 16, 2016
Exceeding 5%
§§ 21, 25 sec. 1
no. 2
FMR LLC, Wilmington, DE, USA
May 12, 2016
Exceeding 5%
§ 22
Capital Research and Management Company, Los Angeles,
CA, USA
July 22, 2015
Exceeding 3%
The Capital Group Companies, Inc., Los Angeles, CA, USA
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
1 The provisions of the WpHG stated refer to the version applicable at the time of publication of the respective individual voting rights notification.
Shareholdings
in %
Number of
voting rights
5.49
7.83
7.83
8.09
5.71
5.31
3.02
11,005,628
15,694,711
15,694,711
16,214,074
11,950,482
11,117,704
6,325,110
3.02
6,325,110
1
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ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
NOTES
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.
Financial leverage amounts to negative 15.0% (2017: negative
8.0%) 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 € 959 million (2017: negative € 484 million)
and shareholders’ equity in an amount of € 6.377 billion
(2017: € 6.032 billion). EBITDA
(continuing operations)
amounted to € 2.882 billion for the financial year ending
December 31, 2018 (2017: € 2.511 billion). The ratio between
net borrowings and EBITDA (continuing operations) amounted
to negative 0.3 for the financial year ending December 31, 2018
(2017: negative 0.2).
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
(intrinsic value for options and spot component for forward
contracts) related to hedged transactions that have not yet
occurred as well as of hedges of net investments in foreign
subsidiaries.
— Cost of hedging reserve – options: comprises the effective
portion of the cumulative net change in the fair value of
cash flow hedges reflecting cost of hedging of options (time
value and premium).
— Cost of hedging reserve – forward contracts: comprises
the effective portion of the cumulative net change in the
fair value of cash flow hedges reflecting cost of hedging of
forward contracts (forward component).
— 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, the remeasurement
of the fair value of the equity investments measured at fair
value through other comprehensive income, 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 and the transition effects of the
implementation of new IFRS.
The capital reserve includes restricted capital in an amount of
€ 4 million (2017: € 4 million). Furthermore, other reserves
include additional restricted capital
in an amount of
€ 52 million (2017: € 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 2018 Annual General Meeting,
the dividend for 2017 was € 2.60 per share (total amount:
€ 528 million). The Executive Board of adidas AG will propose
to use retained earnings of adidas AG in an amount of
€ 705 million as reported in the 2018 financial statements of
adidas AG for a dividend payment of € 3.35 per dividend-
entitled share for the year 2018 as at December 31, 2018 and
to carry forward the subsequent remaining amount.
As at February 27, 2019, the preparation date of these
consolidated financial statements, 198,734,783 dividend-
entitled shares exist, resulting in a dividend payment of
€ 666 million.
28 » 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 fifth investment quarter between October 1, 2017 and
December 31, 2017 were issued to the eligible employees on
January 10, 2018. The investment shares granted in the sixth
investment quarter between January 1, 2018 and March 31, 2018
were issued to the eligible employees on April 11, 2018. The
investment shares granted in the seventh investment quarter
between April 1, 2018 and June 30, 2018 were issued to the
eligible employees on July 11, 2018. The investment shares
granted in the eighth investment quarter between July 1, 2018
and September 30, 2018 were issued to the eligible employees
on October 12, 2018.
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STATEMENTS
NOTES
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 seventeen other subsidiaries can participate in
the plan. Up to two weeks before the start of an investment
quarter each eligible employee can enrol for the plan. The
company accepts enrolment 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:
Equity-settled share-based payment transactions with employees
As at
December 31, 2017
As at December 31, 2018
5th investment
quarter
5th investment
quarter
6th investment
quarter
7th investment
quarter
8th investment
quarter
9th investment
quarter
Grant date
Oct. 2, 2017
Oct. 2, 2017
Jan. 2, 2018
April 3, 2018
July 2, 2018
Oct. 1, 2018
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
Number of actually purchased
matching 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)
196.10
167.15
196.10
167.15
195.30
183.55
213.80
182.40
26,671
–
–
–
–
31,481
–
–
4,445
12
25,672
24,104
30,505
25,863
3,349
–
–
–
–
0
3,431
4,527
4,082
3
6
9
–
–
5,247
12
The number of forfeited matching shares during the period
amounted to 3,473 (2017: 1,463).
As at December 31, 2018, the total expenses recognized
relating to investment shares amounted to € 3.2 million
(2017: € 2.5 million).
Expenses recognized relating to vesting of matching shares
amounted to € 2.5 million in 2018 (2017: € 1.4 million).
As at December 31, 2018, a total amount of € 5 million (2017:
€ 4 million) was invested by the participants in the stock
purchase plan and was not yet transferred into shares by the
end of December 2018. Therefore, this has been included in
‘Other current financial liabilities’.
SEE NOTE 20
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
second transfer in 2018 equated to 22,360 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 27
As at January 1, 2018 (grant date), an amount of US $ 5 million
was recognized as expenses for basic shares over the vesting
period of twelve months.
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NOTES
The second part of the agreement grants bonus shares of
US $ 5 million if certain conditions are fulfilled. This option
can be granted twice. As at December 31, 2018, it was likely
that the bonus shares will be issued. Therefore, expenses
recognized for bonus shares amounting to € 5 million were
accrued in 2018 (2017: € 1.4 million).
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.
Once a year, one tranche with a three-year term and another
with a four-year term are issued. 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.
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. At December 31,
2018, the calculation of the provision is based on a fair value
of € 179.22 per RSU for the three-year cycle issued in 2017
(2017: € 161.61), a fair value of € 175.89 per RSU for the
three-year cycle issued in 2018 and the four-year cycle issued
in 2017 (2017: € 157.91) and a fair value of € 172.08 per RSU
for the four-year cycle issued in 2018. The fair value is based
on the closing price of the adidas AG share on December 28,
2018, adjusted for future dividend payments.
The average risk-free interest rate is based on German
government securities and is 0.83% for the three-year cycle
issued in 2017 (2017: 0.71%), 0.73% for the three-year cycle
issued in 2018 and the four-year cycle issued in 2017 (2017:
0.67%) and 0.70% for the four-year cycle issued in 2018.
At December 31, 2018, the RSU Plan worldwide comprised
336,099 RSUs from the three-year tranche issued in 2017
(2017: 408,236), 277,998 RSUs from the four-year tranche
issued in 2017 (2017: 331,143), 160,518 RSUs from the three-
year tranche issued in 2018 and 295,114 RSUs from the four-
year tranche issued in 2018. The RSUs for the three-year
tranche 2018 and the four-year tranche 2017 were issued in
2018. In 2018, this resulted in an expense of € 53 million
(2017: € 31 million). The corresponding provision amounted to
€ 84 million (2017: € 31 million).
29 » 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.
SEE ATTACHMENT II TO THE
Non-controlling interests are assigned to three subsidiaries
as at December 31, 2018 and two subsidiaries as at
December 31, 2017, respectively.
CONSOLIDATED FINANCIAL STATEMENTS, SHAREHOLDINGS, P. 226 Due to a
transfer of Reebok Israel Ltd. ownership from adidas AG to
Life Sport Ltd. completed in 2018, 15% of the equity of this
subsidiary is now assigned to non-controlling interests. The
other subsidiaries were partly acquired in connection with the
acquisition of Reebok and partly through purchases or
foundations in the last years.
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.
Subsidiaries with non-controlling interests
Legal entity name
Reebok Israel Ltd.
Life Sport Ltd.
Reebok India Company
Principal
place of
business
Ownership interests
held by non-controlling
interests (in %)
Dec. 31,
2018
Dec. 31,
2017
Israel
Israel
India
15%
15%
6.85%
–
15%
6.85%
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ADIDAS ANNUAL REPORT 2018
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FINANCIAL REVIEW
STATEMENTS
NOTES
The following table presents the main financial information on
subsidiaries with non-controlling interests.
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
Net assets attributable to non-controlling
interests according to the consolidated
statement of financial position
Net cash generated from operating activities
Net cash used in investing activities
Net cash used in financing activities
Net (decrease)/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.
Non-controlling interests
Dec. 31,
2018
Dec. 31,
2017
200
19
3
15
33
4
114
21
(70)
(2)
63
(13)
31
(11)
(20)
(0)
1
185
20
3
17
38
4
98
16
(63)
(1)
50
(15)
14
(3)
(6)
5
1
30 » 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 20 years
partly include renewal options and escalation clauses. Rent
expenses (continuing operations), which partly depend on net
sales, amounted to € 810 million and € 779 million for the
years ending December 31, 2018 and 2017, respectively.
Future minimum
durations on a nominal basis are as follows:
lease payments
for minimum
lease
Minimum lease payments for operating leases
€ in millions
Within 1 year
Between 1 and 5 years
After 5 years
Total
Dec. 31,
2018
Dec. 31,
2017
676
1,596
712
2,984
722
1,341
586
2,649
Information about the IFRS 16 implementation effect is
provided in these Notes.
SEE NOTE 01
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 € 82 million and
€ 5 million was included in property, plant and equipment as
at December 31, 2018 and 2017, respectively. For the year ending
December 31, 2018, interest expenses (continuing operations)
were € 2 million (2017: € 0 million) and depreciation expenses
(continuing operations) were € 10 million (2017: € 3 million).
Minimum lease payments for finance leases in 2018 include
land leases with a remaining lease term of 94 years. The
minimum lease payments under these contracts amount to
€ 11 million. The estimated amount representing interest is
€ 9 million and the present value amounts to € 2 million.
Minimum lease payments for finance leases in 2018 include
building leases with a remaining lease term of 30 years. The
minimum lease payments under these contracts amount to
€ 163 million. The estimated amount representing interest is
€ 84 million and the present value amounts to € 79 million.
The net present values and the minimum lease payments
under these contracts over their remaining terms up to 2048
and the land leases with a remaining lease term of 94 years
are as follows:
Minimum lease payments for finance leases
€ in millions
Lease payments falling due:
Within 1 year
Between 1 and 5 years
After 5 years
Total minimum lease payments
Less: estimated amount representing interest
Present value of minimum lease payments
Thereof falling due:
Within 1 year
Between 1 and 5 years
After 5 years
Dec. 31,
2018
Dec. 31,
2017
10
27
147
183
(93)
90
10
32
49
0
1
11
13
(10)
3
0
0
2
1
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ADIDAS ANNUAL REPORT 2018
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5 ADDITIONAL INFORMATION
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STATEMENTS
NOTES
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:
Financial commitments for service arrangements
€ in millions
Within 1 year
Between 1 and 5 years
After 5 years
Total
Dec. 31,
2018
Dec. 31,
2017
204
210
0
414
181
255
0
437
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NOTES
31» FINANCIAL INSTRUMENTS
Additional disclosures on financial instruments
Carrying amounts of financial instruments as at December 31, 2018 and their fair values € in millions
IAS 39
IFRS 9
IAS 39
Transition effect
IFRS 9
Retained earnings
Revenue
reserves Deferred tax
Category
Measurement
Category
Carrying
amount
Dec. 31, 2017
New
measurement
category
Change of
evaluation
measurement
Carrying
amount
Jan. 1, 2018
Carrying
amount
Dec. 31, 2018
Fair value
Dec. 31, 2018
Financial assets
Cash and cash equivalents
Cash and cash equivalents
Cash equivalents
Short-term financial assets
Accounts receivable
Other current financial assets
Derivatives used in hedge accounting
Derivatives not used in hedge accounting
Promissory notes
Other financial assets
Long-term financial assets
Other equity investments
Other equity investments
Other equity investments
Other investments
Other investments
Loans
1 Finance lease obligations are measured according to IAS 17.
n.a.
n.a.
FAHfT
LaR
Amortized cost
Amortized cost
1,598
Amortized cost
Fair value through
profit or loss
Fair value recognized
in net income
Fair value through
profit or loss
–
5
Amortized cost
Amortized cost
2,315
Fair value recognized
in equity
n.a.
Hedge accounting
FAHfT
Fair value recognized
in net income
Fair value through
profit or loss
Fair value recognized
in net income
Fair value through
profit or loss
Amortized cost
Amortized cost
n.a.
