First Quarter Report 2008

Transcription

1 GesChÄFtsBeriCht 2007 First Quarter Report 2008 sport Kennt Keine GrenZen. sport ist leidenschaft. ÜBerall auf Der Welt. JeDer sportler lebt DaFÜr. Genau Wie Wir. JeDe sekunde.

2 adidas Group Segmental Information 02 First Quarter 2008 Financial Highlights 03 Operational and Sporting Highlights 04 Interview with the CEO 05 Our Share 10 Group Management Report 12 - Group Business Performance Economic and Sector Development Income Statement Balance Sheet and Cash Flow 17 - adidas 19 - Reebok 21 - TaylorMade-adidas Golf 23 - Subsequent Events 25 - Outlook 26 Consolidated Financial Statements 29 - Consolidated Balance Sheet 29 - Consolidated Income Statement 30 - Consolidated Statement of Cash Flows 31 - Consolidated Statement of Recognized Income and Expense 32 Notes 33 adidas Sales Gross profit Gross margin Operating profit Operating margin Reebok Sales Gross profit Gross margin Operating profit Operating margin TaylorMade-adidas Golf Sales Gross profit Gross margin Operating profit Operating margin First Quarter 2008 First Quarter 2007 Change 1,968 1, % % 49.0 % 47.2 % 1.7 pp % 17.1 % 14.8 % 2.3 pp (13.4 %) (12.8 %) 37.1 % 36.8 % 0.3 pp (13) 6 (327.9 %) (2.8 %) 1.1 % (3.8 pp) % % 46.6 % 43.9 % 2.7pp 23 (1) n. a % (0.4 %) 12.6 pp Segmental Information 36 - Segmental Information by Brand 36 - Segmental Information by Region 37 Management Boards 38 Financial Calendar Contact 40

3 First Quarter Net Sales Financial Highlights (IFRS) ) ) 1,505 1,674 First Quarter 2008 First Quarter 2007 Change ) ,459 2,538 2,621 Operating Highlights () Sales Operating profit Net income attributable to shareholders 2,621 2, % % % 1) Figure reflects continuing operations as a result of the divestiture of the Salomon business segment in ) including Reebok business segment from February 1, 2006 onwards. Including Greg Norman apparel business from February 1, 2006 to November 30, First Quarter Net Income Attributable to Shareholders ) including Reebok business segment from February 1, 2006 onwards. Including Greg Norman apparel business from February 1, 2006 to November 30, Key Ratios (%) Gross margin Operating expenses as a percentage of net sales Operating margin Effective tax rate Net income attributable to shareholders as a percentage of net sales Operating working capital as a percentage of net sales 1) Equity ratio Financial leverage Balance Sheet and Cash Flow Data () Total assets Inventories Receivables and other current assets Working capital Net borrowings Shareholders equity Capital expenditure Net cash used in operating activities 49.1 % 46.8 % 2.3 pp 39.2 % 38.7 % 0.5 pp 10.8 % 9.0 % 1.7 pp 32.0 % 32.4 % (0.4 pp) 6.5 % 5.0 % 1.4 pp 24.7 % 25.5 % (0.8 pp) 33.8 % 34.0 % (0.2 pp) 72.9 % 86.0 % (13.0 pp) 8,406 8,627 (2.6 %) 1,578 1, % 2,300 2,316 (0.7 %) 1,890 2,078 (9.0 %) 2,073 2,519 (17.7 %) 2,843 2,931 (3.0 %) % (107) (245) 56.3 % Per Share of Common Stock ( ) Basic earnings Diluted earnings Operating cash flow Share price at end of period % % (0.53) (1.20) 55.9 % % Other (at end of period) Number of employees Number of shares outstanding 2) Average number of shares 33,214 27, % 200,437, ,567,060 (1.5 %) 202,443, ,563,033 (0.6 %) Rounding differences may arise in percentages and totals. All Group figures comprise the brand segments and HQ / Consolidation. 1) Twelve-month trailing average. 2) After deduction of treasury shares. TO OUR SHAREHOLDERS - Financial Highlights

4 Operational and Sporting Highlights First Quarter January Picture 01 adidas and A. C. Milan announce the extension of their sponsorship deal until the end of With the new agreement, adidas and A. C. Milan continue their strong partnership that started in adidas sponsored athlete Novak Djoković wins the Australian Open. He is the fourth youngest player in history to win the tournament Picture 02 adidas and Diesel present their landmark product collaboration adidas Originals Denim by Diesel marking the kick-off of their multi-year collaboration february Picture 03 Reebok sponsored New York Giants quarterback Eli Manning wins the Super Bowl Most Valuable Player trophy, just one year after his brother Peyton Manning adidas opens its first Y-3 flagship store in New York adidas and numerous international football stars unveil the F50 TUNiT in Barcelona, Spain. This unique boot is the third generation of the successful F50 concept adidas sponsors the 2008 NBA All-Star Weekend in New Orleans adidas athlete and Olympic champion Yelena Isinbayeva sets her 20th world record at the Pole Vault Stars indoor meeting in Donetsk, Ukraine Celebrating fun, ambitious, real women from around the world, Reebok launches the Freestyle World Tour Collection march Picture 04 TaylorMade-adidas Golf introduces the Tour Burner driver Picture 05 Uli Becker is named President and CEO of the Reebok brand, succeeding Paul Harrington, effective April 1st, Becker, an 18-year adidas Group veteran, was previously Chief Marketing Officer of Reebok Picture 06 adidas and Samsung launch micoach, a revolutionary training system which collects athletes personal data and turns it into individual training plans Reebok and Dick s Sporting Goods announce a new apparel partnership via shop-in-shops throughout all Dick s stores in the USA Reebok launches its global marketing campaign Your Move, which aims to evolve Reebok s positioning as the brand that celebrates individuality adidas has three of the top four No. 1 seeded teams in the Final Four of the NCAA March Madness, including the winning team of the University of Kansas Jayhawks. 06 TO OUR SHAREHOLDERS - Operational and Sporting Highlights First Quarter 2008

