TOGETHER WE WIN. First Quarter Report January March LONDON 19:14 adidas is all in CHICAGO 13:14. adidas.com

Transcription

1 Q1 First Quarter Report January March 2012 TOGETHER WE WIN LONDON 19:14 adidas is all in adidas.com CHICAGO 13:14 LOS ANGE

2 Table of Contents 01 To Our Shareholders First Quarter Results at a Glance 3 Financial Highlights 4 Operational and Sporting Highlights 5 Interview with the CEO 6 Our Share Interim Group Management Report Group Business Performance 13 Economic and Sector Development 13 Income Statement 14 Statement of Financial Position and Statement of Cash Flows 18 Business Performance by Segment 21 Wholesale Business Performance 21 Retail Business Performance 23 Other Businesses Performance 25 Subsequent Events and Outlook Interim Consolidated Financial Statements (IFRS) Consolidated Statement of Financial Position 31 Consolidated Income Statement 33 Consolidated Statement of Comprehensive Income 34 Consolidated Statement of Changes in Equity 35 Consolidated Statement of Cash Flows 36 Selected Explanatory Notes to the Interim Consolidated Financial Statements Additional Information Executive and Supervisory Boards 40 Financial Calendar Publishing Details & Contact 42

3 To Our Shareholders 01.1 First Quarter Results at a Glance First Quarter Results at a Glance ( in millions) Change Group Net sales 3,824 3, % Gross profit 1,826 1, % Gross margin 47.7% 48.5% (0.7pp) Operating profit % Operating margin 10.7% 9.6% 1.1pp Wholesale Net sales 2,614 2, % Gross profit 1,092 1, % Gross margin 41.8% 43.1% (1.4pp) Segmental operating profit % Segmental operating margin 32.6% 34.6% (2.0pp) 3 Retail Net sales % Gross profit % Gross margin 61.5% 61.2% 0.2pp Segmental operating profit % Segmental operating margin 16.6% 15.4% 1.1pp Other Businesses Net sales % Gross profit % Gross margin 43.7% 45.6% (1.9pp) Segmental operating profit % Segmental operating margin 28.7% 28.1% 0.6pp Sales by Brand adidas 2,888 2, % Reebok (5.4%) TaylorMade-adidas Golf % Rockport % Reebok-CCM Hockey % Rounding differences may arise in percentages and totals.

4 To Our Shareholders 01.2 Financial Highlights Financial Highlights (IFRS) Change Operating Highlights ( in millions) Net sales 3,824 3, % EBITDA % Operating profit % Net income attributable to shareholders % Key Ratios (%) Gross margin 47.7% 48.5% (0.7pp) Operating expenses as a percentage of net sales 38.4% 40.0% (1.6pp) Operating margin 10.7% 9.6% 1.1pp Effective tax rate 25.5% 26.5% (1.0pp) Net income attributable to shareholders as a percentage of net sales 7.6% 6.4% 1.2pp Operating working capital as a percentage of net sales 1) 20.7% 20.5% 0.2pp Equity ratio 48.1% 45.2% 2.9pp Net borrowings/ebitda (0.3pp) Financial leverage 11.6% 20.1% (8.5pp) Return on equity 5.3% 4.6% 0.6pp 4 Balance Sheet and Cash Flow Data ( in millions) Total assets 11,453 10, % Inventories 2,375 2, % Receivables and other current assets 3,167 2, % Working capital 2,595 2, % Net borrowings (30.0)% Shareholders equity 5,509 4, % Capital expenditure % Net cash used in operating activities (704) (609) 15.7% Per Share of Common Stock ( ) Basic earnings % Diluted earnings % Net cash used in operating activities (3.37) (2.91) 15.7% Share price at end of period % Other (at end of period) Number of employees 46,485 44, % Number of shares outstanding 209,216, ,216,186 Average number of shares 209,216, ,216,186 1) Twelve-month trailing average. 03 net sales 04 net income attributable to shareholders 3,824 in millions 3, in millions in millions in millions 2012