LaR
FAHfT
Fair value recognized
in net income
Fair value through
profit or loss
At cost less
impairment losses
Fair value through
profit or loss
At cost less
impairment losses
Fair value through
other comprehensive
income
Fair value recognized
in equity
Fair value through
profit or loss
At cost less
impairment losses
Amortized cost
Amortized cost
Amortized cost
AfS
AfS
AfS
AfS
LaR
82
28
–
283
82
3
53
26
62
9
0
7
(4)
5
(5)
1,598
2,180
–
5
(1)
2,310
0
82
28
32
252
82
8
64
26
62
1
449
6
2,418
172
46
26
297
83
2
58
25
104
1
1
9
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ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
NOTES
Carrying amounts of financial instruments as at December 31, 2018 and their fair values € in millions
IAS 39
IFRS 9
IAS 39
Transition effect
IFRS 9
Retained earnings
Revenue
reserves Deferred tax
Category
Measurement
Category
Carrying
amount
Dec. 31, 2017
New
measurement
category
Change of
evaluation
measurement
Carrying
amount
Jan. 1, 2018
Carrying
amount
Dec. 31, 2018
Fair value
Dec. 31, 2018
Other non-current financial assets
Derivatives used in hedge accounting
Derivatives not used in hedge accounting
Fair value recognized
in equity
n.a.
Hedge accounting
FAHfT
Fair value recognized
in net income
Fair value through
profit or loss
Fair value recognized
in net income
Fair value through
profit or loss
Fair value recognized
in net income
Fair value through
profit or loss
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
n.a.
n.a.
LaR
FLAC
FLAC
FLAC
FLAC
1
14
118
19
67
106
31
1,975
837
(0)
(0)
1
14
118
19
67
106
31
1,975
837
11
28
122
21
74
66
–
2,300
922
Amortized cost
–
563
619
Fair value recognized
in equity
n.a.
Hedge accounting
250
FLHfT
n.a.
FLAC
Fair value recognized
in net income
Fair value through
profit or loss
Fair value recognized
in net income
Fair value through
profit or loss
Amortized cost
Amortized cost
24
21
67
250
24
21
67
65
29
15
68
1
9
5
Promissory notes
Earn-out components
Other financial assets
Financial liabilities
Short-term borrowings
Bank borrowings
Convertible bond
Accounts payable
Current accrued liabilities
Current accrued liabilities for customer
discounts
Other current financial liabilities
Derivatives used in hedge accounting
Derivatives not used in hedge accounting
Earn-out components
Other financial liabilities
1 Finance lease obligations are measured according to IAS 17.
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
NOTES
Carrying amounts of financial instruments as at December 31, 2018 and their fair values € in millions
IAS 39
IFRS 9
IAS 39
Transition effect
IFRS 9
Retained earnings
Revenue
reserves Deferred tax
Category
Measurement
Category
Carrying
amount
Dec. 31, 2017
New
measurement
category
Change of
evaluation
measurement
Carrying
amount
Jan. 1, 2018
Carrying
amount
Dec. 31, 2018
Fair value
Dec. 31, 2018
Finance lease obligations1
Long-term borrowings
Bank borrowings
Eurobond
Convertible bond
Non-current accrued liabilities
Other non-current financial liabilities
Derivatives used in hedge accounting
Derivatives not used in hedge accounting
Earn-out components
Other financial liabilities
Finance lease obligations1
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 at amortized cost (FLAC)
Financial liabilities at fair value through profit or
loss held for trading (FLHfT)
1 Finance lease obligations are measured according to IAS 17.
n.a.
FLAC
FLAC
FLAC
FLAC
n.a.
n.a.
Amortized cost
Amortized cost
0
–
Amortized cost
Amortized cost
983
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value recognized
in equity
n.a.
Hedge accounting
FLHfT
Fair value recognized
in net income
Fair value through
profit or loss
Fair value recognized
in net income
Fair value through
profit or loss
Amortized cost
Amortized cost
n.a.
n.a.
n.a.
FLAC
n.a.
–
1
9
5
5
1
3
129
–
129
2,674
145
4,001
29
1,030
520
0
–
983
–
1
9
5
5
1
3
10
141
984
484
1
2
20
–
0
81
1
9
6
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Carrying amounts of financial instruments as at December 31, 2018 and their fair values € in millions
IAS 39
IFRS 9
IAS 39
Transition effect
IFRS 9
Retained earnings
Revenue
reserves Deferred tax
Category
Measurement
Category
Carrying
amount
Dec. 31, 2017
New
measurement
category
Change of
evaluation
measurement
Carrying
amount
Jan. 1, 2018
Carrying
amount
Dec. 31, 2018
Fair value
Dec. 31, 2018
Thereof: aggregated by category according to
IFRS 9
Financial assets at fair value through profit or
loss (FVTPL)
Thereof: designated as such upon initial
recognition (Fair Value Option – FVO)
Thereof: held for trading (FAHfT)
Financial assets at fair value through other
comprehensive income (FVOCI)
Thereof: debt instruments
Thereof: derivatives used in hedge accounting
Thereof: equity investments (without recycling
to profit and loss)
Financial assets at amortized cost (AC)
Financial liabilities at fair value through profit or
loss (FVTPL)
Thereof: held for trading (FLHfT)
Financial liabilities at fair value through other
comprehensive income (FVOCI)
Thereof: derivatives used in hedge accounting
Financial liabilities at amortized cost (AC)
1 Finance lease obligations are measured according to IAS 17.
332
–
82
146
–
83
64
4,290
54
–
259
259
4,564
809
–
83
242
–
184
58
5,074
63
–
67
67
5,585
1
9
7
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Fair value hierarchy of financial instruments according to IFRS 13 as at December 31, 2018 € in millions
Fair value
Dec. 31, 2018
Level 1
Level 2
Level 3
Cash equivalents
Short-term financial assets
Derivative financial instruments
Derivatives used in hedge accounting
Derivatives not used in hedge accounting
Long-term financial assets
Equity investments (FVTPL)
Equity investments (FVOCI)
Other long-term financial assets
Promissory notes
Earn-out components
Financial assets
Derivative financial instruments
Derivatives used in hedge accounting
Derivatives not used in hedge accounting
Long-term borrowings
Earn-out components
Financial liabilities
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).
1 Net gains in the amount of € 2 million and losses in the amounf of € 1 million due to currency translation differences were recognized in equity in 2018.
449
6
184
75
86
58
27
148
21
1,053
67
49
1,550
15
1,681
1,550
1,550
449
6
184
75
27 1
740
67
49
116
86
58
148
21
313
15
15
1
9
8
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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
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).
1 Net gains in the amount of € 4 million and losses in the amounf of € 3 million due to currency translation differences were recognized in equity in 2017.
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
9
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Reconciliation of fair value hierarchy Level 3 in 2018 € in millions
Investments in other equity instruments held for trading (FAHfT)
Investments in other equity instruments (FVTPL)
Investments in other equity instruments (FVOCI)
Promissory notes (FVTPL)
Earn-out components – assets (FVTPL)
Earn-out components – liabilities (FVTPL)
Fair value
Jan. 1, 2018
82
8
64
149
19
25
Reconciliation of fair value hierarchy Level 3 in 2017 € in millions
Additions
Disposals
Gains
Losses
Gains
Losses
Currency
translation
Fair value
Dec. 31, 2018
Realized
Unrealized
3
(6)
(9)
(25)
1
1
1
8
15
5
83
2
58
147
21
15
Long-term financial assets
Promissory note
Promissory note
Promissory notes
Earn-out components (assets)
Investments in other equity instruments
Earn-out components (liabilities)
Fair value
Jan. 1, 2017
81
–
–
45
–
64
22
Additions
Disposals
Gains
Losses Currency translation
–
36
86
–
19
26
–
–
–
–
–
–
(14)
(2)
1
–
–
–
–
–
–
–
(1)
(0)
(40)
–
(20)
5
–
–
(3)
(5)
–
–
–
Fair value
Dec. 31, 2017
82
35
83
–
19
56
25
2
0
0
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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.
and the contractual cash flow characteristics. Money market
funds contain cash flows other than those of principal and
interest on principal. As a result, those investments are
measured at fair value through profit or loss.
technologies and trends. The designation of certain equity
instruments as at fair value through other comprehensive
income (equity) is based on a strategic Management decision.
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 are based on quoted
market prices in an active market or are calculated as present
values of expected future cash flows.
Part of cash equivalents includes investments in money
market funds which were categorized under n.a. under IAS 39
and measured at amortized cost. Classification and
measurement under IFRS 9 were performed based on the
respective business model for managing these investments
Financial instruments Level 1 not measured at fair value
Equity investments categorized as available-for-sale under
IAS 39 and measured at cost are now classified under IFRS 9
as follows:
Generally, all investments in equity instruments are measured
at fair value through profit or loss. An irrevocable election can
be made at initial recognition to capture fair value changes in
other comprehensive income for instruments that are neither
held for trading nor contingent considerations recognized by
an acquirer.
Debt securities categorized as available-for-sale under IAS 39
are now classified under IFRS 9 based on the respective
business model and the contractual cash flow characteristics.
Those securities are managed within a business model whose
objective it is to hold assets to collect contractual cash flows,
but the contractual cash flow characteristics are not fulfilled.
The classification and measurement under IFRS 9 is fair value
through profit or loss.
Trade and other receivables that were classified as loans and
receivables under IAS 39 are now classified at amortized cost.
adidas designated certain investments as equity securities as
at fair value through other comprehensive income (equity),
because the company intends to hold those investments for the
long term in order to gain insights into innovative production
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.
Type
Convertible bond
Eurobond
Valuation method
The fair value is based on the market price of the convertible bond as at December 31, 2018.
The fair value is based on the market price of the Eurobond as at December 31, 2018.
Significant unobservable inputs
Category
Not applicable
Not applicable
Amortized cost
Amortized cost
2
0
1
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Financial instruments Level 2 measured at fair value
Type
Valuation method
Cash equivalents
(money market funds)
Short-term financial assets
Long-term financial assets
(investment securities)
Forward exchange contracts
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.
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.
Significant unobservable inputs
Category
Not applicable
Fair value through profit or loss
Not applicable
Fair value through profit or loss
The fair value is based on the market price of the assets as at December 31, 2018.
Not applicable
Fair value through profit or loss
In 2018, adidas applied the par method (forward NPV) for all currency pairs to calculate the fair value, implying actively
traded forward curves.
Not applicable
Currency options
adidas applies the Garman -Kohlhagen model, which is an extended version of the Black-Scholes model.
Not applicable
Share option (cash settled)
adidas applies the Black-Scholes model.
Not applicable
Hedge accounting/Fair value
through profit or loss
Hedge accounting/Fair value
through profit or loss
Hedge accounting/Fair value
through profit or loss
Total return swap (for own shares)
The fair value is based on the market price of the adidas AG share as at December 31, 2018, minus accrued interest.
Not applicable
Hedge accounting
2
0
2
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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)
Promissory notes
Investments in other equity
instruments
Investments in other equity
instruments
Earn-out components (liabilities)
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, 2018. These dividends are recognized in other financial income.
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.The fair value adjustment is recognized in discontinued
operations.
The discounted cash flow method is applied, which considers the present value of
expected payments discounted using a risk-adjusted discount rate. Fair value
adjustments regarding TaylorMade and CCM promissory notes are recognized in
discontinued operations. Fair value adjustments regarding the Mitchell & Ness
promissory note are recognized in financial result.
The significant inputs (financing rounds) used to measure fair value include one or
more events where objective evidence of any changes was identified, considering
expectations regarding future business development. The fair value adjustment is
recognized in other financial result.
The option to measure equity instruments at fair value through other comprehensive
income upon implementation of IFRS 9 has been exercised. The significant inputs
(financing rounds) used to measure fair value include one or more events where
objective evidence of any changes was identified, considering expectations regarding
future business development. The fair value adjustment is recognized in other
reserves.
The discounted cash flow method is applied, which considers the present value of
expected payments, discounted using a risk-adjusted discount rate. The fair value
adjustment refers to accretion and is recognized in interest result.
Significant unobservable inputs
See column ‘Valuation method’
Inter-relationship between significant
unobservable inputs and fair value measurement Category
Fair value through
profit or loss
Risk-adjusted maturity-specific
discount rate (2.8% – 3.2%),
EBITDA values, confidence level
The estimated fair value would increase
(decrease) if EBITDA values were higher (lower) or
the risk-adjusted discount rate was lower (higher).
Fair value through
profit or loss
Risk-adjusted maturity-specific
discount rate (3.0% – 3.6%)
The estimated fair value would increase
(decrease) if the risk-adjusted discount rate was
lower (higher).