5 Interview with the CEO The adidas Group has started the year strongly with double-digit currency-neutral revenue growth in all regions except North America. Strong operational performance from both adidas and TaylorMade-adidas Golf has resulted in the Group s net income jumping 32 %. With this solid performance and a summer of high sports activity ahead, the adidas Group is well positioned to deliver on its 2008 targets. 05 Herbert Hainer CEO and Chairman of the Executive Board TO OUR SHAREHOLDERS - Interview with the CEO

6 In the following interview, Herbert Hainer, adidas Group CEO and Chairman, reviews the first quarter of 2008, and discusses the Group s strategic and financial outlook. 06 Herbert, the adidas Group got off to a great start in What do you believe were the most important highlights? We are off to a fast start to what will be an exciting 2008 on and off the field. The adidas and TaylorMade-adidas Golf segments were the key drivers behind our currency-neutral revenue growth of 10 %. All regions grew at double-digit rates with the exception of North America where consumer sentiment is weak and retail conditions are tough. More importantly, our profitability improved substantially. In fact we achieved a new record gross margin of 49.1 % in the first quarter, supported by positive developments in all our brand segments. Although we continue to make important investments in our brands, particularly in controlled space initiatives, our operating margin increased almost 2 percentage points to 10.8 %. All of this has led to a 32 % increase in earnings which places us firmly on track to achieving our full year goals. The adidas and TaylorMade-adidas Golf segments were the drivers behind our currency-neutral revenue growth of 10 %. In addition to these operational achievements, we took another big step to increase shareholder value. In January, we initiated a share buyback program in which we will purchase up to 5 % of our own shares over the course of the year. In the first quarter, we acquired 1.57 % of our shares for a value of 135 million. And if you include the shares repurchased since the start of April, we have bought back 2.71% of our shares for a value of 230 million so far this year. This combined with our proposed dividend payment of 0.50 means that we have almost quadrupled our returns to shareholders in At the adidas brand, currency-neutral sales grew 14 %. What is driving this success? AND CAN YOU CONTINUE TO DRIVE GROWTH AT THESE IMPRESSIVE RATES? After three years of consecutive double-digit growth, the adidas brand just keeps on moving from strength to strength. With two major sporting events around the corner, we all know 2008 is an important year for the brand. But it is not just important because of the excitement and the direct commercial opportunities these events present. What makes these events most valuable is the platform they provide us to further sharpen adidas identity as the performance brand. And we are firing on all cylinders in this respect. Sales growth in the brand s three largest sport performance categories football, training and running is fueling our success. Each is up by strong double-digit rates for the quarter, as are backlogs. Sales growth in the brand s three largest sport performance categories football, training and running is fueling our success. Consistency has been the key in driving brand adidas to where it is today and I am convinced it will also be the engine of our future success. For years, we consistently stayed ahead of the pack by continuously innovating our product pipeline and delivering world-class marketing and communication initiatives. And as we expand this winning formula by bringing even more consistency to the brand s presence at point-of-sale via our industry-leading controlled space concepts, we are set to build an even greater connection to the consumer in the years to come. TO OUR SHAREHOLDERS - Interview with the CEO

7 What is your plan to address the decline in Reebok s sales and backlogs? And how will this impact the timeline for the recovery of the brand? First, we remain fully committed to the guidance we have given for Reebok for And this is despite the fact that our progress with the brand hasn t gotten easier in light of the tougher retail environment in several key markets. In particular, I am talking about the US, the UK and Japan which made up almost 60 % of the segment s global sales in This is where a consistency of brand focus, communication and distribution has been missing over the years. And that s exactly where our biggest priorities for the brand are today. Since our acquisition of Reebok in 2006, Reebok products and marketing have improved each and every quarter. We are progressing on plan and are moving aggressively to reclaim the brand s unique heritage as the world s leading women s and fitness brand. In addition, we need to establish a solid platform for profitable growth going forward. But we can only do this if we turn around the brand in these three core markets. With respect to Reebok, we are progressing on plan and are moving aggressively to reclaim the brand s unique heritage as the world s leading women s and fitness brand. 07 If we look at the rest of the world, we are actually tracking ahead of plan. In some developed markets like the Germanic countries and Italy, we are getting the quick wins we planned for during the integration process. And in emerging markets where we have bought out distributors, we are gaining traction and growth rates are strong. After establishing a new joint venture in Brazil a market that does not always get the attention it deserves we expect growth in Latin America to accelerate dramatically. Now our attention has to be focused on gaining similar momentum in the brand s biggest markets. There has been a lot of controversy over the staging of the Olympics in China. What is your view on all the discussions? Sadly, the positive values for which the Olympic Games stand are getting lost in all the debate. More than any other sports event in the world, the Olympic Games stand for fair competition in sport and the coming-together of young people from all over the world. Our association with the Olympics dates back to the year 1928, when our founder Adi Dassler produced the first shoes for an Olympic athlete. adidas has been present at the Olympics ever since, equipping Olympic teams, federations and athletes. adidas is a sports brand with the mission to provide athletes with the best possible products to help them perform at their best. This is why we supply products for 27 of the 28 Olympic sports. This year we will be equipping 16 Olympic teams including China, Germany, Great Britain, Australia and France as well as numerous individual sports federations and more than 3,000 athletes altogether. This is purely our role at these important Games and we assume that con sumers have a correct understanding of that. And that s why you will see us again taking the same role at the London Olympics in TO OUR SHAREHOLDERS - Interview with the CEO