5 2012 adidas AG. adidas, the 3-Bars logo and the 3-Stripes mark are registered trademarks of the. SAN FRANCISCO 11:14 LOS ANGELES 11:14 CHICAGO 13:14 BUENOS AIRES 16:14 CHICAGO 13:14 To Our Shareholders 01.3 Operational and Sporting Highlights 01.3 Operational and Sporting Highlights First Quarter LONDON 19:14 adidas is all in adidas.com jan FEB 09. adidas sponsored Lionel Messi is voted World Footballer of the Year for the third time in a row. Picture adidas opens the doors to its fourth Brand Center worldwide, in the city of Shanghai, the second adidas Brand Center in China. The store is one of the Group s largest, spanning 2,800m². 15. Reebok kicks off its new brand campaign The Sport Of Fitness Has Arrived. The campaign builds upon Reebok s heritage as a fitness brand to communicate that fitness can be as exciting and engaging as any sport. The idea of fitness as a sport is embodied through Reebok s partnership with CrossFit and the culture of community, competition and camaraderie that it builds. Picture Europe s first stand-alone adidas SLVR store opens in Berlin during Mercedes-Benz Fashion Week. The 120m² store is located in Mitte, one of the most vibrant and trendsetting areas of Berlin. 30. adidas and Porsche Design Group announce the next step in their collaboration by entering into a new contract. The highly functional and fashionable range is available worldwide in over 250 Porsche Design stores. 02. The first adidas NEO label store opens its doors to the public in Hamburg, Germany. The adidas NEO label focuses on 14- to 19-yearolds with a unique and fresh fast-fashion offering. The store in Hamburg is the first of ten to be opened in Germany. Picture 03 MAR 02. TaylorMade promotes its R11S driver by appealing to consumers emotions with the Driver Love campaign. The effort is focused on the strong bond golfers have with their favourite clubs, rather than the technology behind it. Picture adidas and Dwight Howard launch the adipower Howard 2 signature basketball shoe. It is the lightest Howard signature shoe to date and features a signature shattered glass graphic throughout the shoe as a nod to Dwight s power and history of bringing down backboards. 09. Reebok kicks off a four-week campaign supporting ZigTech in the US, using TV, digital and mobile technology, social media and print. 13. adidas and UEFA launch the adidas Finale Munich, the Official Match Ball for the 2012 UEFA Champions League Final marks the 20th final in UEFA Champions League history. The very first final was held in Munich. Picture adidas presents the Official Match Ball to be used at the London 2012 Olympic Games football tournament. The ball is called The Albert and was officially revealed at the City of Coventry Stadium. 19. TaylorMade-adidas Golf announces the acquisition of Adams Golf, Inc. The addition of Adams Golf enables TaylorMade-adidas Golf to broaden its product range and to extend its presence across a wider array of golfers. 20. adidas Golf unveils their Samba Golf Majors Collection for 2012 that includes four limitededition colourways, individually numbered and inspired by golf s most prestigious tournaments. Only 1,950 pairs of each model have been created, commemorating the introduction year of the original and iconic Samba. Picture adidas, Official Sportswear Partner of Team GB and ParalympicsGB, presents the team kit that will be worn by the British athletes at the London 2012 Olympic and Paralympic Games. Designed by British designer Stella McCartney, the kit is the most comprehensive range that has ever been supplied to a national team. 22. The Reebok Classics campaign It takes a lot to make a Classic is launched in the US. Through an integrated global marketing campaign, Reebok is reaffirming its heritage and reclaiming its position as the authentic classics brand. 28. adidas unveils the latest chapter of its adidas is all in brand campaign. Featuring brand ambassadors such as FIFA World Player of the Year Lionel Messi, football superstar David Beckham, the NBA s Most Valuable Player Derrick Rose and pop icon Katy Perry, the campaign concept takes away the boundaries of fame, money, age, gender and geography and showcases that passion unites us all. Picture 07

6 To Our Shareholders 01.4 Interview with the CEO 01.4 Interview with the CEO 6 Herbert Hainer CEO In the first quarter of 2012, the achieved its fifth consecutive quarter of double-digit revenue growth and an earnings per share increase of 38%. All regions and segments contributed to the strong operational development, driven in particular by momentum at adidas and TaylorMade-adidas Golf. During the quarter, the Group also successfully issued a convertible bond and entered into a definitive agreement to acquire Adams Golf. In the following interview, Herbert Hainer, adidas Group CEO, reviews the first quarter of 2012 and discusses the opportunities and challenges the Group faces for the remainder of the year.

7 To Our Shareholders 01.4 Interview with the CEO? Herbert, how has the year started for the Group and what are the key financial highlights?! I am pleased to report exceptional results for the first quarter of With currency-neutral sales increasing 14% or 17% in euro terms to over 3.8 billion, we recorded our fifth straight quarter of double-digit revenue growth. In particular, growth rates in Greater China and Japan as well as at TaylorMade-adidas Golf were significantly above our initial expectations. Despite a 0.7 percentage points decline in the Group s gross margin to 47.7% due to input cost pressures, Group operating margin improved 1.1 percentage points to 10.7%. This in turn drove earnings per share up 38% to Looking at the balance sheet, we continue to be in great shape. Compared to the prior year, net debt is down 30% to 640 million. And while many of our competitors are suffering from high inventory levels in various parts of the world, we have again been able to show sequential improvements, with the inventory growth rate moderating further to 13% currency-neutral. All in all, there is no doubt that these results confirm the outstanding momentum and global power of the adidas Group.? adidas sales growth was a very impressive 16% currencyneutral during the quarter. Was this all due to the major sports events this year?! Not at all, the performance of the adidas brand is much more than just the major sports events. While we definitely saw a strong uptake of our football and Olympic-related product offerings, we had equally impressive currency-neutral growth rates in our other core categories. Sales in running were up 16%, driven by the continued success of our lightweight adizero offerings and the introduction of our most breathable running shoe to date, the new ClimaCool Seduction. In basketball, we continue to see robust sales growth, with footwear in particular being very strong, up 23%. And in outdoor and Sport 7? Striking in your results is that all regions continued to perform very well, in particular Greater China and Western Europe. What is driving this development?! Focus, consistency and investment in our brands and channels is driving this period of unprecedented growth for our Group around the world. Looking specifically at Greater China, with growth of 26% currency-neutral in the first quarter, there is no doubt that we are gaining share in this key market. We have rebuilt our business patiently and with discipline since 2009, with a razor-sharp focus on the quality of distribution, such as the number of stores and optimising locations. We have also refined our product offering and visual merchandising to match a more and more sophisticated Chinese consumer. This is very evident in our own-retail sales where comparable store sales increased 10% during the period. In Western Europe, here it is also all about execution, as we continue to excite consumers and customers with the ultimate in product innovation and brand experiences. With revenue growth of 7%, we have secured and built on the market gains we achieved in the prior year. We are doing this by paying close attention to putting the right product in the right channels, improving consumer interaction through high-quality in-store and shop-in-shop initiatives as well as best-in-class customer replenishment programmes. Style, growth rates showed no sign of slowing and kept pace with the prior year, increasing 45% and 24% respectively. This strength across multiple categories ensured we enjoyed significant global growth, which is underpinned by the fact that sales for the brand were up at a double-digit rate in all of our regions.