Fair value through
profit or loss
See column ‘Valuation method’
See column ‘Valuation method’
Risk-adjusted discount rate (1.75%) The estimated fair value would increase
(decrease) if the target ratio achievement was
higher (lower) or the risk-adjusted discount rate
was lower (higher).
Fair value through
profit or loss
Fair value through
other compre-
hensive income
Fair value through
profit or loss
2
0
3
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During the course of 2018, significant unobservable inputs did
not significantly change and there were no reclassifications
between levels.
Net gains or losses on financial assets measured at amortized
cost comprise mainly impairment losses and reversals.
Notional amounts of outstanding US dollar hedging instruments
€ in millions
Net gains/(losses) on financial instruments recognized
in the consolidated income statement € in millions
Financial assets classified at amortized cost (AC)
Financial assets at fair value through profit or loss
(FVTPL)
Thereof: designated as such upon initial recognition
Thereof: classified as held for trading
Equity instruments at fair value through profit or loss
(FVTPL)
Equity instruments at fair value through other compre-
hensive income (FVOCI)
Financial liabilities at amortized cost (AC)
Financial liabilities at fair value through profit or loss
(FVTPL)
Thereof: designated as such upon initial recognition
Thereof: classified as held for trading
Year ending
Dec. 31,
2018
(42)
7
–
1
(1)
–
36
(15)
–
–
Net gains or losses on financial assets or financial liabilities
classified as fair value through profit or loss include the
effects from fair value 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.
Net gains or losses on equity instruments at fair value through
profit or loss mainly include fair value adjustments based on
the respective valuation method.
SEE TABLE FINANCIAL INSTRUMENTS
LEVEL 3 MEASURED AT FAIR VALUE
Dec. 31,
2018
Dec. 31,
2017
4,767
319
5,086
5,201
453
5,654
Forward exchange contracts
Currency options
Total
Fair values € in millions
Dec. 31, 2018
Dec. 31, 2017
Positive
fair value
Negative
fair value
Positive
fair value
Negative
fair value
Net gains or losses on equity instruments at fair value through
other comprehensive income include dividends. During 2018
no dividends regarding those investments occurred.
Forward exchange
contracts
Currency options
Total
208
15
223
(96)
–
(96)
101
25
126
(280)
(3)
(283)
Net gains or losses on financial liabilities measured at
amortized cost include effects from early settlement and
reversals of accrued liabilities and refund liabilities.
Net gains/(losses) on financial instruments recognized
in the consolidated income statement € in millions
Notional amounts of all outstanding currency hedging instruments
€ 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 at amortized cost
Year ending
Dec. 31,
2017
Year ending
Dec. 31,
2016
1
–
1
(60)
(56)
22
1
–
1
(35)
(3)
15
Forward exchange contracts
Currency options
Total
Dec. 31,
2018
Dec. 31,
2017
10,784
475
11,260
11,327
565
11,892
FINANCIAL RISKS
Currency risks
Currency risks for adidas are a direct result of multi-currency
cash flows within the company. The vast majority of the
transactional risk arises from product sourcing in US dollars,
while sales are typically denominated in the functional
currency of the Group companies. The currencies in which
these transactions are mainly denominated are US dollar,
British pound, Japanese yen and Chinese renminbi.
As governed by the company’s Treasury Policy, adidas has
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.
2
0
4
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NOTES
adidas uses a combination of different hedging instruments,
such as forward exchange contracts, currency options and
itself against unfavorable currency
swaps, to protect
movements. These contracts are generally designated as
cash flow hedges. Critical terms of the hedge instrument and
hedged item are matched and the hedge effectiveness is
qualitatively and quantitatively established and adidas
assesses the effectiveness of these hedge relationships by
using the hypothetical derivative method. Ineffectiveness in
these hedge relationships is mainly expected from changes in
credit risk or changes in the timing of the hedged exposure.
Furthermore, translation impacts from the conversion of non-
euro-denominated results into the company’s functional
currency, the euro, might lead to a material negative impact
on the company’s financial performance.
information about the accounting and hedge
Further
accounting treatment is included in these Notes.
SEE NOTE 02
Exposures are presented in the following table:
Exposure to foreign exchange risk based on notional amounts € in millions
As at December 31, 2018
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, 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
USD
GBP
(5,322)
(93)
(5,415)
319
4,298
(798)
(5,824)
(154)
(5,978)
453
4,465
(1,060)
1,079
0
1,079
(94)
(919)
66
1,206
(17)
1,189
(68)
(919)
202
JPY
731
(12)
719
(48)
(607)
64
659
(6)
653
(44)
(431)
178
CNY
1,088
(84)
1,004
(18)
(906)
80
845
(43)
802
(997)
(195)
2
0
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NOTES
The exposure
transactions was calculated on a one-year basis.
firm commitments and
from
forecast
Based on this analysis, a 10% increase in the euro versus the
US dollar at December 31, 2018 would have led to an
€ 11 million increase in net income.
In line with IFRS 7 requirements, the company has calculated
the impact on net income and shareholders’ equity based on
changes in the most important currency exchange rates. The
calculated impacts mainly result from changes in the fair
value of the hedging instruments. The analysis does not
include effects that arise from the translation of the company’s
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
2018 and 2017.
Sensitivity analysis of foreign exchange rate changes € in millions
As at December 31, 2018
Equity
Net income
Equity
Net income
As at December 31, 2017
Equity
Net income
Equity
Net income
USD
GBP
JPY
CNY
EUR +10%
EUR +10%
EUR +10%
USD +10%
(269)
11
89
0
58
1
79
(9)
EUR -10%
EUR -10%
EUR -10%
USD -10%
342
(9)
(104)
0
(72)
(1)
(79)
1
EUR +10%
EUR +10%
EUR +10%
USD +10%
(255)
7
88
1
43
1
72
12
EUR -10%
EUR -10%
EUR -10%
USD -10%
334
(14)
(101)
(3)
(52)
(1)
(88)
(15)
2
0
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The more negative market values of the US dollar hedges
would have decreased shareholders’ equity by € 269 million.
A 10% weaker euro at December 31, 2018 would have led to a
€ 9 million decrease in net income. Shareholders’ equity
would have increased by € 342 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.
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
the company utilizes internally to better reflect both the
seasonality of its 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
impacts of currency on our sourcing activities (due to their
own private label sourcing efforts), are also excluded from
this analysis.
— The credit risk is not considered as part of this analysis.
The company also largely hedges balance sheet risks. Due to
its strong global position, adidas is able to partly minimize the
currency risk by utilizing natural hedges. The company’s
gross US dollar cash flow exposure calculated for 2019 was
around € 5.4 billion at year-end 2018, which was hedged
using forward exchange contracts, currency options and
currency swaps.
fails
to meet
instrument
is exposed to credit risks from
Credit risks
A credit risk arises if a customer or other counterparty to a
its contractual
financial
obligations. adidas
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 2018, there was no relevant concentration of
credit risk by type of customer or geography. The company’s
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.
At the end of 2018, 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 the company’s 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.
adidas furthermore believes that the risk concentration is
limited due to the broad distribution of the investment
business of the company with more than 20 globally operating
banks. At December 31, 2018, no bank accounted for more
than 10% of the investments of adidas. Including subsidiaries’
short-term deposits in local banks, the average concentration
was 1%. This leads to a maximum exposure of € 125 million in
the event of default of any single bank. The investment
exposure was further diversified by investing into AAA-rated
money market funds.
In addition, in 2018, adidas held derivatives of foreign
exchange with a positive fair market value in the amount of
€ 223 million. The maximum exposure to any single bank
resulting from these assets amounted to € 84 million and the
average concentration was 6%.
In accordance with IFRS 7, the following table includes further
information about set-off possibilities of derivative financial
assets and liabilities. 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.
2
0
7
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NOTES
The carrying amounts of recognized derivative financial
instruments, which are subject to the mentioned agreements,
are also presented in the following table:
Set-off possibilities of derivative financial assets and liabilities
€ in millions
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
2018
2017
249
0
249
(94)
155
(97)
0
(97)
94
(3)
115
0
115
(100)
15
(280)
0
(280)
100
(180)
Interest rate risks
Changes in global market interest rates affect future interest
payments for variable-interest liabilities. As adidas 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.
To reduce interest rate risks and maintain financial flexibility,
a core tenet of the company’s financial strategy is to continue
to use surplus cash flow from operations to reduce gross
borrowings. Beyond that, adidas may consider adequate
hedging strategies through interest rate derivatives in order
to mitigate interest rate risks.
SEE TREASURY, P. 115
Share price risks
Share price risks arise due to the Long-Term Incentive Plan
(LTIP), which is a share-based remuneration scheme with
cash settlement and the equity-neutral convertible bond with
cash settlement. In order to mitigate share price risks, it is
company strategy to use swaps to hedge against share price
fluctuations. These swaps are used to hedge the Long-Term
Incentive Plan and are classified as cash flow hedges. Critical
terms of the hedge instrument and the hedge item are
matched, and the hedge effectiveness is qualitatively assessed
and established. Ineffectiveness in these hedge relationships
is mainly expected to arise due to differences in credit risk
between the hedged item and the hedging instrument. The
embedded cash option in the convertible bond is fully offset
with a call option to mitigate the cash settlement.
In line with IFRS 7 requirements, adidas has 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, 2018 would
have led to a € 4.6 million increase in net income whereas a
10% decrease in the adidas AG share price versus the closing
share price at December 31, 2018 would have led to a
€ 2.5 million decrease in net income.
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. The Treasury department uses an
efficient cash management system to manage liquidity risk.
At December 31, 2018, cash and cash equivalents together
with marketable securities amounted to € 2.635 billion
(2017: € 1.604 billion). Moreover, the company maintains
€ 2.215 billion (2017: € 2.251 billion) in bilateral credit lines,
which are designed to ensure sufficient liquidity at all times.
Of these, € 600 million consists 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.
2
0
8
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NOTES
Future cash outflows € in millions
As at December 31, 2018
Bank borrowings
Eurobond 1
Equity-neutral convertible bond
Accounts payable
Other financial liabilities
Accrued liabilities 2
Derivative financial liabilities
Total
As at December 31, 2017
Bank borrowings
Eurobond 1
Accounts payable
Other financial liabilities
Accrued liabilities 2
Derivative financial liabilities
Total
1 Including interest payments.
2 Accrued interest excluded.
Up to
1 year
Up to 2
years
Up to 3
years
Up to 4
years
Up to 5
years
More than 5
years
66
16
2,300
83
921
95
3,481
106
16
1,975
88
837
275
3,297
19
17
0
1
37
16
5
9
31
Total
208
1,083
484
2,300
83
922
96
19
616
19
9
19
9
484
66
416
1
635
28
512
483
5,176
17
616
17
616
9
9
425
1
106
1,099
1,975
93
838
284
426
4,395
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.
adidas ended the year 2018 with net cash of € 959 million
(2017: net cash of € 484 million).
Financial instruments for the hedging of foreign exchange risk
As at December 31, 2018, adidas held the following instruments
to hedge exposure to changes in foreign currency:
Average hedge rates
As at December 31, 2018
Foreign currency risk
Net exposure (€ in millions)
Forward exchange contracts
Average EUR/USD forward rate
Average EUR/GBP forward rate
Average EUR/JPY forward rate
Average USD/CNY forward rate
Option exchange contracts
Average EUR/USD forward rate
Average EUR/GBP forward rate
Average EUR/JPY forward rate
Average USD/CNY forward rate
Equity risk
Net exposure (€ in millions)
Total return swap
Average hedge rate
Maturity
short-term long-term
(90)
873
1.223
0.896
1.207
0.897
130.737
127.577
6.687
6.872
1.189
0.933
131.221
6.901
–
–
–
–
–
–
104
177.060
The amounts at the reporting date relating to items designated
as hedged items were as follows.