8 The kick-off for the European Football Championship is just days away. Will this be another record year for your football business? Football is the lifeblood of brand adidas and I have never been more confident in our positioning and prospects. But as I said earlier, success is about much more than just big events. More so than any other sport, football is part of daily life for teams, players and fans all around the world. We need to be sharp and at the top of our game day in and day out, to support what has become a billion-euro-plus annual business for our Group. But event years are special and represent a significant business opportunity. And for these big occasions we do go the extra mile. We have challenged ourselves to go beyond the great success of the 2006 FIFA World Cup and, before the first whistle has even been blown, I am convinced that we have beaten the competition. 08 We have challenged ourselves to go beyond the great success of the 2006 FIFA World Cup and, before the first whistle has even been blown, I am convinced that we have beaten the competition. We have been introducing what I believe is our most promising product offering to date in this category on a monthly basis since the fourth quarter of last year. The Predator is creating a history of its own, turning 14 this year. We are pioneering customization and personalization in the sport with the F50 TUNiT. And the newest member of our footwear family - the adipure - is already being described as a classic. With our unmatched arsenal of products we will extend our leadership in the coveted football footwear category for the third year in a row. And that s just footwear. Combining this with our strength in apparel, I am convinced we will clearly exceed our previous record sales levels in the sport this year. Can you comment on TaylorMade-adidas Golf s big leap in sales and profitability during the first quarter? TaylorMade-adidas Golf s performance in the first three months of the year clearly demonstrates that our focus and hard work is paying off. The segment had the fastest top-line growth in the Group increasing by 17 % currency-neutral. This growth was driven by improvements in all major product categories. In addition to strong growth in our core metalwoods category, for example, our renewed focus on balls under the TaylorMade and Noodle banners is yielding the type of performance we know we are capable of in the category. In the first quarter, we even had to increase capacity to meet the strong market demand for our new golf ball assortment. TaylorMade-adidas Golf had the fastest top-line growth in the Group increasing by 17 % currency-neutral. With our full year results in March, we told you that improving profitability was our top priority at TaylorMade-adidas Golf in 2008, and we are working hard to make sure that our terrific top-line growth also yields strong results on the bottom line. In the first quarter we delivered a 270 basis points gross margin improvement to 46.6 % and an operating income of 23 million compared to a loss in the prior year. For the full year we are targeting our strongest operating margin in five years. And I am fully confident we will achieve this important goal. TO OUR SHAREHOLDERS - Interview with the CEO

9 With the first three months of the year safely behind you, what are your performance goals for the remainder of 2008? Our performance in the first quarter should provide assurance that despite tougher markets the adidas Group will again reach new heights on both the top and bottom line in Revenue and profit development phasing in the upcoming quarters are likely to reflect the timing of events and the intensity of our marketing programs during these periods. Nevertheless, we expect high-single-digit sales growth, driven by improvements at all of our brands. Gross margin will range between 47.5 % and 48.0 %. And our operating margin will expand to at least 9.5 %. Finally, our constant attention toward optimizing our operational performance will yield an increase in net income of at least 15 % for the full year. Our performance in the first quarter should provide assurance that despite tougher markets - the adidas Group will again reach new heights on both the top and bottom line in Herbert, thank you for this interview. TO OUR SHAREHOLDERS - Interview with the CEO