8 To Our Shareholders 01.4 Interview with the CEO? Can you give more details on Reebok s performance in the first quarter, and what impact the changes in the licenced business had on the brand?? TaylorMade-adidas Golf delivered quite extraordinary results. Can you give an update on the golf category and how the proposed acquisition of Adams Golf fits into your plans?! In the first quarter, Reebok sales declined 7% currencyneutral, in line with our expectations. Excluding the impact from shifting the reporting of US-related NHL sales to the Reebok-CCM Hockey segment as well as the end of the NFL licence and also excluding toning, sales were up 10%. The NFL impact was rather small in the quarter as the contract just ended in March. Although Reebok has some challenges to overcome in Western Europe this year due to the weak economic environment and as retailers currently focus on the major sporting events, we continue to see good progress in most other regions. In North America, sales excluding licences and toning were up 5% and profitability continued to improve, due to a better price mix and an overall stronger product offering. In all other regions, sales were up for the quarter, as we expanded performancerelated offerings like Zig and RealFlex, and introduced some new Classics product. All in all, this is having a positive impact on margins, with an improvement of 60 basis points in the brand s gross margin. Therefore, while I would have liked to have been able to show more growth, our progress with the brand continues. And, looking forward, our plans for 2013, which will include some major product and technology launches, are starting to take shape. We look forward to sharing more on this with you later this year at our Investor Trip in September.! Our performance at TaylorMade-adidas Golf in the first quarter was simply breathtaking. With 32% currency-neutral growth, the segment achieved its highest growth rate in almost nine years. This is even more significant as it comes on top of 20% growth last year. What s behind the success? Well, it s the innovative product line-up we have for today s golfer across all categories. Sales grew at double-digit rates in all club categories, apparel and footwear, with metalwoods up 28% and irons growing 64% being just some of the highlights. Even more importantly, the strong increase in sales allowed TaylorMadeadidas Golf to double its operating profit compared to a year ago. Looking at our planned acquisition, after already becoming the largest golf company in the world, our mission is now to be the best golf company in the world across all geographies, products and customer demographics, and adding Adams Golf is another important step in achieving that goal. The proposed combination of TaylorMade-adidas Golf and Adams Golf brings together two highly complementary sets of brands, combining TaylorMade-adidas Golf s focus on the younger and the low-to-mid handicap golfer with Adams Golf s focus on game improvement as well as senior and women golfers. The total transaction cost is around 53 million. 8? Can you tell us about the impacts you are expecting from issues you have discovered at Reebok in India?? In March you issued a 500 million convertible bond. What is the rationale behind this transaction and what are the key impacts?! Unfortunately, we discovered commercial irregularities at our Reebok business in India. Due to the sensitivity of the ongoing investigation, specific details will be disclosed as appropriate in due course. Based on our current estimations, the maximum negative impact could be a pre-tax amount of up to 125 million. As these irregularities have been deemed to have occurred prior to the 2012 financial year, we might have to restate prior-year Group consolidated financial statements in line with the requirements of IAS 8. The financial statements of adidas AG will not be affected by this issue. I can assure you that we have, and will continue to, vigorously pursue a course of action to protect our Group s interests, which has already resulted in the appointment of a new local leadership team in India at the end of March. Under this new leadership team, we also now plan to accelerate restructuring of our business activities in India, including significant changes to the commercial business practices. This could lead to additional one-time charges in the remaining quarters of 2012 in an estimated amount of up to 70 million.! Maintaining a healthy balance sheet structure and optimising the cost of capital are important considerations, particularly in uncertain economic times. Given the strong market conditions for convertible bonds, we saw a great opportunity to secure long-term financing at favourable terms. This includes a very low annual coupon of 0.25%, and a high premium to the conversion price of 40%, which ensures existing shareholders are also protected. The proceeds allow us to pre-finance upcoming maturities as well as our ongoing business growth and working capital needs. In terms of the impact, until the conversion price is met, there is no dilutive component in our earnings per share. When met, the potential additional shares amount to 5.99 million and the after-tax interest adjustment based on accounting rules will equal around 9 million. Therefore, the potential dilutive effect on earnings is only around 1%.