2
0
9
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NOTES
Designated hedged items as at December 31, 2018 € in millions
Foreign currency risk
Sales
Inventory purchases
Net foreign investment risk
Equity risk
Long-Term Incentive Plans
The amounts relating to
instruments and hedge ineffectiveness were as follows:
items designated as hedging
Designated hedge instruments € in millions
Change in value used for
calculating hedge ineffectiveness
Hedge reserve
Cost of hedging reserve
Balances remaining in the cash
flow hedge reserve from hedge
relationships for which hedge
accounting is no longer applied
4
(112)
(1)
(2)
(5)
119
(138)
2
(30)
19
–
–
–
–
–
–
Forward exchange contracts – sales
Nominal
amount
3,117
Forward exchange contracts – inventory purchases
4,051
Foreign exchange contracts – net foreign
investments
Option exchange contracts – sales
Option exchange contracts – inventory purchases
Total return swap – Long-Term Incentive Plans
486
139
231
104
2018
Carrying amount
During the period 2018
Line item
in balance
sheet where
the hedging
instrument is
included
Changes in
the value of
the hedging
instrument
recognized
in hedging
reserve
Changes in
the value of
the hedging
instrument
recognized
in cost of
hedging
Hedge
ineffec-
tiveness
recognized
in profit or
loss
Line item
in profit or
loss which
includes
hedge
ineffec-
tiveness
Amount
from
hedging
reserve
transferred
to cost of
inventory
Amount
from cost
of hedging
trans-
ferred to
cost of
inventory
Amount
reclas-
sified from
hedging
reserve to
profit or
loss
Amount
reclas-
sified from
cost of
hedging to
profit or
loss
Line item in
profit or loss
affected by
the reclassi-
fication
Assets Liabilities
20
145
6
3
6
3
Other financial
assets/liabilities
(54)
Other financial
assets/liabilities
Other financial
assets/liabilities
Other financial
assets/liabilities
Other financial
assets/liabilities
Other financial
assets/liabilities
(7)
(5)
–
–
–
322
(33)
(16)
(4)
6
2
24
(37)
–
1
2
–
(11) Cost of sales
(26) Cost of sales
Financial
result
–
– Cost of sales
3 Cost of sales
Financial
result
–
–
0
–
–
–
–
–
1
–
–
–
–
22
(87)
(0)
4
5
1
(13)
Cost of sales
14
Cost of sales
Financial
result
–
(2)
Cost of sales
(8)
Cost of sales
Other operating
expenses
–
1
2
0
ADIDAS ANNUAL REPORT 2018
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FINANCIAL REVIEW
STATEMENTS
NOTES
The following table provides a reconciliation by risk category
of components of equity and analysis of OCI items, net of tax,
resulting from cash flow hedge accounting.
Changes in reserves by risk category € in millions
Balance at January 1, 2018
Cash flow hedges
Changes in fair value:
Foreign currency risk – sales
Foreign currency risk – inventory
purchases
Foreign currency risk – net foreign
investment
Amount reclassified to profit or loss:
Foreign currency risk
Amount included in the cost of non-financial
items:
Foreign currency risk – inventory
purchases
Tax on movements on reserves during the
year
Equity hedges
Changes in fair value:
Amount reclassified to profit or loss
Balance at December 31, 2018
NOTES TO THE CONSOLIDATED INCOME
STATEMENT
As a result of the adoption of IFRS 9, adidas has adopted
consequential amendments to IAS 1 ‘Presentation of Financial
Statements’, which require impairment of financial assets to
be presented in a separate line item in the consolidated
income statement. In this context, adidas also adjusted the
presentation of other operating income and other operating
expenses according to separate operational
functions.
Comparative information for 2017 is adjusted respectively.
Hedging
reserve
(295)
Cost of
hedging
reserve
(1)
292
55
(16)
(57)
0
17
3
(1)
(3)
39
(40)
–
(9)
1
4
–
–
(7)
All figures related to the 2018 and 2017 financial years in the
‘Notes to the consolidated income statement’ refer to the
company’s continuing operations unless otherwise stated.
32 » REVENUE
Under IFRS 15, revenue principally is recognized at the
transfer of control of the goods to the customer whereas
under IAS 18 revenue recognition was dependent on the
transfer of risks and rewards, except for income from licensing
contracts which, under IFRS 15, is recognized over the
contractual period. Income from licensing contracts does not
represent a significant item in the company’s consolidated
income statement. No significant changes in the timing or
amount of revenue due to the application of IFRS 15 were
identified. Accordingly, there was no significant impact on the
company’s consolidated income statement for the year ending
December 31, 2018.
the amount of the gross margin (i.e. the difference between
gross sales and cost of sales) for the products sold which are
expected to be returned.
The accounting for the return provision was adjusted in
accordance with IFRS 15.
SEE NOTE 21 As at January 1, 2018, a
liability in the amount of the credit notes for expected returns
is recognized. Corresponding with this treatment, an asset for
the right to recover products from customers upon settling
the refund liability is recognized. The first-time application of
IFRS 15 on January 1, 2018 resulted in an increase in the
return provision of € 237 million, the recognition of a return
asset in an amount of € 196 million and a decrease in retained
earnings in an amount of € 41 million in the company’s
financial position. As at
consolidated statement of
December 31, 2018, the return liability and the return asset
increased by € 308 million and € 258 million, respectively,
due to the application of IFRS 15 compared to IAS 18. The
application of IFRS 15 had no significant impact on the
company’s consolidated income statement for the year ending
December 31, 2018
Due to the application of IFRS 15, contract assets and contract
liabilities were recognized for the first time in relation to
revenues from
licensing contracts. The effect of this
application resulted in the first-time recognition of contract
assets in an amount of € 7 million, contract liabilities in an
amount of € 1 million, and an increase in retained earnings in
an amount of € 6 million as at January 1, 2018. As at
December 31, 2018, contract assets and contract liabilities
increased to € 10 million and € 1 million respectively due to
the application of IFRS 15 compared to IAS 18. Revenue from
licensing contracts had no significant impact on the company’s
consolidated
the year ending
December 31, 2018.
income statement
for
2
1
1
In order to determine the fair values of its derivatives that are
traded, adidas uses generally accepted
not publicly
quantitative financial models based on market conditions
prevailing at the balance sheet date.
A disaggregation of revenue into product categories is
included in these Notes.
SEE NOTE 40
The fair values of derivatives were determined applying the
‘par method’ (forward NPV), which uses actively traded
forward rates.
A significant impact on the presentation of the customer’s
right of return resulted from the application of IFRS 15. Under
IAS 18, adidas recognized a return provision on a net basis
based on past experience. The net value was determined by
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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NOTES
33 » OTHER OPERATING INCOME
Other operating income consists of the following:
Other operating income € in millions
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
Income from release of accrued liabilities and
other provisions
Gains from disposal of fixed assets
Sundry income
Other operating income
6
10
32
48
1
3
13
17
Sundry income mainly relates to income from reimbursements
of custom duties and from sub-licensing of trademarks.
34 » OTHER OPERATING EXPENSES
Other operating expenses include marketing and point-of-
sale expenses, distribution and selling expenses, general and
administration expenses as well as sundry expenses 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.
Marketing and point-of-sale expenses consist of promotion
and communication spending such as promotion contracts,
advertising, events and other communication activities.
However, they do not include marketing overhead expenses,
which are presented in distribution and selling expenses.
The distribution and selling expenses consist of sales force
and sales administration costs, direct and indirect supply
chain costs, marketing overhead expenses, as well as
expenses for research and development, which amounted to
€ 153 million in 2018 (2017: € 187 million).
General and administration expenses include the functions IT,
Finance, Legal, Human Resources, Facilities & Services as
well as General Management.
Expenses for sundry consists of costs for one-time effects as
well as losses from disposal of fixed assets.
35 » 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
recognized as an expense during
the period was
€ 10.507 billion and € 10.454 billion for the years ending
December 31, 2018 and 2017, respectively.
Depreciation and amortization expense for tangible and
intangible assets (except goodwill impairment losses) and
impairment losses were € 486 million and € 453 million for
the years ending December 31, 2018 and 2017, respectively.
Thereof, amounts of € 3 million and € 2 million, respectively,
were recorded within the cost of sales as they are directly
assigned to the production costs.
Income from government grants is reported as a deduction
from the related expenses and amounted to € 27 million in
2018 (2017: €24 million).
Personnel expenses
Personnel expenses were as follows:
Personnel expenses € in millions
Wages and salaries
Social security contributions
Pension expenses
Personnel expenses
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
2,156
218
107
2,481
2,234
214
101
2,549
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.
1
2
2
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NOTES
36 » FINANCIAL INCOME/FINANCIAL EXPENSES
Financial result consists of the following:
Financial income € in millions
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
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
24
0
0
26
7
57
23
0
2
19
1
46
Financial expenses € in millions
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,
2018
Year ending
Dec. 31,
2017
42
0
0
5
47
62
0
0
31
93
Interest income from financial instruments, measured at
amortized cost, mainly consists of interest income from bank
deposits and loans.
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’.
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 do not include any impairment
losses on other financial assets for the year ending
December 31, 2018 (2017: € 31 million).
Information regarding investments, borrowings and financial
instruments is also included in these Notes.
SEE NOTES 07, 16,
19 AND 31
37 » HYPERINFLATION
Due to the rapid devaluation of the Argentinian peso, Argentina
is considered as hyperinflationary and as a result the
application of IAS 29 was adopted for the first time in the third
quarter of 2018. The financial statements of 2018 for those
subsidiaries that have the Argentinian peso as a functional
currency had been restated for the change in the general
purchasing power retrospectively since January 1, 2018, and
as a result are stated in terms of the measuring unit current
at December 31, 2018. The financial statements are based on
a historical cost approach. For translation into the presentation
currency (euro), all amounts were translated at the closing
rate at December 31, 2018. Pursuant to IAS 21 ‘The Effects of
Changes in Foreign Exchange Rates’, paragraph 42, the
comparative amounts of the previous reporting period were
not restated.
The price index at December 31, 2018 was 2,450.15 (2017:
1,656.63).
38 » INCOME TAXES
adidas AG and its German subsidiaries are subject to German
corporate and trade taxes. For the years ending December 31,
2018 and 2017, 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
Deferred tax assets
Deferred tax liabilities
Deferred tax assets, net
1 See Note 03.
Dec. 31,
2018
Dec. 31,
20171
651
(241)
410
630
(190)
440
1
2
3
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NOTES
The movement of deferred taxes is as follows:
Movement of deferred taxes € in millions
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 tax assets, net as at January 1
Deferred tax (expense)/income
Change in consolidated companies 2
Change in deferred taxes attributable to
remeasurements of defined benefit plans
recorded in other comprehensive income 3
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 4
Change in deferred taxes attributable to the
implementation of IFRS 9
Change in deferred taxes attributable to the
implementation of IFRS 15
Currency translation differences
Deferred tax assets, net as at December 31
1 See Note 03.
2 See Note 05.
3 See Note 25.
4 See Note 31.
2018
440
4
0
6
(43)
1
8
(6)
410
2017 1
442
(19)
(17)
(7)
68
0
0
(27)
440
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
1 See Note 03.
Dec. 31,
2018
Dec. 31,
2017 1
182
182
311
14
689
206
49
24
279
410
150
219
302
30
702
170
69
23
262
440
Deferred tax assets are recognized only to the extent that the
is probable. For the
realization of the related benefit
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 increased from € 518 million to
€ 554 million for the year ending December 31, 2018. These
amounts mainly relate to tax losses carried forward and
unused foreign tax credits of the US tax group, which begin to
expire in 2028. The remaining unrecognized deferred tax
assets relate to subsidiaries operating in markets where the
realization of the related tax benefit is not considered
probable.
In accordance with US law, in 2018, the buyer of TaylorMade
elected to treat the transaction as an asset acquisition for
income tax purposes. In 2017, the divestiture of TaylorMade
was reflected as a share transaction for income tax purposes.
This election resulted in the retention of tax benefits (mainly
relating to tax losses to carry forward) in respect of which
realization is not probable.
liabilities for
adidas does not recognize deferred tax
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.
1
2
4
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FINANCIAL REVIEW
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NOTES
For 2018, the line item ‘Losses for which benefits were not
recognizable and changes in valuation allowances’ mainly
related to the release of valuation allowances in respect of the
US and Canada (€ 37 million), and an increase to the valuation
allowance in Argentina (€ 8 million). For 2017, this line item
mainly related to changes in valuation allowances for Brazil.
For 2018, the line item ‘Changes in tax rates’ mainly reflects
tax rate reductions in France and Argentina. For 2017, this
line item mainly reflected a tax rate reduction in the US.
Tax expenses
Tax expenses are split as follows:
The company’s effective tax rate differs from an assumed tax
rate of 30% for the year ending December 31, 2018 as follows:
Income tax expenses € in millions
Tax rate reconciliation
Current tax expenses
Deferred tax expenses/(income)
Income tax expenses
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
673
(4)
669
649
19
668
The deferred tax income includes tax income of € 52 million in
total (2017: € 80 million) related to the origination and
reversal of temporary differences.