10 Our Share Global financial markets were heavily impacted by several factors in the first quarter. The subprime crisis, US recession fears, inflationary pressure, the strong euro and new record oil prices all negatively impacted international stock market development. As a reaction to the turbulences, the Federal Reserve intervened by significantly lowering interest rates in the USA. Nevertheless, the DAX-30 lost 19 % in the first quarter and the adidas AG share declined 18 %. Sharp Downturn of Global Indices during First Three Months of 2008 In the first quarter of 2008, international stock markets suffered from losses, predominantly caused by fears of a US recession and worldwide inflationary trends. In January, global indices declined sharply as several US banks incurred significant write-offs related to the subprime crisis. In addition, leading economic indicators such as consumer confidence and retail sales suggested a potential recession in North America. Liquidity injections and interest rate cuts by the Federal Reserve helped stabilize global markets towards the end of the quarter but investors continued to take a cautious stance, as indicated by overall low trading volumes in March. Capital market indices and our share price decreased in the quarter. The DAX-30 fell 19 % and closed the quarter at 6,535 points. The adidas AG share declined by 18 % over the period. The MSCI World Textiles, Apparel & Luxury Goods Index, which comprises the Group s main competitors, lost 8 %. The index outperformed our share due to its heavy weighting in North America, where market indices outpaced those in Europe across all sectors. adidas AG Share Price Declines in First Quarter After reaching a record high at the end of December 2007, the adidas AG share declined considerably in January. As indications of a macroeconomic downswing in the USA intensified, investors and analysts expressed concern about the Group s business outlook for this market. Analysts concerns particularly focused on the challenges for the Reebok brand. Management statements confirming the Group s preliminary guidance for 2008 given in November were well received, but several weak earnings releases from key sporting goods retailers in North America added to fears that consumer demand would decrease significantly. The initiation of adidas AG s share buyback program at the end of January supported our share price and market attention turned to the announcement of the Group s full year results in early March. However, declining Reebok backlogs overshadowed the strong sales and backlog performance of brand adidas. As a result, our share price declined in the subsequent days. In mid-march Reebok and Vulcabras S.A. announced the foundation of a joint venture to distribute Reebok footwear, apparel and accessories in Brazil and Paraguay. As a result, sales guidance for the reebok segment was raised and our share price increased significantly. Nevertheless, the adidas AG share closed the quarter at 42.11, representing a decrease of 18 % compared to the end of This is roughly in line with the decline of the DAX-30, which lost 19 % over the same period. The adidas AG Share Number of shares outstanding 1) first quarter average 202,443,070 at March ,437,960 2) Type of share Free float 100 % 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) After deduction of treasury shares. 2) all shares carry full dividend rights. all German stock exchanges DE ads, ADSG.DE DAX-30 MSCI World Textiles, apparel & Luxury Goods Deutsche Börse prime Consumer Dow Jones STOXX Dow Jones EURO STOXX Dow Jones Sustainability FTSE4Good Europe Ethibel Excellence Ethibel Pioneer Vigeo ASPI Eurozone Historical Performance of the adidas AG Share and Important Indices at March 31, 2008 in % adidas AG DAX MSCI World Textiles, Apparel & Luxury Goods YTD 1 year 3 years 5 years since IPO (18) (19) (6) (8) (6) TO OUR SHAREHOLDERS - Our Share

11 Share Price Development in ) Dec. 31, 2007 Mar. 31, 2008 adidas AG DAX MSCI World Textiles, Apparel & Luxury Goods 1) Index: December 31, 2007 = 100 Share Buyback Program Initiated On January 29, 2008, adidas AG announced the launch of a share buyback program to repurchase up to 5 % of the company s stock capital by november During the first quarter, the Group purchased over 3.2 million shares at an average price of The total buyback volume amounted to million. adidas AG provides weekly updates on the progress of the share buyback on its corporate website adidas AG intends to cancel the shares, thus increasing earnings per share. Further, the Group intends to seek authorization for a new share buyback program at the upcoming Annual General Meeting on May 8, Number of ADRs Increases The number of Level 1 ADRs (American Depositary Receipts) continued to increase in the first quarter, reflecting strong interest in our Group among North American investors. At March 31, 2008, 12.8 million ADRs were outstanding. This figure is higher compared to both December 31, 2007 when 11.1 million ADRs were outstanding, as well as the prior year level of 11.4 million on March 31, The Level 1 ADR closed the quarter at US $ 33.30, reflecting a decrease of 10 % compared to the end of December However, due to the appreciating euro, the ADR outperformed our common stock. Changes in Shareholder Base In the first quarter of 2008, the Group received four voting rights notifications according to article 21, section 1 of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) listed in the adjacent table. Directors Dealings Reported on Corporate Website The purchase or sale of adidas AG shares (ISIN DE ) or related financial instruments, as defined by article 15 a 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 2008, adidas AG received notification that Herbert Hainer, CEO and Chairman of adidas AG, had purchased 2,500 shares on March 7, Shareholder Rights Notifications Received IN Q Date of T threshold Voting rights of total Date of notification notifying party crossed shares outstanding change Mar. 12 FMR LLC < 3 % 6,106,830 Mar. 11 (2.99 %) Mar. 04 U ubs AG < 3 % 5,183,317 Feb. 27 (2.55 %) Mar. 03 U ubs AG > 3 % 7,518,344 Feb. 26 (3.69 %) Feb. 04 Capital Research > 3 % 6,290,497 Jan. 31 and Management (3.089 %) Company Higher Dividend Proposed The adidas AG Executive and Supervisory Boards will recommend paying a dividend of 0.50 (2006: 0.42) per share for the financial year Subject to approval by our shareholders at the Annual General Meeting on May 8, 2008, the dividend will be paid on May 9, Based on the number of shares outstanding at the end of 2007, this represents a dividend payout increase of 19 % to 102 million (2006: 85 million), outpacing the earnings growth of 14 % for the year. The payout ratio is 19 % versus 18 % in 2006 highlighting our confidence in the Group s future business performance. However, as a result of the share buyback program, the dividend payout and the payout ratio are likely to decrease slightly. TO OUR SHAREHOLDERS - Our Share