9 To Our Shareholders 01.4 Interview with the CEO? Finally, taking recent developments into account, are there any changes to your financial outlook for the year?! Taking into account the better than expected first quarter financial performance, the continuing strong momentum of our brands in key markets, as well as the negative impacts from potential one-time charges related to our planned restructuring of activities at Reebok India, we are in a position to increase our full year top- and bottom-line guidance. Full year sales are now expected to grow at a rate approaching 10% on a currency-neutral basis, compared to our original projection of a mid- to high-single-digit increase. Despite first half input cost pressures, we continue to forecast a stable gross margin compared to the prior year. In addition, operating margin is expected to increase to a level approaching 8%, despite negative one-time charges of up to 70 million related to potential restructuring and changes to commercial activities in India. Putting it all together, net income attributable to shareholders is expected to increase at a rate of between 12% and 17% to a new record level of between 750 million and 785 million, also above our initial guidance of between 10% and 15%. 9 Herbert, thank you for this interview.

10 To Our Shareholders 01.5 Our Share 01.5 Our Share In the first quarter of 2012, international stock markets maintained the positive momentum from the end of the prior year and increased considerably. This development mainly reflected strengthening investor confidence as policymakers made progress in resolving the sovereign debt crisis in the euro area. In addition, several data points indicated fundamental improvements in the US economy. Accordingly, the DAX-30 and the MSCI World Textiles, Apparel & Luxury Goods Index gained 18% and 23%, respectively, compared to the end of December Following three consecutive quarters of clear market outperformance, the adidas AG share increased at a slightly lower rate compared to both indices, gaining 16% The adidas AG share Number of shares outstanding average 209,216,186 At March 31 1) 209,216,186 Type of share Free float 100% Registered no-par-value share Initial Public Offering November 17, 1995 Share split June 6, 2006 (in a ratio of 1: 4) Stock exchange Stock registration number (ISIN) Stock symbol Important indices 1) All shares carry full dividend rights. All German stock exchanges DE000A1EWWW0 ADS, ADSGn.DE DAX-30 MSCI World Textiles, Apparel & Luxury Goods Deutsche Börse Prime Consumer Dow Jones STOXX Dow Jones EURO STOXX Dow Jones Sustainability Indexes FTSE4Good Europe Index Ethibel Sustainability Index Excellence Europe ASPI Eurozone Index ECPI Ethical Index EMU STOXX Global ESG Leaders Global stock markets maintain positive momentum at the start of 2012 In the first quarter of 2012, international stock markets improved significantly, thereby sustaining the positive momentum from the end of the prior year. During the period, European policymakers agreed on stricter budget discipline, approved another bailout package for Greece and, at the end of the quarter, committed to increase the total financial rescue capacity to up to 800 billion in order to prevent a further flare-up of the sovereign debt crisis in the euro area. These measures were key triggers for strengthening investor confidence and improved equity market conditions. In addition, a series of solid US economic indicators provided a further positive catalyst. Threeyear-low unemployment levels, strong retail sales trends as well as rising consumer confidence indicated that the world s major economy is on track towards a fundamental recovery. The announcement by the Fed to leave interest rates at the current record low levels until late 2014 also provided positive stimulus. However, temporary setbacks throughout the quarter put pressure on equity markets. In particular, the sluggish economic prospects for the euro area unsettled investors, with unemployment reaching an all-time high for the region and the ECB cutting its 2012 GDP growth forecast. Similarly, market participants raised concerns with regard to the slowdown of the Chinese economy, in part fuelled by soaring oil prices as a result of political tensions in Middle Eastern countries. As a result of these developments, the DAX-30 increased strongly, gaining 18%, and ended the quarter at 6,947 points. The Dow Jones and the MSCI World Textiles, Apparel & Luxury Goods Index, which comprises the Group s main competitors, gained 8% and 23%, respectively, compared to the end of December 2011.

11 To Our Shareholders 01.5 Our Share 06 Historical performance of the adidas AG share and important indices at March 30, 2012 (in %) YTD 1 year 3 years 5 years Since IPO adidas AG DAX (1) MSCI World Textiles, Apparel & Luxury Goods Source: Bloomberg. 07 Share price development in ) Dec. 30, 2011 Mar. 30, adidas AG share increases significantly in the first quarter The adidas AG share started strongly in 2012, continuing the prior quarter momentum. General positive market sentiment as well as positive analyst and press commentary about the upcoming adidas Group 2011 results and 2012 outlook supported the adidas AG share at the beginning of the year. The favourable trend continued into February as a result of several recommendation upgrades and target price increases by analysts, who expressed their confidence in the superior positioning of the s brands and the Group s ability to benefit from the underlying strength of the sporting goods market. Better than expected results reported by one of our major competitors provided additional support for the adidas AG share in mid-february. These developments resulted in the adidas AG share reaching a new all-time high of on February 20. The publication of the Group s 2011 full year financial results on March 7 as well as the confirmation of the 2012 outlook was well received. The strong sales momentum across all markets and channels as well as the solid balance sheet improvements, in particular the net cash position at year-end and the further deceleration in inventory growth, were mentioned as key highlights by market participants. Nevertheless, in light of the strong share price appreciation year-to-date, some investors took profits, resulting in a share price correction on the day of the results release. Towards the end of the quarter, however, these losses were more than offset, supported by favourable market trends as well as successful investor marketing activity. As a consequence, the adidas AG share finished the three-month period at 58.54, representing an increase of 16% compared to the end of December Number of ADRs continues to increase The number of Level 1 ADRs (American Depository Receipts) increased during the three-month period compared to the end of At March 30, 2012, 10.1 million ADRs were outstanding (December 30, 2011: 10.0 million). This development represents a significant increase versus March 31, 2011, when 6.6 million ADRs were outstanding. The Level 1 ADR closed the quarter at US $ 39.07, reflecting an increase of 20% compared to the end of December The more pronounced increase of the Level 1 ADR price compared to the ordinary share price was due to the depreciation of the US dollar versus the euro at the end of the first quarter of 2012 compared to year-end adidas AG DAX-30 MSCI World Textiles, Apparel & Luxury Goods Index 1) Index: December 30, 2011 = 100. Successful convertible bond issue In mid-march, adidas AG issued a convertible bond, due on June 14, 2019, for an aggregate nominal amount of 500 million see Note 5, p. 38. The bonds are not callable by the issuer or putable by the bondholders until June In addition, the bonds are convertible into 5.99 million new or existing adidas AG shares. Proceeds from the offering will allow the Group to further optimise its debt structure, pre-finance maturing debt as well as finance ongoing business growth and working capital needs. The bonds were offered solely to institutional investors outside the US and were very well received by the financial community. Being several times oversubscribed, 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 a conversion price of Trading of the convertible bond commenced on the Frankfurt Stock Exchange ( Freiverkehr ) on April 12, 2012.