Tax expense includes a benefit of € 69 million in respect of
prior periods (2017: expense of € 1 million).
Year ending
Dec. 31, 2018
Year ending
Dec. 31, 2017
€ in
millions
714
(178)
27
(29)
3
0
537
132
669
in %
30.0
(7.5)
1.2
(1.2)
0.1
0.0
22.6
5.6
28.1
€ in
millions
607
(215)
in %
30.0
(10.6)
44
2.2
37
87
2
563
105
668
1.8
4.3
0.1
27.8
5.2
33.0
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 2018, the effective tax rate was 28.1%. Excluding the effect
of the US tax reform, the effective tax rate in 2017 was 29.3%.
1
2
5
ADIDAS ANNUAL REPORT 2018
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
NOTES
39 » EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the net
to
income
shareholders by the weighted average number of shares
outstanding during the year, excluding ordinary shares
purchased by adidas and held as treasury shares.
continuing operations attributable
from
It is necessary to include 0.3 million and 1.8 million potential
dilutive shares arising from the convertible bond issuance in
March 2012 in the calculation of diluted earnings per share in
2018 and 2017, respectively, as due to the potential dilutive
shares a dilutive effect resulted as at the balance sheet date.
SEE NOTE 19 The average share price reached € 194.35 per
share during 2018 and thus exceeded the conversion price of
€ 80.48 per share. As a consequence of contractual provisions
relating to dividend protection, the conversion price was
adjusted from € 81.13 to € 80.48 per share. This adjustment
became effective on May 10, 2018.
Earnings per share
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
Basic earnings per share (€)
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
Diluted earnings per share (€)
Continuing operations
Discontinued operations
Total
Year ending
Dec. 31, 2018
Year ending
Dec. 31, 2017
Year ending
Dec. 31, 2018
Year ending
Dec. 31, 2017
Year ending
Dec. 31, 2018
Year ending
Dec. 31, 2017
1,709
1,354
3
1,707
3
1,352
–
–
(5)
–
–
–
–
–
–
(254)
1,702
1,097
201,759,012
202,391,673
201,759,012
202,391,673
201,759,012
202,391,673
8.46
6.68
(0.02)
(1.26)
8.44
5.42
1,707
1,352
0
1
1,707
1,353
(5)
-
(5)
(254)
1,702
1,097
-
0
1
(254)
1,702
1,099
201,759,012
202,391,673
201,759,012
202,391,673
201,759,012
202,391,673
280,100
1,846,245
280,100
1,846,245
280,100
1,846,245
5,855
2,712
5,855
2,712
5,855
2,712
202,044,967
204,240,629
202,044,967
204,240,629
202,044,967
204,240,629
8.45
6.63
(0.02)
(1.26)
8.42
5.38
Further information on basic and diluted earnings per share
from discontinued operations is included in these Notes.
SEE NOTE 04
1
2
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ADIDAS ANNUAL REPORT 2018
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4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
NOTES
ADDITIONAL INFORMATION
40 » SEGMENTAL INFORMATION
adidas operates predominantly in one industry segment – the
design, distribution and marketing of athletic and sports
lifestyle products.
Effective January 1, 2018, the four former operating segments
Greater China, Japan, South Korea and Southeast Asia/Pacific
were consolidated to one operating segment Asia-Pacific. As
at December 31, 2018, following the company’s internal
management reporting by markets and in accordance with the
definition of IFRS 8 ‘Operating Segments’, ten operating
segments were identified: Europe (formerly called Western
Europe), North America adidas, North America Reebok, Asia-
Pacific, Latin America, Emerging Markets (formerly called
Middle East), Russia/CIS, adidas Golf, Runtastic and Other
centrally managed businesses.
Due to the completed divestitures, income and expenses of
the former TaylorMade and CCM Hockey operating segments
are reported as discontinued operations in 2018 and in 2017,
respectively.
SEE NOTE 04
The operating segments North America adidas and North
America Reebok have been aggregated to North America.
According to the criteria of IFRS 8 for reportable segments,
the operating segments Europe, North America, Asia-Pacific,
Latin America, Emerging Markets and Russia/CIS are
reported separately. The remaining operating segments are
aggregated under Other Businesses due to their only
subordinate materiality. Due to the consolidation of the
operating segment Asia-Pacific as described above, former
reportable segments Greater China, Japan and MEAA
(aggregated Middle East, South Korea and Southeast Asia/
Pacific) are no longer reported as they are replaced by
reportable segments Asia-Pacific and Emerging Markets. The
comparative information presented in this note has been
restated accordingly.
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.
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.
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
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 expenses for
marketing.
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 impairment losses as well as capital expenditure
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
7
1
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
NOTES
Segmental information I € in millions
Net sales
(third parties) 1
Thereof: adidas
brand 1
Thereof:
Reebok brand 1
Segmental
operating
profit 1
Segmental
assets 2
Segmental
liabilities 2
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Europe
North America
Asia-Pacific
Russia/CIS
Latin America
Emerging Markets
Reportable segments
5,885
4,689
7,141
595
1,634
1,144
5,932
4,275
6,403
660
1,907
1,300
5,405
4,277
6,805
446
1,463
1,010
5,434
3,843
6,067
478
1,673
1,153
480
411
336
149
171
134
499
432
337
182
235
147
1,176
1,192
698
468
2,339
2,115
146
279
318
136
268
325
1,511
1,474
1,417
157
617
391
1,738
1,500
1,170
216
724
398
21,086
20,479
19,405
18,647
1,681
1,832
4,956
4,504
5,568
5,747
Other Businesses (continuing operations)
829
739
446
345
48
877
667
1,405
–
446
–
345
6
–
6
12
–
12
163
(4)
159
67
24
91
280
300
–
280
–
300
21,963
21,885
19,851
18,993
1,687
1,843
5,114
4,596
5,848
6,047
115
98
333
5
85
41
676
18
–
18
693
130
77
242
7
66
42
563
25
–
25
588
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.
Information regarding the effect of the initial application of
IFRS 15 is also included in these Notes.
SEE NOTE 32 Due to
the adoption of
the modified retrospective method,
comparative information for the year ending December 31,
2017 has not been restated. Net sales for the year ending
December 31, 2018 represents revenue from contracts with
customers.
Net sales (third parties) € in millions
Other Businesses (discontinued
operations)
Other Businesses
Total
1 Year ending December 31.
2 At December 31.
Segmental information II € in millions
Europe
North America
Asia-Pacific
Russia/CIS
Latin America
Emerging Markets
Reportable segments
Other Businesses (continuing operations)
Other Businesses (discontinued operations)
Other Businesses
Total
1 Year ending December 31.
Reportable segments
Other Businesses
Reclassification to discontinued operations
Capital
expenditure 1
Depreciation and
amortization 1
Impairment losses
and reversals of
impairment losses 1
Total
2018
2017
2018
2017
2018
2017
69
53
157
7
15
14
315
5
–
5
321
76
62
160
38
29
20
385
9
7
16
401
55
40
133
23
25
16
291
7
1
8
299
51
32
104
27
28
16
258
9
7
16
274
3
2
2
(1)
1
0
7
8
0
8
16
1
4
2
1
1
1
11
9
7
16
26
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
21,086
877
(48)
21,915
20,479
1,405
(667)
21,218
1
2
8
ADIDAS ANNUAL REPORT 2018
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3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
NOTES
Operating profit € in millions
Depreciation and amortization € in millions
Assets € in millions
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
Operating profit for reportable segments
Operating profit for Other Businesses
Segmental operating profit
Reclassification to discontinued operations
4,956
159
5,114
4
4,504
Reportable segments
91
Other Businesses
4,596
Reclassification to discontinued operations
(24)
HQ
HQ
(1,755)
(1,623)
Consolidation
Total
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
291
8
(1)
171
–
470
258
16
(7)
146
–
413
Central expenditure for marketing
Consolidation
Operating profit
Financial income
Financial expenses
Income before taxes
(958)
(38)
2,368
57
(47)
2,378
(841)
(38)
2,070
46
(93)
2,023
Capital expenditure € in millions
Reportable segments
Other Businesses
Reclassification to discontinued operations
HQ
Consolidation
Total
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
315
5
–
473
–
794
385
16
(7)
357
–
752
Impairment losses and reversals of impairment losses
€ in millions
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
Liabilities € in millions
Reportable segments
Other Businesses
Reclassification to discontinued operations
HQ
Consolidation
Total
7
8
(0)
2
(2)
16
11
16
(7)
5
14
38
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
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
Dec. 31,
2018
Dec. 31,
2017
5,568
5,747
280
5,848
15
3,177
773
5,799
300
6,047
(40)
1,996
641
5,374
15,612
14,019
Dec. 31,
2018
Dec. 31,
2017
676
18
693
1,607
253
4,281
2,414
9,248
563
25
588
1,387
499
3,817
1,711
8,002
1
2
9
ADIDAS ANNUAL REPORT 2018
1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
NOTES
Product information
Geographical information € in millions
41 » ADDITIONAL CASH FLOW INFORMATION
Net sales (third parties) € in millions
Footwear
Apparel
Hardware
Reclassification to discontinued operations
Total
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
12,783
8,223
958
(48)
12,428
7,779
1,679
(667)
21,915
21,218
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.
Net sales (third parties)
Non-current assets
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
Dec. 31,
2018
Dec. 31,
2017
Europe
North America
Asia-Pacific
Russia/CIS
Latin America
Emerging Markets
Reclassification
to discontinued
operations
Total
6,372
4,869
7,334
595
1,638
1,155
6,401
4,882
6,711
660
1,917
1,313
(48)
21,915
(667)
21,218
2,354
718
1,077
189
79
198
–
4,615
2,177
556
1,050
215
98
192
–
4,289
With regard to Germany, Europe contains net sales (third
parties) (continuing operations) amounting to € 1,260 million
and €1,226 million as well as non-current assets amounting
to € 1,275 million and € 1,100 million for the years 2018 and
2017, respectively.
With regard to China, Asia-Pacific contains net sales (third
parties) (continuing operations) amounting to € 4,546 million
and € 3,800 million as well as non-current assets amounting
to € 582 million and € 531 million for the years 2018 and 2017,
respectively.
(continuing operations) amounting
With regard to the USA, North America contains net sales
(third parties)
to
€ 4,485 million and €4,092 million as well as non-current
assets amounting to € 640 million and € 478 million for the
years 2018 and 2017, respectively.
In 2018, the increase in cash generated from operating
activities compared to the prior year was primarily due to an
increase in income before taxes and operating working capital
requirements which was partly offset by an increase in income
taxes paid.
Net cash used in investing activities in 2018 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.
Net cash used in financing activities mainly related to the
repurchase of treasury shares and the dividend paid to
shareholders of adidas AG which was partly offset by the
proceeds from the issuance of a convertible bond.
Net cash (used in)/ generated from discontinued operations
€ in millions
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
Net cash (used in)/generated from operating
activities
Net cash (used in) investing activities
Net cash (used in) financing activities
Net cash (used in)/generated from discon-
tinued operations
(20)
–
–
(20)
6
(4)
(0)
2
2
2
0
ADIDAS ANNUAL REPORT 2018
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FINANCIAL REVIEW
STATEMENTS
NOTES
In 2018, the following changes in financial liabilities impacted
the net cash used in financing activities:
Impact of change in financial liabilities on net cash used in financing activities € in millions
Non-cash effects
Net
(payments)/
proceeds in
the period
(12)
625
(2)
611
Jan. 1, 2018
137
983
4
1,123
New lease
obligations
Fair value
adjustments
–
–
87
87
–
–
2
2
Effect of
exchange
Other
rates Dec. 31, 2018
(31)
1
(0)
(29)
(28)
–
–
(28)
66
1,609
91
1,766
Short-term borrowings
Long-term borrowings
Lease obligations
Total
42 » OTHER FINANCIAL COMMITMENTS AND
CONTINGENCIES
Other financial commitments
adidas has other
(continuing
operations) for promotion and advertising contracts, which
mature as follows:
financial commitments
Compared to December 31, 2017, commitments for promotion
and advertising contracts mainly increased due to the
prolongation of the existing partnerships with Deutscher
Fußball-Bund (DFB) and Juventus F.C., as well as due to the
new partnership with Arsenal F.C. which was signed in the
2018 financial year.