12 GROUP BUSINESS PERFORMANCE In the first quarter of 2008, the adidas Group delivered strong financial performance. Currency-neutral sales for the adidas Group increased 10 %, driven by strong development in the adidas and TaylorMadeadidas Golf segments. In euro terms, revenues of the adidas Group grew 3 % to billion from billion in The Group s gross margin increased 2.3 percentage points to 49.1 % in 2008 (2007: 46.8 %) driven by improvements in all brand segments. Consequently, the Group s gross profit increased 8 % to reach billion in the first quarter of 2008 versus billion in The Group s operating margin grew 1.7 percentage points to 10.8 % in the first quarter of 2008 from 9.0 % in 2007 due to the Group s strong gross margin improvements which more than offset operating expense increases as a percentage of sales. The Group s operating profit improved 23 % to 282 million in the first quarter of 2008 versus 229 million in The Group s net income attributable to shareholders grew 32 % to 169 million in the first quarter of 2008 from 128 million in 2007, largely as a result of the Group s strong operational development. Similarly, diluted earnings per share increased 32 % to 0.79 in the first quarter of 2008 versus 0.60 in ECONOMIC AND SECTOR DEVELOPMENT Subdued Economic Development in First Quarter of 2008 In the first quarter of 2008, the pace of economic expansion slowed further, extending the trend visible already at the end of the prior year. High commodity prices, financial market turbulence and inflation burdened the world economy. In Europe, GDP growth moderated especially in Western countries in particular the UK although private consumption remained fairly strong. In North America, weakness in the housing sector and a decline in consumer demand following the subprime crisis resulted in significant growth deceleration. Monetary expansion has yet to stimulate economic development. In Asia, emerging markets grew robustly. In Japan, however, strong export activity was offset by weak private consumption, resulting in a slowdown of the pace of economic expansion. The Latin American economies grew healthily during the quarter. High market prices for commodities and agricultural products supported economic development. Mixed Development of Global Sporting Goods Industry The global sporting goods industry had a mixed development in the first quarter of the year. In Europe, sales related to the UEFA EURO 2008 football championship supported modest growth at retail. The UK market, however, continues to be weak as a result of lackluster private consumption and the non-qualification of the England team for the UEFA EURO In the USA, overall economic weakness has started to dampen private consumption also for sporting goods. From a channel perspective, sporting goods retailers continued to perform better than the mall-based retailers. From a category perspective, performance product sales have continued to significantly outperform lifestyle offerings. In Asia, demand for sporting goods remained high in emerging markets, while the Japanese market continued to be promotional. Momentum in the Latin American sporting goods industry remained intact. Quarterly Consumer Confidence Development by region USA 1) Euro Zone 2) Japan 3) Exchange Rate Development 1) 1 equals USD GBP JPY average Q2 Q3 Q4 Q1 Average rate rate ) 1) Spot rates at quarter-end. 2) Average rate for the first quarter. Q1 Q2 Q3 Q4 Q (4) (2) (6) (9) (12) ) USA, Source: Conference Board. 2) Euro Zone, Source: European Commission. 3) Japan, Source: Economic and Social Research Institute, Government of Japan Group Management Report -- Group Business Performance - Economic and Sector Development

13 INCOME STATEMENT MAJOR IMPACTS ON Q1 OPERATIONAL PERFORMANCE The operational performance of the adidas and Reebok segments in the first quarter of 2008 was positively impacted by the realization of revenue and cost synergies resulting from the integration of the Reebok business into the adidas Group. Revenue synergies were mainly related to the Reebok segment due to incremental sales increases in several countries, in particular Russia and China, for which Reebok had purchased the distribution rights effective January 1, Revenue synergies also had a positive impact on the adidas segment due to increased revenues related to the NBA license business, which was transferred from Reebok to the adidas brand in Cost synergies resulting from the combination of adidas and Reebok sourcing activities continued to have a positive impact on the cost of sales. This was partly compensated by integration costs at adidas and Reebok which negatively impacted the Group s operating expenses. This development is in line with our expectations for the Group to realize full year revenue synergies of around 250 million (2007: around 100 million) and net cost synergies of around 105 million (2007: around 20 million) in the full year ADIDAS GROUP CURRENCY-NEUTRAL SALES GROW 10 % IN Q1 During the first quarter of 2008, Group sales increased 10 % on a currency-neutral basis, driven by sales growth in the adidas and TaylorMade-adidas Golf segments. Revenues in the Reebok segment, however, declined. Currency movements negatively impacted Group sales in euro terms. Group revenues grew 3 % in euro terms to billion in the first quarter of 2008 from billion in DOUBLE-DIGIT SALES GROWTH AT ADIDAS AND taylormade- ADIDAS GOLF IN Q1 The adidas and TaylorMade- adidas Golf segments set the pace for the Group s sales growth in the first quarter of Currency-neutral adidas segment revenues increased 14 % during the first three months, driven by strong performance product sales in nearly all major categories. Currency-neutral sales in the Reebok segment declined 6 % in the first quarter of 2008, mainly as a result of Reebok s repositioning efforts in North America and parts of Europe. At TaylorMade-adidas Golf, currency-neutral revenues increased 17 %, due to the strong product offering in all major categories, helped by several new product launches. Sales recorded in the HQ/Consolidation segment, which reflect revenues not attributable to the adidas, Reebok or taylormade- adidas Golf segments and primarily comprise sales of Salomon products as part of our cooperation agreement with Amer Sports Corporation, decreased by 45 % on a currency-neutral basis due to the expiration of the apparel sourcing cooperation agreement. Currency translation effects negatively impacted sales in all segments in euro terms. adidas sales in euro terms increased 8 % to billion in the first quarter of 2008 from billion in Sales at reebok decreased 13 % to reach 454 million versus 524 million in the prior year. TaylorMade-adidas Golf sales in euro terms increased 6 % to 191 million in 2008 from 180 million in HQ/Consolidation sales decreased 51 % to 8 million from 17 million in the prior year. First Quarter net sales ) ) ) ,505 1) Figure reflects continuing operations as a result of the divestiture of the Salomon business segment in ) Including Reebok business segment from February 1, 2006 onwards. First Quarter Net Sales by Segment 1) TaylorMadeadidas Golf 7 % Reebok 18 % 1) hq / Consolidation accounts for less than 1 % of sales. 1,674 2,459 2,538 2, % adidas 13 Group Management Report -- Group Business Performance - Income Statement