12 To Our Shareholders 01.5 Our Share 08 Voting rights notification received in Q Date of notification Notifying party Threshold crossed Voting rights of total shares outstanding Date of change Mar. 28, 2012 BlackRock Advisors Holdings, Inc. and others >3% 7,316,232 (3.50%) Mar. 16, 2012 Dividend proposal of 1.00 per share The adidas AG Executive and Supervisory Boards will recommend paying a dividend of 1.00 to shareholders at the Annual General Meeting (AGM) on May 10, 2012 (2010: 0.80). Subject to the meeting s approval, the dividend will be paid on May 11, This represents an increase of 25% compared to an increase of net income attributable to shareholders of 18% in the prior year. The total payout of 209 million (2010: 167 million) represents a payout ratio of 31% of net income attributable to shareholders versus 30% in the prior year. This is in line with our dividend policy where we intend to pay out between 20% and 40% of net income attributable to shareholders. Changes in shareholder base In the first quarter of 2012, the Group received one voting rights notification according to article 21, section 1 of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) Table 08. This voting rights notification and those received thereafter can be viewed on our corporate website : Directors dealings reported on corporate website The purchase or sale of adidas AG shares (ISIN DE000A1EWWW0) or related financial instruments, as defined by article 15a WpHG, conducted by members of our Executive or Supervisory Boards, by key executives or by any person in close relationship with these persons, is reported on our website : In the first quarter of 2012, adidas AG received notification that Christian Tourres, member of the adidas AG Supervisory Board, had sold 49,372 shares on March 15, adidas AG market capitalisation at year-end ( in millions) ) 12, , , , ,252 1) At March

13 Interim Group Management Report 02.1 Group Business Performance Economic and Sector Development 02.1 Group Business Performance In the first quarter of 2012, the continued to deliver strong results. Currency-neutral Group sales increased 14% as a result of double-digit growth in all segments. In euro terms, revenues grew 17% to billion from billion in The Group s gross margin decreased 0.7 percentage points to 47.7% (2011: 48.5%), as the increase in input costs more than offset the positive impact from a more favourable product and regional sales mix as well as a larger share of highermargin Retail sales. The Group s gross profit rose 15% to billion in the first quarter of 2012 versus billion in The Group s operating margin was up 1.1 percentage points to 10.7% from 9.6% in This was primarily due to positive effects from lower other operating expenses as a percentage of sales, which more than offset a decrease in gross margin. An increase in other operating income as well as royalty and commission income also positively contributed to this development. The Group s operating profit grew 30% to 409 million in the first quarter of 2012 versus 313 million in The Group s net income attributable to shareholders increased 38% to 289 million from 209 million in Diluted earnings per share grew 38% to 1.38 in the first quarter of 2012 versus 1.00 in Economic and Sector Development Global economy grows in the first quarter In the first quarter of 2012, increasing domestic demand as well as robust activity in the manufacturing and services sectors in the emerging markets were the key drivers of growth in the global economy. Developed economies posted low levels of economic activity, with high fuel prices and acute austerity measures depressing spending and economic growth in many of these markets. Western Europe s economic performance remained lacklustre with the euro area as a whole contracting moderately, despite GDP expansion in both Germany and France. The euro debt crisis remained a key challenge for the region, with stringent austerity measures and fiscal tightening, coupled with high unemployment levels, inhibiting confidence and spending. In contrast, most European emerging markets recorded solid GDP growth, buoyed by slowing inflationary pressures and robust consumption. Russia in particular benefited from strong domestic demand and high commodity prices. In the USA, high fuel prices and unemployment levels negatively impacted economic activity. Despite these pressures, the stabilising housing market and improvements in consumer confidence supported growth in consumer spending. Most Asian economies recorded strong GDP growth rates, driven by high export levels and strong wage growth. However, economic expansion in China, on the back of deliberate inflation mitigation measures, was at a lower level than in previous quarters. Japan s GDP, in contrast, grew only modestly, with economic activity and domestic demand being driven by government stimulus and post-earthquake reconstruction investment. In Latin America, robust commodity prices along with low unemployment rates, slowing inflation and policy stimulus from many regional governments were major drivers for many economies. However, falling demand, particularly from Europe, negatively impacted exports and industrial output. 10 Quarterly consumer confidence development 1) (by region) Q Q Q Q Q USA 2) Euro area 3) (10.6) (10.0) (19.3) (21.3) (19.1) Japan 4) China 5) Russia 6) (13.0) (9.0) (7.0) (7.0) (5.0) 1) Quarter-end figures. 2) Source: Conference Board. 3) Source: European Commission. 4) Source: Economic and Social Research Institute, Government of Japan. 5) Source: China National Bureau of Statistics. 6) Source: Russia Federal Service of State Statistics. 11 Exchange rate development 1) ( 1 equals) Average rate 2011 Q Q Q Q Average rate ) USD GBP JPY RUB CNY ) Spot rates at quarter-end. 2) Average rate for the first quarter of 2012.