Financial commitments for promotion and advertising
€ in millions
Within 1 year
Between 1 and 5 years
After 5 years
Total
Dec. 31,
2018
Dec. 31,
2017
1,015
3,050
1,763
5,828
893
2,600
1,762
5,255
Commitments with respect to promotion and advertising
contracts maturing after five years have remaining terms of
up to twelve years from December 31, 2018.
Information regarding commitments under lease and service
contracts is also included in these Notes.
SEE NOTE 30
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 21 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.
The company is in dispute with the local revenue authorities in
South Africa (SARS) with regard to the customs value of
imported products. In June 2018, SARS issued a ruling
claiming a customs payment including interest and penalties
for the years 2007 to 2013 in an amount of ZAR 1.871 million
(€ 114 million). adidas has applied for a suspension of the
payment demand and will bring an action against the decision
before the High Court in South Africa in the course of the first
half of 2019. In case the court rules in favor of SARS, adidas
will appeal against the decision to the Supreme Court of South
Africa. Based on external legal opinions, Management
currently believes that it is more likely than not that the claim
made by SARS will eventually not result in an outflow of
resources. Therefore, a provision was not recognized in the
consolidated statement of financial position.
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 October 2018, a former employee of the company’s US
subsidiary was convicted of wire fraud in connection with
unauthorized payments to certain college basketball players
or their families during the former employee’s time at the US
subsidiary. The company’s US subsidiary, with the full support
of the company, has cooperated and continues to cooperate
with the prosecutors, including by conducting an internal
investigation with the assistance of outside counsel. While
Management currently believes that the actions of its former
employee will not have any material influence on the assets,
liabilities, financial position and profit or loss of the company,
actual results may ultimately differ from the current
Management assessment. Any additional statements about
2
2
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NOTES
these matters by the company could compromise the
company’s position in these proceedings and hence further
information is not disclosed.
44 » OTHER INFORMATION
Employees
The average numbers of employees (continuing operations)
are as follows:
43 » RELATED PARTY DISCLOSURES
According to the definitions of
‘Related Party
IAS 24
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. This Annual Report
contains detailed information about the remuneration of the
Supervisory Board and the Executive Board of adidas AG.
SEE COMPENSATION REPORT, P. 41,
SEE NOTE 44
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.
SEE NOTE 25
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.
Employees
Own retail
Sales
Logistics
Marketing
Central administration
Production
Research and development
Information technology
Total
Year ending
Dec. 31,
2018
Year ending
Dec. 31,
2017
32,033
32,349
3,855
5,990
5,835
5,339
988
1,045
1,354
3,981
5,914
5,717
5,114
1,241
1,059
1,204
56,438
56,577
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 2018, the expenses for the
professional audit service fees for the auditor KPMG AG
Wirtschaftsprüfungsgesellschaft amounted to € 1.7 million
(2017: € 1.6 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 (2017: € 0.1 million), € 0.9 million
(2017: €0.1 million) and € 0.2 million (2017: € 0.0 million),
respectively.
Expenses for the audit fees of KPMG AG Wirtschafts prüfungs-
gesellschaft were mainly related to the audits of both the
consolidated
financial
financial statements and
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.
the
Other confirmation services consist of audits which are either
required by law or contractually agreed, such as the audit of
the Compliance Management System (IDW AssS 980),
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.
Other services provided by the auditor consist of supporting
services to provide certificates for sales transactions and for
legal consultancy services.
2
2
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STATEMENTS
NOTES
Remuneration of the Supervisory Board and the Executive Board of
adidas AG
Supervisory Board
Pursuant to the Articles of Association of adidas AG, the
Supervisory Board members’ fixed annual payment amounted
to € 2.2 million (2017: € 1.8 million).
Members of the Supervisory Board were not granted any
loans or advance payments in 2018.
Executive Board
In 2018, the overall compensation of the members of the
Executive Board totaled € 20.7 million (2017: €23.3 million),
€ 10.5 million thereof relates to short-term benefits (2017:
€ 23.3 million) and € 10.2 million to long-term benefits (2017:
€ 0.0 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 € 3.2 million (2017: € 4.9 million).
In 2018, former members of the Executive Board and their
survivors received pension payments totaling € 3.7 million
(2017: € 3.7 million).
Pension obligations relating to former members of the
Executive Board and their survivors amount in total to
€ 84.9 million (2017: € 84.7 million).
Benefits confirmed to former members of the Executive
Board in 2017 due to the termination of their Executive Board
income
mandates were recognized
statement and amounted to € 1.4 million.
in the consolidated
Current members of the Executive Board were not granted
any loans or advance payments in 2018.
In 2017, 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.
SEE COMPENSATION REPORT, P. 41
45 » INFORMATION RELATING TO THE GERMAN
CORPORATE GOVERNANCE CODE
Information pursuant to § 161 German Stock Corporation Act
(Aktiengesetz – AktG)
In February 2019, 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.
46 » EVENTS AFTER THE BALANCE SHEET DATE
Company-specific subsequent events
The Supervisory Board of adidas AG has appointed Martin
Shankland to the Executive Board as Board Member
responsible for Global Operations effective March 4, 2019. He
succeeds Gil Steyaert who has left the Executive Board as of
February 26, 2019. No further 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 27, 2019. It is the Supervisory
Board’s task to examine the consolidated financial statements
and give their approval and authorization for issue.
Herzogenaurach, February 27, 2019
The Executive Board of adidas AG
Kasper Rorsted
Roland Auschel
Eric Liedtke
Harm Ohlmeyer
Karen Parkin
2
2
3
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
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 I
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
Acquisition cost
January 1, 2017
Currency effect
Additions
Transfers to assets held for sale
Decrease in companies consolidated
Transfers
Disposals
1,908
(119)
–
(185)
(0)
–
–
1,681
(197)
–
(152)
–
–
–
December 31, 2017/January 1, 2018
1,604
1,332
Currency effect
Additions
Transfers
Disposals
December 31, 2018
38
–
–
(0)
62
2
–
(1)
1,642
1,394
904
(40)
74
(101)
(0)
(2)
(17)
819
9
94
9
(40)
891
20
–
–
–
–
–
–
20
–
–
–
–
20
4,513
(356)
74
(438)
(0)
(2)
(17)
3,775
109
96
9
(41)
3,947
1,395
(83)
89
(156)
(0)
48
(52)
1,242
3
137
62
(36)
1,408
325
(20)
27
(31)
0
6
(18)
288
(3)
22
57
(7)
357
1,710
(118)
300
(66)
0
36
(142)
1,721
(11)
240
70
(203)
1,817
218
(10)
266
(4)
0
(89)
(3)
378
2
299
(198)
(2)
480
3,648
(231)
681
(256)
(0)
1
(215)
3,629
(9)
699
(9)
(248)
4,061
2
2
4
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
4 CONSOLIDATED FINANCIAL
5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
STATEMENT OF MOVEMENTS OF
INTANGIBLE AND TANGIBLE ASSETS
Statement of Movements of Intangible and Tangible Assets € in millions
Attachment I
Accumulated depreciation, amortization and
impairment
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/January 1, 2018
Currency effect
Additions
Impairment losses
Reversals of impairment losses
Transfers
Disposals
December 31, 2018
Net carrying amount
January 1, 2017
December 31, 2017
December 31, 2018
1 Adjusted according to IAS 8, see Note 03.
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
496
(41)
–
–
–
(71)
–
–
–
383
13
–
–
–
–
(0)
396
573 1
(69)
–
23
–
(1)
0
–
–
526
24
–
(0)
–
–
550
1,412
1,220
1,245
1,108 1
806 1
844
748
(36)
59
10
(0)
(94)
(0)
–
(16)
671
9
57
–
(0)
(0)
(39)
698
157
148
193
10
–
4
–
–
–
–
–
–
14
–
3
–
–
–
18
10
6
2
1,827
(147)
63
34
(0)
(166)
(0)
–
(16)
1,594
46
61
(0)
(0)
(0)
(39)
1,662
2,687
2,181
2,285
425
(29)
66
2
(1)
(67)
(0)
11
(45)
362
4
71
3
(0)
4
(30)
414
970
880
994
180
(16)
31
–
–
(25)
0
–
(16)
154
(1)
32
1
–
–
(6)
180
145
134
177
1,128
(88)
261
11
(0)
(57)
0
(11)
(132)
1,112
(5)
306
15
(3)
(4)
(191)
1,230
582
609
587
–
(0)
0
–
–
–
–
0
0
–
–
–
–
–
–
(0)
–
218
378
480
1,733
(133)
358
13
(1)
(149)
(0)
(0)
(193)
1,628
(3)
409
19
(3)
–
(227)
1,824
1,915
2,000
2,237
2
2
5
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SHAREHOLDINGS
SHAREHOLDINGS
Shareholdings of adidas AG, Herzogenaurach at December 31, 2018
Attachment II
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
17
18
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.
adidas Ventures B.V. (formerly: Hydra Ventures B.V.)
adidas (UK) Limited
19 Reebok International Limited 4
20
Trafford Park DC Limited
21 Reebok Pensions Management Limited 3, 4
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 Limited.
5 Sub-group Reebok International Ltd.
6 Sub-group adidas Indy, LLC.
Herzogenaurach (Germany)
Herzogenaurach (Germany)
Herzogenaurach (Germany)
Herzogenaurach (Germany)
Herzogenaurach (Germany)
Cham (Switzerland)
Klagenfurt (Austria)
Pasching (Austria)
Strasbourg (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
6,776
4,277
25
6,184
9,782
1,788
247,926
7,392,794
1,547,114
55,298
50,660
52,371
(26)
4,755
(43,106)
34,728
326,634
1,431
–
26,714
directly
directly
14
75
directly
directly
directly
6
10
directly
directly
9
10
10
10
85
10
directly
10
10
75
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
2
2
6
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
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5 ADDITIONAL INFORMATION
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FINANCIAL REVIEW
STATEMENTS
SHAREHOLDINGS
Shareholdings of adidas AG, Herzogenaurach at December 31, 2018
Attachment II
Company and Domicile
Luta Limited 3, 4
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 Limited.
5 Sub-group Reebok International Ltd.
6 Sub-group adidas Indy, 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
in %
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
–
2,695
20,902
56
(297)
37,838
36,496
10,724
56,741
6,209
1,263
30,772
51,600
270,921
1,549
26,514
131,939
881,494
7,867
28,254,471
58,588
99,799
19,954
1,918
1,716
649
935,845
4,604,235
546,663
45,630
18,931
19
10
10
24
77
2
75
10
10
10
10
directly
directly
directly
75
10
10
directly
directly
directly
7
directly
75
10
10
directly
directly
directly
directly
10
10
directly
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
2
2
7
ADIDAS ANNUAL REPORT 2018 1 TO OUR SHAREHOLDERS
2 GROUP MANAGEMENT REPORT –
3 GROUP MANAGEMENT REPORT –
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5 ADDITIONAL INFORMATION
OUR COMPANY
FINANCIAL REVIEW
STATEMENTS
SHAREHOLDINGS
Shareholdings of adidas AG, Herzogenaurach at December 31, 2018
Attachment II
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, 5
73 Onfield Apparel Group, LLC 3, 6
74 Reebok Onfield, LLC 3, 6
75 Reebok International Ltd.5
76
adidas Indy, LLC 6
77
78
79
Stone Age Equipment, Inc.
Spartanburg DC, Inc.
adidas Canada 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 Limited.
5 Sub-group Reebok International Ltd.
6 Sub-group adidas Indy, LLC.
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)
Dover, Delaware (USA)
Dover, Delaware (USA)
Boston, Massachusetts (USA)
Wilmington, Delaware (USA)
Redlands, California (USA)
Spartanburg, South Carolina (USA)
Woodbridge, Ontario (Canada)
Currency
Equity
(currency units
in thousands)
Share in capital
held by 1
in %
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
CAD
960
336,798
19,067
98,713
3,265
547
(32,413)
324,812
(1,831)
17,226
157,921
(34,159)
356,671
4,763,459
289,463
75,754
(1,013)
19,501
–
–
–
(1,291,086)
21,236
(3,381)
15,120
178,568
directly
10
indirectly
9
10
57
58
61
10
11
directly
64
10
directly
directly
10
67
67
67
75
75
75
74
75
67
75
72
68
68
10
100
100
51
49
100
100
100
100
90
10
100
100
85
100
100
100
100
100
100
100
100
99
1
100
100
99
1
100
100
100
2
2
8
ADIDAS ANNUAL REPORT 2018 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, 2018
Attachment II
Company and Domicile
Asia
80
81
82
adidas Sourcing Limited
adidas Services Limited
adidas Hong Kong Limited
83 Reebok Trading (Far East) Limited
84
85
86
87
adidas (Suzhou) Co. Ltd.
adidas Sports (China) Co. Ltd.
adidas (China) Ltd.
adidas Sports Goods (Shanghai) Co., Ltd
88 Runtastic Software Technology (Shanghai) Co., Ltd.
89
90
91
92
93
94
95
Zhuhai adidas Technical Services Limited 3
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
96
adidas India Marketing Private Limited
97
adidas Technical Services Private Limited
98 Reebok India Company
99 PT adidas Indonesia
100 adidas (Malaysia) Sdn. Bhd.