14 First Quarter Net Sales Growth (Currency-Neutral) 1) by segment and region in % adidas Reebok TaylorMade-adidas Golf Total 1) Versus the prior year. north latin europe America Asia America Total First Quarter Net Sales Growth (in ) 1) by segment and region in % adidas Reebok TaylorMade-adidas Golf Total 15 (6) (7) (12) 30 (2) (6) (7) north latin europe America Asia America Total 12 (17) (11) (22) 21 (13) (13) 30 (8) (17) SALES INCREASE STRONGLY IN NEARLY ALL REGIONS adidas Group sales grew at double-digit rates in all regions except North America where revenues declined. First quarter adidas Group sales in Europe grew 12 % on a currency-neutral basis as a result of strong increases in the region s emerging markets. In North America, Group revenues declined by 7 % on a currency- neutral basis due to lower adidas and Reebok sales in the USA and Canada. Sales for the adidas Group in Asia increased 25 % on a currency-neutral basis in the first quarter of 2008, driven by particularly strong growth in China and Korea. In latin America, currency-neutral sales grew 18 % in the first quarter, with increases coming from all of the region s major markets. Currency translation effects negatively impacted sales in euro terms in all regions. Sales in Europe increased 9 % in euro terms to billion in 2008 from billion in Revenues in North America decreased 17 % to 578 million in 2008 from 698 million in the prior year. In euro terms, revenues in Asia grew 18 % to 594 million in 2008 from 501 million in Sales in Latin America grew 13 % to 177 million in 2008 from 157 million in the prior year. REVENUE GROWTH IN ALL CATEGORIES Sales increased in all product categories. In the first quarter of 2008, currencyneutral footwear sales grew 1 %. Strong increases in the adidas and TaylorMade-adidas Golf segments were largely offset by declines in the Reebok segment. Currency- neutral apparel revenues grew 18 % in the first three months of 2008, driven by gains in all brand segments. First quarter hardware sales increased 20 % on a currency-neutral basis driven by improvements in all three brand segments. Currency translation effects negatively impacted sales in all categories in euro terms. Footwear revenues declined 4 % in euro terms to billion in the first quarter of 2008 from billion in Apparel sales in euros grew 11 % to billion in the first quarter of 2008 from billion in the prior year. Hardware revenues in euro terms increased 11 % to 287 million in 2008 from 261 million in ) Versus the prior year. First Quarter Net Sales by Region 1) Latin America 7 % North America 22 % 48 % Europe 23 % Asia 1) excluding HQ / Consolidation. Group Management Report -- Group Business Performance - Income Statement

15 RECORD GROUP GROSS MARGIN The gross margin of the adidas Group increased by 2.3 percentage points to 49.1 % of sales in the first quarter of 2008 (2007: 46.8 %), driven by improvements in all brand segments. This is related to an improving product and regional mix, increased own-retail activities as well as favorable currency movements. Cost synergies resulting from the Reebok integration into the adidas Group continued to have a positive impact. Input price increases had only a modest negative impact on the cost of sales development in the first quarter of As a result of the Group s strong top-line growth and gross margin improvement, gross profit for the adidas Group rose 8 % in the first quarter of 2008 to reach billion versus billion in the prior year. First Quarter Gross Profit First Quarter Operating Expenses ,188 1, ,028 NUMBER OF EMPLOYEES INCREASES At March 31, 2008, the adidas Group employed 33,214 people. This represents an increase of 21 % versus the previous year s level of 27,480 and a 6 % increase since the end of 2007 when the Group employed 31,344 people. This increase is primarily related to new employees at adidas and Reebok own retail. OPERATING MARGIN INCREASES BY 1.7 PERCENTAGE POINTS The Group s operating margin increased 1.7 percentage points to 10.8 % in the first quarter of 2008 (2007: 9.0 %). A strong gross margin increase was partly offset by higher operating expenses. Operating profit for the adidas Group increased 23 % in the first quarter of 2008 to reach 282 million versus 229 million in ROYALTY AND COMMISSION INCOME UP 1 % CURRENCY- NEUTRAL Royalty and commission income for the adidas Group increased 1 % on a currency-neutral basis, driven by increased royalty and commission income at adidas and Reebok. In euro terms, royalty and commission income decreased by 7 % to 21 million in the first quarter of 2008 from 23 million in the prior year. First Quarter Operating Profit NET FINANCIAL EXPENSES DECREASE 16 % Net financial expenses decreased 16 % to 32 million in the first quarter of 2008 from 38 million in the prior year as a result of lower borrowings in 2008 compared to the first quarter of the prior year. OPERATING EXPENSES INCREASE Operating expenses as a percentage of sales increased by 0.5 percentage points to 39.2 % in the first quarter of 2008 from 38.7 % in This development was primarily driven by higher operating overhead costs as a percentage of sales in the adidas and Reebok segments mainly due to increased infrastructure expenses to support growth in emerging markets such as Russia. In ab solute terms, operating expenses for the adidas Group increased by 5 % to billion in the first quarter of 2008 from 982 million in the prior year. Group Management Report -- Group Business Performance - Income Statement