14 Interim Group Management Report 02.1 Group Business Performance Economic and Sector Development Income Statement Positive growth in the global sporting goods industry in the first quarter In the first quarter of 2012, the global sporting goods industry recorded healthy growth, driven by increases in volumes and average selling prices. Industry growth was driven in particular by robust consumer spending in the emerging markets, which offset subdued private spending in some Western European markets and in Japan. From a category perspective, running product was the biggest sales driver, supported in particular by the continued popularity of lightweight running. Training and outdoor categories posted robust sales increases. The mild weather in many major markets supported participation in many outdoor sports and had an especially pronounced effect in increasing golf rounds in the US and the UK. Conversely, this effect also resulted in weak sales in many winter sports categories. In Europe, despite austerity measures and high unemployment in many markets, the sporting goods industry grew modestly. In Western Europe, solid consumer spending and retail activity in Germany drove industry growth in that market, however consumer demand for sporting goods in some peripheral euro area countries remained challenging. In European emerging markets, rising wages and reduced inflationary concerns supported confidence and consumption, which also positively impacted retail sales and expansion of the sporting goods sector, particularly in Russia. In North America, strong retail sales trends in running, basketball and training supported the positive development of the sporting goods industry. Sporting goods technology innovations, particularly in lightweight products, contributed significantly to growth in these categories. The region experienced exceptionally mild weather, which supported an early start to the season for many outdoor spring/summer sports, also helping to substantially increase golf participation. The US toning market also remained challenged during the quarter. Strong wage growth and consumer spending supported increases in Asia s sporting goods industry. Growth in China s sportswear industry was mainly driven by international brands, as over-inventory issues continued to negatively impact many domestic players. However, by contrast, in Japan, low economic activity and consumer spending levels meant the sporting goods industry s performance remained muted. Latin America s sporting goods industry had a solid start to the year, with easing inflation and loosening credit control measures supporting consumer discretionary spending on sporting goods in most regional markets. Income Statement currency-neutral sales grow 14% in the first quarter of 2012 In the first quarter of 2012, Group revenues grew 14% on a currencyneutral basis as a result of double-digit sales increases in Wholesale, Retail and Other Businesses. Currency translation effects had a positive impact on sales in euro terms. Group revenues grew 17% to billion in the first quarter of 2012 from billion in 2011 Diagram 12. Group sales increase driven by double-digit sales growth in all segments In the first quarter of 2012, currency-neutral Wholesale revenues increased 10% due to double-digit sales growth at adidas. Currencyneutral Retail sales increased 16% versus the prior year, driven by high-single-digit comparable store sales growth. Revenues in Other Businesses were up 32% on a currency-neutral basis, driven by strong double-digit sales increases at TaylorMade-adidas Golf and Reebok-CCM Hockey. Currency translation effects had a positive impact on segmental sales in euro terms. Wholesale revenues 12 net sales ( in millions) , , , , , net sales by segment % Wholesale 2 18% Retail 3 14% Other Businesses net sales by region % Western Europe 2 23% North America 3 15% Other Asian Markets 4 11% European Emerging Markets 5 10% Latin America 6 10% Greater China