101 adidas Philippines Inc.
102 adidas Singapore Pte. Ltd.
103 adidas Taiwan Limited
104 adidas (Thailand) Co., Ltd.
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 Limited.
5 Sub-group Reebok International Ltd.
6 Sub-group adidas Indy, LLC.
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)
Busan (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)
Bangkok (Thailand)
Currency
Equity
(currency units
in thousands)
Share in capital
held by 1
USD
USD
HKD
USD
CNY
CNY
CNY
CNY
CNY
CNY
CNY
CNY
JPY
KRW
KRW
INR
INR
USD
INR
IDR
MYR
PHP
SGD
TWD
THB
354,814
14,716
502,643
31,985
232,265
8,791,091
394,765
26
7,481
43,971
165,470
13,004
4,369,376
215,528,205
4,052,429
4,630,671
7,958,127
3,358
(21,458,472)
466,014,543
83,232
1,052,684
17,682
2,226,686
1,928,644
11
10
2
75
2
2
10
86
10
80
15
10
10
directly
80
directly
10
95
10
directly
80
108
10
directly
directly
10
directly
directly
10
directly
in %
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
10.68
89.32
98.62
1.00
0.37
100.00
93.15
99
1
60
40
100
100
100
100
2
2
9
ADIDAS ANNUAL REPORT 2018 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, 2018
Attachment II
Company and Domicile
105 adidas Australia Pty Limited
106 adidas New Zealand Limited
107 adidas Vietnam Company Limited
108 Reebok (Mauritius) Company Limited
Latin America
109 adidas Argentina S.A.
110 Reebok Argentina S.A.3
111 adidas do Brasil Ltda.
112 adidas Franchise Brasil Servicos Ltda.
113 Reebok Produtos Esportivos Brasil Ltda.3
114 adidas Chile Limitada
115 adidas Colombia Ltda.
116 adidas Perú S.A.C.
117 adidas de Mexico, S.A. de C.V.
118 adidas Industrial, S.A. de C.V.
119 Reebok de Mexico, S.A. de C.V.3
120 adidas Latin America, S.A.
121 Concept Sport, S.A.
122 adidas Market LAM, S.A.3
123 3 Stripes S.A.3
124 Tafibal S.A.
125 Raelit S.A.
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)
126 adidas Sourcing Honduras, S.A.5 (formerly: Reebok Central America S.A.)
San Pedro Sula (Honduras)
127 adidas Corporation de Venezuela, S.A.3
128 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 Limited.
5 Sub-group Reebok International Ltd.
6 Sub-group adidas Indy, LLC.
Caracas (Venezuela)
San Juan (Puerto Rico)
Currency
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)
101,306
7,719
182,126,875
2,204
55,794
(27,879)
619,319
63,258
12,810
77,705,689
4,912,204
148,627
1,458,663
423,289
(579,808)
(65,144)
2,756
(2,782)
(436)
23,484
51,068
–
(17)
342
Share in capital
held by 1
10
directly
10
75
71
10
2
11
10
2
111
10
directly
1
directly
directly
114
directly
directly
directly
directly
10
10
directly
directly
directly
75
71
directly
10
in %
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
2
3
0
ADIDAS ANNUAL REPORT 2018 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 27, 2019
KASPER RORSTED
CEO
ROLAND AUSCHEL
GLOBAL SALES
ERIC LIEDTKE
GLOBAL BRANDS
HARM OHLMEYER
CFO
KAREN PARKIN
GLOBAL HUMAN RESOURCES
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ADIDAS ANNUAL REPORT 2018 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
Based on the results of our audit, we have issued the following
unqualified audit opinion:
In our opinion, on the basis of the knowledge obtained in the
audit,
INDEPENDENT AUDITOR’S
REPORT
To adidas AG, Herzogenaurach
REPORT ON THE AUDIT OF THE
CONSOLIDATED FINANCIAL
STATEMENTS AND OF THE GROUP
MANAGEMENT REPORT
income statement, and
OPINIONS
We have audited the consolidated financial statements of
adidas AG, Herzogenaurach, and its subsidiaries (hereinafter
‘adidas’ or the ‘Group’), which comprise the consolidated
statement of financial position as of December 31, 2018, the
consolidated
the consolidated
statement of comprehensive income, consolidated statement
of changes in equity and consolidated statement of cash flows
for the financial year from January 1, 2018, to December 31,
2018, and the notes to the consolidated financial statements,
including a summary of significant accounting policies. In
addition, we have audited the management report of the entity
and the group (“group management report”) of adidas AG,
Herzogenaurach, for the financial year from January 1, 2018,
to December 31, 2018. In accordance with German legal
requirements, we have not audited the content of the non-
the group
financial statement, which
management report and is identified as such, and the
corporate governance statement as well as the corporate
governance report, which are included in the ‘Corporate
governance report including corporate governance statement’
section of the group management report.
included
in
is
— 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 [Handels-
gesetzbuch: 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 of
December 31, 2018, and of its financial performance for
the financial year from January 1, 2018, to December 31,
2018, 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,
corporate governance statement and 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
in
statements and of the group management report
accordance with Section 317 HGB and EU Audit Regulation No
537/2014 (referred to subsequently as “EU Audit Regulation”)
and in compliance with the German Generally Accepted
Standards for Financial Statement Audits promulgated by the
Institut der Wirtschaftsprüfer (IDW) [Institute of Public
Auditors in Germany]. 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)(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
the group
financial statements and on
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, 2018, to December 31, 2018. 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.
RECOVERABILITY OF THE REEBOK TRADEMARK
The accounting policies and the use of judgments and
estimates are presented in the notes to the consolidated
financial statements in note 02 along with the disclosures on
the measurement of the Reebok trademark in note 15.
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ADIDAS ANNUAL REPORT 2018 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
THE FINANCIAL STATEMENT RISK
The Reebok trademark was recognized as of December 31,
2018, at a value of EUR 826 million.
The Reebok trademark is to be tested for impairment once a
year. Therefore, the trademark was allocated as a “corporate
asset” pursuant to IAS 36 to the Reebok cash-generating
units at the level of the markets and the value in use of the
cash-generating units was compared with the book value of
these units. The valuation model used to determine the value
in use is complex; the result of this valuation is heavily
dependent on the estimate of future net cash flows (taking
into account future revenue growth, profit margins, exchange
rates and long-term growth rates) and the discount factor
used, which makes it subject to considerable uncertainty.
There is the risk for the financial statements that an
impairment loss or a reversal of an impairment loss on the
Reebok brand is not recognized as of the reporting date or
that a required reversal of an impairment loss on the brand is
not carried out.
OUR AUDIT APPROACH
With the involvement of our valuation experts, we assessed
the appropriateness of the key assumptions and calculation
methods of the Company, among other things. For this
purpose, we discussed the expected business and earnings
development at the level of the Reebok cash-generating units
to which the trademark is allocated and the assumed long-
term growth rates with those responsible for planning. We
also reconciled this information with other internally available
forecasts, e.g. the budget prepared by the Executive Board
and approved by the Supervisory Board along with the
strategic business plan 2020. Furthermore, we evaluated the
consistency of the growth rates used in the business plan
using external market assessments.
We also confirmed the accuracy of the Company’s previous
forecasts by comparing the budgets of previous financial
years with actual results and by analyzing deviations. Since
even small changes to the discount rate can have a significant
impact on the results of impairment testing, we compared the
assumptions and parameters underlying the discount rate, in
particular the risk-free rate, the market risk premium and the
beta coefficient, with our own assumptions and publicly
available data.
To ensure the computational accuracy of the valuation model
used, we verified the Company’s calculations on the basis of
selected risk-based elements.
In order to take forecast uncertainty into account, we examined
the impact of potential changes in the discount rate, earnings
performance and long-term growth rate on the value in use
(sensitivity analysis) by calculating alternative scenarios and
comparing these with the values stated by the Company.
OUR OBSERVATIONS
The calculation method used for impairment testing of the
Reebok brand is appropriate and in line with the accounting
policies to be applied. The assumptions and parameters used
by management are balanced overall.
MEASUREMENT OF PROVISIONS FOR SALES RETURNS PURSUANT TO THE FIRST-
TIME APPLICATION OF IFRS 15
The accounting policies and the use of judgments and
estimates are presented in the notes to the consolidated
financial statements in note 02 along with the disclosures on
the measurement of the returns in note 32.
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ADIDAS ANNUAL REPORT 2018 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
calculations to determine the return periods, return rates and
to measure the asset for expected returns.
February 27, 2019, for information on the nature, scope and
findings of this assurance engagement.
THE FINANCIAL STATEMENT RISK
In financial year 2018 Group revenue amounted to EUR 21,915
million. Within a given period adidas grants its customers the
right to return the products for a full refund of the purchase
price. The resulting return liabilities amount to EUR 606
million; the asset associated with this for the products that
have been returned amounted to EUR 258 million as of the
reporting date.
Calculation of expected returns is complex and, as regards
the assumptions made, based largely on estimates and
assessments of the Company. This is particularly true of the
determination of the returns period and the return rate based
on the expected value method. There is the risk for the
incorrectly
financial statements
recognized as of the reporting date and the return liability and
correspondingly the associated asset for the returned goods
will be presented in the incorrect amount.
that revenue will be
OUR AUDIT APPROACH
Based on our understanding of the process, we assessed the
setup and design of the identified internal controls in terms of
the determination of the return periods, return rates and
measurement of the asset for expected returns. In doing so
we evaluated the process used by the Company to determine
the return periods, return rates and measurement of the
asset for expected returns.
Based on the applicable legal and contractual arrangements
as well as empirical values from the Company, we assessed
whether the return periods and return rates that have been
determined along with the write-down rates recorded by the
Company to determine the asset for expected returns were
appropriate.
OUR OBSERVATIONS
The approach for recording the expected returns is appropriate.
The assumptions and judgment exercised by the Executive
Board underlying the measurement of the return liability and
asset for expected returns are appropriate.
OTHER INFORMATION
The Executive Board is responsible for the other information.
The other information comprises:
— the non-financial statement,
— the corporate governance statement,
— the Corporate Governance Report pursuant to item 3.10 of
the German Corporate Governance Code, and
— 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.
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.
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.
Based on sales transactions selected in a risk-oriented
manner, we verified the computational accuracy of the
In accordance with our engagement letter, we conducted a
separate assurance engagement of
the non-financial
statement. Please refer to our assurance report dated
RESPONSIBILITIES OF THE EXECUTIVE BOARD
AND THE SUPERVISORY BOARD FOR THE
CONSOLIDATED FINANCIAL STATEMENTS AND
THE GROUP MANAGEMENT REPORT
The Executive Board is responsible for the preparation of
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, the Executive Board is
responsible for such internal control as they have determined
necessary to enable the preparation of consolidated financial
statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements, the
Executive Board 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.
Furthermore, the Executive Board 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 the consolidated
financial
legal
requirements, and appropriately presents the opportunities
and risks of future development. In addition, the Executive
Board is responsible for such arrangements and measures
complies with German
statements,
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ADIDAS ANNUAL REPORT 2018 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
(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
the group
financial statements and of
management 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
scepticism 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 control 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
the Executive Board and the reasonableness of estimates
made by the Executive Board and related disclosures.
— Conclude on the appropriateness of the Executive Board’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.
— 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.