16 FINANCIAL INCOME DOWN 16 % Financial income decreased by 16 % to 6 million in the first three months of 2008 from 7 million in the prior year as a result of lower cash and cash equivalents due to improving cash management during the first quarter of FINANCIAL EXPENSES DECREASE 16 % Financial expenses decreased 16 % to 38 million in the first quarter of 2008 (2007: 45 million), mainly as a result of the significantly lower level of gross borrowings versus the prior year. This development is a result of the Group s strong free cash flow generation. INCOME BEFORE TAXES INCREASES BY 31 % As a result of the Group s operating margin increase as well as lower net financial expenses, income before taxes (IBT) as a percentage of sales increased by 2.0 percentage points to 9.6 % in 2008 from 7.5 % in Income before taxes for the adidas Group increased 31 % to 250 million in the first quarter of 2008 from 191 million in First Quarter Income Before Taxes First Quarter Net Income Attributable to Shareholders ) ) including Reebok business segment from February 1, 2006 onwards. Including Greg Norman apparel business from February 1, 2006 to November 30, NET INCOME ATTRIBUTABLE TO SHAREHOLDERS UP 32 % The Group s net income attributable to shareholders increased 32 % to 169 million in the first quarter of 2008 from 128 milllion in This development is a result of the Group s strong operating margin improvement and lower net financial expenses. In addition, the Group s tax rate, which decreased by 0.4 percentage points to 32.0 % in the first quarter of 2008, contributed to this development. The Group s minority interests declined by 23 % to 1 million in the first quarter of 2008 from 1 million during the same period in the prior year. BASIC AND DILUTED EARNINGS PER SHARE INCREASE 33 AND 32 % Basic earnings per share increased 33 % to 0.84 in the first quarter of 2008 versus 0.63 in the prior year. The Group s total number of shares outstanding decreased by 3,191,000 shares to 200,437,960 at the end of the first quarter of 2008 from 203,567,060 as a result of adidas AG s share buyback program which was initiated in January In the first quarter of 2008, adidas AG bought back million shares. This development more than offset the issuance of 16,000 shares on January 15, 2008 as a result of stock options exercised as part of Tranches III, IV and V of the Management Share Option Plan (MSOP) of adidas AG. Consequently, the weighted average number of shares used in the calculation of basic earnings per share decreased to 202,443,070 (2007 average: 203,563,033). Diluted earnings per share in 2008 increased 32 % to 0.79 from 0.60 in the prior year. The weighted average number of shares used in the calculation of diluted earnings per share was 218,240,051 (2007 average: 219,446,522). The dilutive effect largely results from approximately sixteen million additional potential shares that could be created in relation to our outstanding convertible bond, for which conversion criteria were first met at the end of the fourth quarter of Group Management Report -- Group Business Performance - Income Statement

17 Balance Sheet and Cash Flow Statement TOTAL ASSETS DECREASE 3 % At the end of the first quarter of 2008, total assets decreased 3 % to billion versus billion in the prior year. This is the result of a reduction of non-current assets, mainly driven by currency effects which lowered the value of the Group s US dollar-based assets. Compared to the 2007 year-end level, total assets increased by 1 %. INVENTORIES UP 3 % Group inventories increased 3 % to billion at the end of the first quarter of 2008 versus billion in On a currency-neutral basis, this represents an increase of 13 %. This development mainly reflects business expansion in emerging markets as well as preparation for deliveries of UEFA EURO 2008 related products in the second quarter. RECEIVABLES DECLINE 7 % Group receivables decreased 7 % to billion at the end of the first quarter of 2008 versus billion in the prior year. On a currency-neutral basis, receivables were stable. This reflects strict dis cipline in the Group s trade terms management and concerted collection efforts in all segments. OTHER CURRENT ASSETS UP 24 % Other current assets increased 24 % to 580 million at the end of the first quarter of 2008 from 468 million in 2007, mainly due to higher prepayments for promotion contracts and higher fair values of financial instruments. Balance Sheet Structure 1) in % of total assets Assets March 31, 2008 March 31, 2007 Cash and cash equivalents 3.4 Accounts receivable 19.6 Inventories 18.8 Fixed assets 42.3 Other assets 15.9 Total assets () 8,406 8,627 1) For absolute figures see Consolidated Balance Sheet, p. 29. Balance Sheet Structure 1) in % of total liabilities and equity Liablities and equity March 31, 2008 March 31, 2007 Accounts payable 7.8 Long-term borrowings FIXED ASSETS DECREASE 10 % Fixed assets decreased by 10 % to billion at the end of the first quarter of 2008 versus billion in This mainly reflects negative currency translation effects on fixed assets held in currencies other than the euro. In addition, 10 million of fixed assets were transferred to assets held-for-sale. Additions of 308 million were largely counterbalanced by depreciation and amortization of 207 million as well as disposals in an amount of 42 million. ASSETS HELD-FOR-SALE INCREASE 20 % Assets held-forsale increased 20 % to 71 million at the end of the first quarter of 2008 (2007: 59 million). They mainly relate to the planned sale of land and buildings in Herzogenaurach, Germany. In addition, two warehouses in the UK were re - clas sified as assets held-for-sale in The selling process commenced in April 2007 and the contract finalization is in progress. Compared to the 2007 year-end level of 80 million, assets held-for-sale declined due to the disposal of the Maxfli brand in February OTHER NON-CURRENT ASSETS INCREASE 18 % Other noncurrent assets increased by 18 % to 166 million at the end of the first quarter of 2008 from 141 million in 2007, mainly driven by prepaid promotion contracts. ACCOUNTS PAYABLE UP 3 % Accounts payable increased 3 % to 656 million at the end of the first quarter of 2008 versus 636 million in On a currency-neutral basis, accounts payable increased 15 %. This development is in line with the inventory growth in order to cover future growth expectations. 17 Other liabilities Total equity Total liabilities and equity () 8,406 8,627 1) For absolute figures see Consolidated Balance Sheet, p. 29. Group Management Report -- Group Business Performance - Balance Sheet and Cash Flow Statement