15 Interim Group Management Report 02.1 Group Business Performance Income Statement increased 13% to billion in the first quarter of 2012 from billion in Retail sales rose 20% to 693 million versus 577 million in the prior year. Sales in Other Businesses grew 37% to 517 million (2011: 376 million). Currency-neutral sales increase in all regions In the first quarter of 2012, currency-neutral sales grew in all regions. Revenues in Western Europe increased 7% on a currency-neutral basis, primarily as a result of sales growth in the UK, Italy, Poland, Spain and Germany. In European Emerging Markets, Group sales increased 15% on a currency-neutral basis due to doubledigit growth in most of the region s markets. Sales for the adidas Group in North America grew 11% on a currency-neutral basis due to strong increases in the USA. Sales in Greater China increased 26% on a currency-neutral basis. Currency-neutral revenues in Other Asian Markets grew 26%, driven by strong double-digit increases in Japan and South Korea. In Latin America, sales grew 14% on a currencyneutral basis, with double-digit increases in most of the region s major markets. In most regions, currency translation effects had a positive impact on regional sales in euro terms Table 15. Group sales up in all product categories In the first quarter of 2012, Group sales grew at double-digit rates in all product categories on a currency-neutral basis. Currency-neutral footwear sales increased 12% during the period. This development was due to double-digit growth in the running, football, outdoor and basketball categories. Apparel revenues increased 12% on a currency-neutral basis, driven by strong growth in football and outdoor. Currency-neutral hardware sales increased 31% compared to the prior year, primarily due to strong growth at TaylorMade-adidas Golf as well as in the football category. Currency translation effects had a positive impact on sales in euro terms Table 16. New product introductions contributed to the sales growth in all product categories. An overview of major product launches in the first quarter of 2012 is provided in the table below Table Major product launches in Q Product adipure 11Pro football boot adizero Rose 2.5 basketball shoe micoach Resolution running shoe adizero adios 2 running shoe Barricade 7 tennis shoe Terrex Fast R outdoor shoe adipure Trainer training shoe adizero gld2o Olympic swimsuit adipure women s training apparel Zig Activate running shoe RealFlex Transition training shoe RealFlex CrossFit Nano training shoe CrossFit apparel R11S and R11S TP drivers RocketBallz drivers, irons and ball Penta TP5 and TP3 ball Samba footwear Powerband 4.0 footwear Brand adidas adidas adidas adidas adidas adidas adidas adidas adidas Reebok Reebok Reebok Reebok TaylorMade TaylorMade TaylorMade adidas Golf adidas Golf Net sales by region ( in millions) Change Change (currency-neutral) Western Europe 1,174 1,094 7% 7% European Emerging Markets % 15% North America % 11% Greater China % 26% Other Asian Markets % 26% Latin America % 14% Total 1) 3,824 3,273 17% 14% 1) Rounding differences may arise in totals. 16 Net sales by product category ( in millions) Change Change (currency-neutral) Footwear 1,848 1,619 14% 12% Apparel 1,527 1,323 15% 12% Hardware % 31% Total 1) 3,824 3,273 17% 14% 1) Rounding differences may arise in totals.

16 Interim Group Management Report 02.1 Group Business Performance Income Statement Group gross margin decreases 0.7 percentage points The gross margin of the decreased 0.7 percentage points to 47.7% in the first quarter of 2012 (2011: 48.5%) Diagram 19. The increase in input costs more than offset the positive impact from a more favourable product and regional sales mix as well as a larger share of higher-margin Retail sales. Gross profit for the adidas Group grew 15% in the first quarter of 2012 to billion versus billion in the prior year Diagram 18. Royalty and commission income grows Royalty and commission income for the increased 34% to 25 million in the first quarter of 2012 from 18 million in On a currency-neutral basis, royalty and commission income was up 32%, mainly as a result of higher licensee sales at adidas. Other operating income increases 44% Other operating income includes items such as gains from the disposal of fixed assets and releases of accruals and provisions as well as insurance compensation. In the first quarter of 2012, other operating income increased 44% to 25 million (2011: 17 million). This was mainly due to the release of operational accruals and provisions as well as insurance compensation from damages relating to prior year events. Other operating expenses as a percentage of sales down 1.6 percentage points Other operating expenses, including depreciation and amortisation, consist of items such as sales working budget, marketing working budget and operating overhead costs. Other operating expenses as a percentage of sales decreased 1.6 percentage points to 38.4% in the first quarter of 2012 from 40.0% in In euro terms, other operating expenses increased 12% to billion (2011: billion), as a result of higher marketing expenditure as well as the expansion of the Group s own-retail activities Diagram 20. Thereof, sales and marketing working budget expenditures amounted to 426 million, which represents an increase of 2% versus the prior year level (2011: 417 million). The increase was primarily related to higher expenditures for both the adidas and the Reebok brand. By brand, adidas sales and marketing working budget increased 1% to 312 million in the first quarter of 2012 compared to 311 million in the prior year. Sales and marketing working budget for Reebok also increased 1%, amounting to 58 million (2011: 58 million). As a percentage of sales, the Group s sales and marketing working budget decreased 1.6 percentage points to 11.1% (2011: 12.7%). Number of Group employees up 5% At the end of the first quarter of 2012, the Group employed 46,485 people. This represents an increase of 5% versus the prior year level of 44,362. New hirings related to the expansion of the Group s own-retail store base were the main driver of this development. On a full-time equivalent basis, the number of employees increased 1% to 39,903 at the end of the first quarter of 2012 (2011: 39,428). 18 gross profit ( in millions) , , gross margin (in %) other operating expenses ( in millions) , , operating profit ( in millions) operating margin (in %) Operating margin improves 1.1 percentage points Group operating profit increased 30% to 409 million in the first quarter of 2012 versus 313 million in 2011 Diagram 21. As a result, the operating margin of the improved 1.1 percentage points to 10.7% (2011: 9.6%) Diagram 22. This was primarily due to the positive effects from lower other operating expenses as a percentage of sales, which more than offset the decrease in gross margin. Higher royalty and commission income as well as higher other operating income also contributed to this development. Financial income grows 78% Financial income increased 78% to 8 million in the first quarter of 2012 from 5 million in the prior year, mainly due to an increase in interest income. 16