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ADIDAS ANNUAL REPORT 2018 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
OTHER LEGAL AND REGULATORY
REQUIREMENTS
GERMAN PUBLIC AUDITOR
RESPONSIBLE FOR THE ENGAGEMENT
FURTHER INFORMATION PURSUANT TO ARTICLE 10
OF THE EU AUDIT REGULATION
We were elected as group auditor at the annual general
meeting on May 9, 2018. We were engaged by the Supervisory
Board on August 8, 2018. We have been the group auditor of
adidas AG without interruption since the 1995 financial year.
The German Public Auditor responsible for the engagement is
Haiko Schmidt.
Munich, February 27, 2019
KPMG AG Wirtschaftsprüfungsgesellschaft
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).
Braun
Wirtschaftsprüfer
[German Public Auditor]
Schmidt
Wirtschaftsprüfer
[German Public Auditor]
— Perform audit procedures on the prospective information
presented by the Executive Board in the group management
report. On the basis of sufficient appropriate audit evidence
we evaluate, in particular, the significant assumptions
used by the Executive Board 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 control that we identify
during our audit.
We also provide those charged with governance with a
statement that we have complied with the relevant ethical
requirements regarding independence, and communicate
with them all relationships and other matters that may
reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance
in the audit of the consolidated financial
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.
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ADIDAS ANNUAL REPORT 2018 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 1
To the Supervisory Board of adidas AG, Herzogenaurach
We have performed an
independent limited assurance
engagement on the Combined Non-Financial Statement
(further the “Report“) of adidas AG, Herzogenaurach, and the
adidas Group (further the “Company” or “adidas”) according to
§§ 315b, 315c German Commercial Code (HGB) in conjunction
with §§ 289b to 289e HGB for the year from January 1 to
December 31, 2018.
in
As described in the section “Working conditions in our supply
chain”
the Report, 1,207 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.
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, this responsibility includes
implementing and maintaining systems and
designing,
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 on the Report based
on our work performed 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, 2018,
has not been prepared, in all material respects in accordance
with §§ 315b, 315c HGB in conjunction with §§ 289b to
1 Our engagement applied to the German version of the Report 2018. This text is a translation of the Independent Assurance Report issued in German, whereas the German text is authoritative.
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 significantly
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 telephone interview with
the distribution center Brantford (Canada)
— Assessment of the overall presentation of the disclosures
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ADIDAS ANNUAL REPORT 2018 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
obtained, 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, 2018 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.
This assurance 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-
für Wirtschaftsprüfer und Wirtschafts-
bedingungen
prüfungs 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 assurance 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 27, 2019
KPMG AG
Wirtschaftsprüfungsgesellschaft
[Original German version signed by:]
Hell
ppa. Auer
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ADIDAS ANNUAL REPORT 2018
Ten-Year Overview
Glossary
Declaration of Support
Financial Calendar
240
243
246
247
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9
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, 4
Other operating expenses 2, 3, 4
EBITDA 2, 3
Operating profit 2, 3, 5, 6, 7, 8
Net financial result
Income before taxes 2, 3, 5, 6, 7, 8
Income taxes 2, 3, 9
Net income attributable to non-controlling interests
Net income attributable to shareholders 5, 6, 7, 8, 9, 10
Income Statement Ratios
Gross margin 2, 3
Operating margin 2, 3, 5, 6, 7, 8
Interest coverage 2, 3
Effective tax rate 2, 3, 5, 6, 7, 8, 9
Net income attributable to shareholders in % of net sales 5, 6, 7, 8, 9, 10
Net Sales by Brand (€ in millions)
adidas brand
Reebok brand
2018
2017
2016
2015
2014
2013
2012
2011 1
2010
2009
21,915
11,363
21,218
10,703
18,483
9,100
16,915
8,168
129
48
9,172
2,882
2,368
10
2,378
669
3
1,702
51.8%
10.8%
131.6
28.1%
7.8%
115
17
8,766
2,511
2,070
(47)
2,023
668
3
1,173
50.4%
9.8%
55.6
29.3%
5.5%
105
119
7,741
1,953
1,582
(46)
1,536
454
2
1,017
49.2%
8.6%
32.7
29.6%
5.5%
119
8
7,201
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
37
6,102
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
12
5,883
1,496
1,233
(68)
1,165
340
3
839
49.3%
8.7%
24.0
29.2%
5.9%
105
15
6,038
1,445
1,185
(69)
1,116
327
(2)
791
47.7%
8.0%
14.6
29.3%
5.3%
19,851
1,687
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
9
5,478
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
45
4,981
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
86
19
4,309
780
508
(150)
358
113
0
245
45.4%
4.9%
3.9
31.5%
2.4%
7,520
1,603
1 2011 restated according to IAS 8 in the 2012 consolidated financial statements.
2 2018, 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 Figures reflect the adjusted consolidated income statement structure introduced in 2018.
5 2015 excluding goodwill impairment of € 34 million.
6 2014 excluding goodwill impairment of € 78 million.
7 2013 excluding goodwill impairment of € 52 million.
8 2012 excluding goodwill impairment of € 265 million.
9 2017 excluding negative one-time tax impact of € 76 million.
10 Includes continuing and discontinued operations.
11 2017 restated according to IAS 8, see Note 03.
12 Subject to Annual General Meeting approval.
13 Based on net income from continuing operations.
14 Based on number of shares outstanding at the date of preparation of the Consolidated Financial Statements.
2
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0
ADIDAS ANNUAL REPORT 2018
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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 11
Inventories
Receivables and other current assets
Working capital
Net cash/(net borrowings)
Shareholders’ equity 11
Balance Sheet Ratios
Net borrowings/EBITDA 2, 3
Average operating working capital in % of net sales 2, 3
Financial leverage 11
Equity ratio 11
Equity-to-fixed-assets ratio 11
Asset coverage I 11
Asset coverage II 11
Fixed asset intensity of investments 11
Current asset intensity of investments 11
Liquidity I
Liquidity II
Liquidity III
Working capital turnover 2, 3
Return on equity 10, 11
Return on capital employed 10, 11
2018
2017
2016
2015
2014
2013
2012
2011 1
2010
2009
12,783
8,223
910
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
15,612
14,019
15,176
13,343
12,417
11,599
11,651
11,237
10,618
3,445
3,734
2,979
959
6,377
(0.3)
19.0%
(15.0%)
40.8%
110.0%
151.6%
95.1%
37.1%
62.9%
38.6%
73.9%
3,692
3,277
2,354
484
6,032
(0.2)
20.4%
(8.0%)
43.0%
112.2%
144.1%
85.4%
38.3%
61.7%
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%
124.4%
121.0%
110.6%
121.8%
140.7%
128.3%
139.7%
126.0%
132.4%
132.2%
7.4
26.7%
45.1%
9.0
18.2%
41.2%
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%
1 2011 restated according to IAS 8 in the 2012 consolidated financial statements.
2 2018, 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 Figures reflect the adjusted consolidated income statement structure introduced in 2018.
5 2015 excluding goodwill impairment of € 34 million.
6 2014 excluding goodwill impairment of € 78 million.
7 2013 excluding goodwill impairment of € 52 million.
8 2012 excluding goodwill impairment of € 265 million.
9 2017 excluding negative one-time tax impact of € 76 million.
10 Includes continuing and discontinued operations.
11 2017 restated according to IAS 8, see Note 03.
12 Subject to Annual General Meeting approval.
13 Based on net income from continuing operations.
14 Based on number of shares outstanding at the date of preparation of the Consolidated Financial Statements.
2
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ADIDAS ANNUAL REPORT 2018
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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, 5, 6, 7, 8, 9 (in €)
Diluted earnings 2, 3, 5, 6, 7, 8, 9 (in €)
Price/earnings ratio at year-end 2, 3, 5, 6, 7, 8, 9
Market capitalization at year-end (€ in millions)
Net cash generated from operating activities 10 (in €)
Dividend (in €)
Dividend payout ratio 2, 3, 5, 6, 7, 8, 9, 13 (in %)
2018
2017
2016
2015
2014
2013
2012
2011 1
2010
2009
182.40
167.15
150.15
7.05
7.00
23.7
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
34,075
30,254
18,000
11,773
19,382
14,087
10,515
10,229
8.14
2.60
37.0
6.73
2.00
37.4
5.41
1.60
44.5
3.36
1.50
47.2
3.03
1.50
38.0
4.50
1.35
35.8
3.86
1.00
34.4
4.28
0.80
29.5
8.46
8.45
21.6
36,329
13.11
3.35 12
39.0 14
37.77
1.25
1.22
30.2
7,902
6.11
0.35
29.8
Number of shares outstanding at year-end (in thousands)
199,171
203,861
201,489
200,197
204,327
209,216
209,216
209,216
209,216
209,216
Employees
Number of employees at year-end 2, 3
Personnel expenses 2, 3 (€ in millions)
57,016
2,481
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
1 2011 restated according to IAS 8 in the 2012 consolidated financial statements.
2 2018, 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 Figures reflect the adjusted consolidated income statement structure introduced in 2018.
5 2015 excluding goodwill impairment of € 34 million.
6 2014 excluding goodwill impairment of € 78 million.
7 2013 excluding goodwill impairment of € 52 million.
8 2012 excluding goodwill impairment of € 265 million.
9 2017 excluding negative one-time tax impact of € 76 million.
10 Includes continuing and discontinued operations.
11 2017 restated according to IAS 8, see Note 03.
12 Subject to Annual General Meeting approval.
13 Based on net income from continuing operations.
14 Based on number of shares outstanding at the date of preparation of the Consolidated Financial Statements.
2
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GLOSSARY
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
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.
/ C
3Cs
‘3Cs’ stand for creativity, collaboration and confidence. It is
adidas’ goal to develop a culture that cherishes creativity,
collaboration and confidence as well as high performance –
the behaviors we deem crucial to the successful delivery of
our corporate strategy. In fact, our culture and people serve
as the foundation and a key enabler of the Creating the New
strategy.
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.
/ F
FITHUB
FitHub is Reebok’s 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.
/ H
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
LEADERSHIP FRAMEWORK
The Leadership Framework 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 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 is built
into the way we hire and promote as well as rate performance.
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GLOSSARY
/ M
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 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-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.
/ O
OPERATING OVERHEAD EXPENSES
Expenses which are not directly attributable to the products
or services sold, such as distribution and selling as well as
general and administration costs, but not including marketing
and point-of-sale expenses.
/ P
PARLEY FOR THE OCEANS
Parley for the Oceans is an environmental organization and
global collaboration network. Founded in 2012, Parley aims to
raise awareness for the beauty and fragility of the oceans, and
to inspire and empower diverse groups such as pacesetting
companies, brands, organizations, governments, artists,
designers, scientists, innovators and environmentalists in the
exploration of new ways of creating, thinking and living on our
finite, blue planet.
PARLEY OCEAN PLASTIC
Parley Ocean Plastic is a material created from upcycled
plastic waste that was intercepted from beaches and coastal
communities before reaching the ocean. 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. It is
used as a replacement for virgin plastic in the making of
adidas x Parley products.
PERFORMANCE PRODUCTS
In the sporting goods industry, performance products relate to
technical footwear and apparel used primarily in sports.
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.
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GLOSSARY
STADIUM
Stadium is an 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.
/ W
WET PROCESSES
Wet processes are defined as water-intense processes, such
as dyeing and finishing of materials.
/ S
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.
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.
SPORT INSPIRED
‘Sport Inspired’ stands for fashion inspired by sport – also
known as ‘sports lifestyle’. It draws inspiration from adidas’
rich archives and legacy. Sport Inspired stands for Originals,
Y-3, Statement and Yeezy. The ‘Trefoil’ logo is the brand mark
of adidas Sport Inspired.
SPORT PERFORMANCE
The adidas brand has a deep-rooted connection with sport.
‘Sport Performance’ stands for the categories training,
running, football, basketball and heartbeat sports such as
outdoor, swim, tennis and US sports. The ‘Badge of Sport’ is
the brand mark of adidas Sport Performance.
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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 23, 2018, 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 Limited, 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., Strasbourg, 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, 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,
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 Ventures B.V. (formerly: Hydra Ventures B.V.),
Netherlands
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 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
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., Boston, 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
Trafford Park DC Limited, London, Great Britain
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ADIDAS ANNUAL REPORT 2018 8
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FULL YEAR 2018 RESULTS
FIRST QUARTER 2019 RESULTS
ANNUAL GENERAL MEETING
DIVIDEND PAYMENT
(subject to Annual General Meeting approval)
FIRST HALF 2019 RESULTS
NINE MONTHS 2019 RESULTS
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(P. 18, 21, 22, 23, 24)
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