18 Inventories 1) ) At March 31. Receivables 1) ) At March 31. Accounts Payable 1) ) At March 31. 1,536 1,578 OTHER NON-CURRENT LIABILITIES INCREASE 76 % Other non- current liabilities increased 76 % to 78 million at the end of the first quarter of 2008 from 45 million in 2007, primarily as a result of increased non-current forward contracts. EQUITY DEVELOPMENT IMPACTED BY CURRENCY MOVE- MENTS Shareholders equity decreased 3 % to billion at the end of the first quarter of 2008 versus billion in 2007 due to negative currency translation effects which more than offset the strong income development during the period. Compared to the 2007 year-end level of billion, shareholders equity decreased 6 %. 1, Cash Flow Development Reflects Seasonality of BusinesS In the first quarter of 2008, cash outflow from operating activities was 107 million. This reflects working capital needs in accordance with the seasonality of the business. Cash outflow for investing activities was 58 million and was mainly related to spending for property, plant and equipment such as investment in furnishing and fitting of adidas and Reebok own-retail stores. To finance these operating and investing activities, as well as the repurchase of treasury shares for 135 million, long-term borrowings increased by 293 million. Consequently, net cash from financing activities increased by 158 million ) At March 31. 2,073 NET BORROWINGS REDUCED BY 446 MILLION Net borrowings at March 31, 2008 were billion, down 18 % or 446 million versus billion in the prior year. Strong bottom-line profitability and continued tight working capital management more than offset the financing of the adidas AG share buyback program. Cur rency effects also positively impacted this development. As a consequence, the Group s financial leverage improved 13 percentage points to 72.9 % at the end of the first quarter of 2008 versus 86.0 % in the prior year. Compared to the 2007 year-end level of billion, net debt increased by 308 million, reflecting the seasonality of our business as well as 135 million used for the share buyback program of adidas AG in the first quarter of Shareholders Equity 1) Net Borrowings 1) 1, , ) At March 31, excluding minority interests. 2,931 2, Group Management Report -- Group Business Performance - Balance Sheet and Cash Flow Statement

19 ADIDAS BUSINESS PERFORMANCE In the first quarter of 2008, currency-neutral sales at adidas grew 14 %. In euro terms, sales increased 8 % to billion from billion in the prior year. Gross margin increased 1.7 per centage points to 49.0 % (2007: 47.2 %), due to an improving product and regional mix, further own-retail expansion and favorable currency movements. Gross profit grew 12 % to 964 million in the first quarter of 2008 from 859 mil lion in Operating margin increased 2.3 per centage points to 17.1 % in 2008 (2007: 14.8 %), driven by both strong gross margin improve ment and lower operating expenses as a percentage of sales. Consequently, operating profit increased 25 % to 336 million in the first quarter of 2008 versus 270 million in the prior year. adidas at a glance Net sales Gross profit Gross margin Operating profit Operating margin First Quarter adidas Net Sales Q Q Change 1,968 1,819 8 % % 49.0 % 47.2 % 1.7 pp % 17.1 % 14.8 % 2.3 pp 1,378 1,512 1,776 1,819 1,968 CURRENCY-NEUTRAL SEGMENT SALES GROW 14 % In the first quarter of 2008, revenues for the adidas segment increased by 14 % on a currency-neutral basis. In euro terms, sales grew 8 % to billion in the first quarter of 2008 from billion in the prior year. SPORT PERFORMANCE UP 19 % ON A CURRENCY-NEUTRAL BASIS First quarter sales in the Sport Performance division increased 19 % on a currency-neutral basis, driven by doubledigit growth in footwear, apparel and hardware. Revenues were higher in nearly all major product categories, with particularly strong increases in football, most notably for uefa euro 2008 related product, as well as running and training. In euro terms, Sport Performance sales improved 13 % during the first three months of 2008 to billion from billion in the prior year. SPORT STYLE DOWN 4 % ON A CURRENCY-NEUTRAL BASIS Sales in the Sport Style division declined 4 % on a currencyneutral basis in the first quarter of While Originals declined, Fashion sales increased. In euro terms, Sport Style sales decreased 9 % to 385 million in the first quarter of 2008 (2007: 421 million). 19 adidas Net Sales by Region Currency- Q Q Change neutral Europe North America Asia Latin America 1, % 15 % (17 %) (6 %) % 24 % % 21 % Group Management Report -- Business Performance by Segment - adidas Business Performance