17 Interim Group Management Report 02.1 Group Business Performance Income Statement Financial expenses decrease 16% Financial expenses decreased 16% to 28 million in the first quarter of 2012 (2011: 33 million) Diagram 23. The decrease in negative exchange rate effects contributed to the decline. Income before taxes as a percentage of sales increases 1.5 percentage points Income before taxes (IBT) for the increased 36% to 389 million from 285 million in 2011 Diagram 24. IBT as a percentage of sales improved 1.5 percentage points to 10.2% in the first quarter of 2012 from 8.7% in This was a result of the Group s operating margin increase and lower net financial expenses. Net income attributable to shareholders up 38% The Group s net income attributable to shareholders increased to 289 million in the first quarter of 2012 from 209 million in 2011 Diagram 25. This represents an increase of 38% versus the prior year level. Higher IBT was the primary reason for this development. The Group s tax rate decreased 1.0 percentage points to 25.5% in the first quarter of 2012 (2011: 26.5%), mainly due to a more favourable earnings mix. Basic and diluted earnings per share reach 1.38 In the first quarter of 2012, basic and diluted earnings per share amounted to 1.38 (2011: 1.00) Diagram 26, representing an increase of 38%. The weighted average number of shares used in the calculation of both basic and diluted earnings per share was 209,216,186 (2011 average: 209,216,186) as there were no potential dilutive shares in the quarter. 23 financial expenses ( in millions) income before taxes ( in millions) net income attributable to shareholders ( in millions) diluted earnings per share (in )

18 Interim Group Management Report 02.1 Group Business Performance Statement of Financial Position and Statement of Cash Flows Statement of Financial Position and Statement of Cash Flows Total assets increase 14% At the end of March 2012, total assets grew 14% to billion versus billion in the prior year. This was the result of an increase in current assets as well as non-current assets. Compared to December 31, 2011, total assets increased 1%. Group inventories up 17% Group inventories increased 17% to billion at the end of March 2012 versus billion in 2011 Diagram 29. On a currency-neutral basis, inventories grew 13%, reflecting input cost increases as well as our expectations for continued growth in the coming quarters. Accounts receivable increase 10% At the end of March 2012, Group receivables increased 10% to billion (2011: billion) as a result of the Group sales growth Diagram 30. On a currency-neutral basis, receivables were up 8%. This growth is lower than the 13% currency-neutral wholesalerelated sales increase in the first quarter of 2012 and mirrors strict discipline in the Group s trade terms management and concerted collection efforts. Other current financial assets up 17% Other current financial assets grew 17% to 198 million at the end of March 2012 from 170 million in This development was mainly due to the increase in the fair value of financial instruments Structure of statement of financial position 1) (in % of total assets) March 31, March 31, Assets ( in millions) 11,453 10,037 Cash and cash equivalents 5.2% 4.1% Accounts receivable 20.7% 21.5% Inventories 20.7% 20.2% Fixed assets 36.9% 38.9% Other assets 16.5% 15.3% March 31, 2012 March 31, ) For absolute figures see adidas AG Consolidated Statement of Financial Position, p Structure of statement of financial position 1) (in % of total liabilities and equity) March 31, March 31, Liabilities and equity ( in millions) 11,453 10,037 Short-term borrowings 4.2% 2.2% Accounts payable 12.6% 13.1% Long-term borrowings 10.5% 13.2% Other liabilities 24.6% 26.2% Total equity 48.1% 45.3% March 31, 2012 March 31, ) For absolute figures see adidas AG Consolidated Statement of Financial Position, p. 31.

19 Interim Group Management Report 02.1 Group Business Performance Statement of Financial Position and Statement of Cash Flows Other current assets up 24% Other current assets increased 24% to 518 million at the end of March 2012 from 418 million in 2011, mainly as a result of an increase in tax receivables other than income taxes as well as prepaid expenses. Fixed assets increase 8% Fixed assets include property, plant and equipment, goodwill, trademarks and other intangible assets as well as long-term financial assets. Fixed assets increased 8% to billion at the end of March 2012 versus billion in Additions in an amount of 429 million were primarily related to the continued expansion of our own-retail activities, investments into the Group s IT infrastructure as well as the further development of the Group s headquarters in Herzogenaurach. Positive currency translation effects in an amount of 160 million also contributed to the increase. Additions were partly offset by depreciation and amortisation amounting to 256 million as well as disposals of 17 million. Compared to December 31, 2011, fixed assets decreased 2%. Assets held for sale decrease 18% At the end of March 2012, assets held for sale declined 18% to 25 million compared to 30 million in This decrease was due to certain assets which were impaired in the fourth quarter of 2011 due to a change in conditions. Other non-current assets up 2% Other non-current assets increased 2% to 112 million at the end of March 2012 from 111 million in 2011, mainly driven by an increase in prepaid promotion partnerships. Accounts payable increase 10% Accounts payable were up 10% to billion at the end of March 2012 versus billion in 2011 Diagram 31. On a currency-neutral basis, accounts payable increased 9%, reflecting the growth in inventories during the first quarter. 29 Inventories 1) ( in millions) , ,033 1) At March Accounts receivable 1) ( in millions) , ,155 1) At March Accounts payable 1) ( in millions) , ,316 1) At March