adidas Group segmental information

Transcription

1 First Quarter Report 2009

2 Table of Contents Financial Highlights Operational and Sporting Highlights Interview with the CEO Our Share Interim Group Management Report Group Business Performance Economic and Sector Development Income Statement Balance Sheet and Cash Flow Statement adidas Reebok TaylorMade-adidas Golf Subsequent Events and Outlook Interim Consolidated Financial Statements (IFRS) Consolidated Balance Sheet Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to Interim Consolidated Financial Statements adidas Group segmental information First quarter 2009 First quarter 2008 Change adidas Net sales 1,917 1,968 (2.6%) Gross profit (6.6%) Gross margin 47.0% 49.0% (2.0pp) Operating profit (32.2%) Operating margin 11.9% 17.1% (5.2pp) Reebok Net sales % Gross profit (20.0%) Gross margin 29.4% 37.1% (7.7pp) Operating profit (96) (13) (661.9%) Operating margin (20.9%) (2.8%) (18.2pp) TaylorMade-adidas Golf Net sales % Gross profit (13.1%) Gross margin 39.8% 46.6% (6.8pp) Operating profit (21) 23 (188.9%) Operating margin (10.7%) 12.3% (23.0pp) Segmental Information Segmental Information by Brand Segmental Information by Region Management Boards Financial Calendar 2009 Contact adidas Group First Quarter Report

3 First quarter net sales Financial highlights (IFRS) ) 1, ) 2, , , ,577 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, First quarter 2009 First quarter 2008 Change Operating highlights () Net sales 2,577 2,621 (1.7%) Operating profit (79.5%) Net income attributable to shareholders (97.2%) Key ratios (%) Gross margin 45.2% 49.1% (4.0pp) Other operating expenses as a percentage of net sales 44.7% 40.0% 4.7pp Operating margin 2.2% 10.8% (8.5pp) Effective tax rate 51.7% 32.0% 19.7pp Net income attributable to shareholders as a percentage of net sales 0.2% 6.5% (6.3pp) Operating working capital as a percentage of net sales 1) 25.6% 24.7% 0.9pp Equity ratio 35.6% 33.8% 1.8pp Financial leverage 81.8% 72.9% 8.9pp Balance sheet and cash flow data () Total assets 9,904 8, % Inventories 2,016 1, % Receivables and other current assets 2,733 2, % Working capital 2) 1,977 1, % Net borrowings 2,883 2, % Shareholders equity 3,525 2, % Capital expenditure % Net cash used in operating activities (617) (107) 476.3% Per share of common stock ( ) Basic earnings (97.0%) Diluted earnings (95.1%) Operating cash flow (3.19) (0.53) (502.5%) Share price at end of period (40%) Other (at end of period) Number of employees 38,227 33, % Number of shares outstanding 193,515, ,437,960 (3.5%) Average number of shares 193,515, ,443,070 (4.4%) Rounding differences may arise in percentages and totals. All Group figures comprise the brand segments and HQ/Consolidation. 1) Twelve-month trailing average. 2) 2008 figure restated due to reclassification of long-term to short-term borrowings. To Our Shareholders Financial Highlights adidas Group First Quarter Report

4 Operational and Sporting Highlights First quarter TaylorMade-adidas Golf signs 17 new players to use TaylorMade equipment on the PGA Tour for the 2009 season TaylorMade introduces the R9 and R9 TP drivers, which combine the well-proven Movable Weight Technology with Flight Control Technology Reebok unveils SmoothFit SelectRide, an innovative two-in-one shoe that can be changed from a running shoe into a training shoe at the push of a button Picture 01 In an all-adidas final, the French national handball team wins the Handball World Championship title, beating host nation Croatia adidas Originals and MTV Europe start a pan-european collaboration, including a contest through Facebook and a TV and online campaign Picture 02 Reebok sponsored football player Santonio Holmes is named Most Valuable Player after catching the decisive touchdown pass for the Pittsburgh Steelers in the Super Bowl XLIII Picture 03 adidas Basketball sponsors the NBA All-Star weekend watched by millions of viewers in more than 200 countries Picture 04 On the occasion of the New York Fashion Week, adidas opens its first adidas SLVR Label store Picture 05 Reebok and Cirque du Soleil launch JUKARI Fit to Fly, a new workout for women Picture 07 Reebok launches EasyTone, an innovative technology that helps tone key leg muscles Picture 06 adidas Golf introduces FitRX and FitRX SPORT, two new shoes featuring custom footbed technology to enhance support and provide personalised comfort Numerous celebrities such as Mischa Barton and Jenny Garth experience Reebok s newly launched JUKARI Fit to Fly in Los Angeles Reebok-CCM Hockey presents its 2009 product line at the Let s Play Hockey Expo in St. Paul, Minnesota, with more than 30,000 visitors adidas Outdoor launches the Outdoor is everything campaign featuring extreme climbers Alexander and Thomas Huber, also known as the Huberbuam adidas and the Russian Football Union unveil the new jersey of the Russian National Football Team in Moscow. To Our Shareholders Operational and Sporting Highlights adidas Group First Quarter Report

5 Interview with the CEO With the economic crisis clearly impacting the consumer, the sporting goods industry and the adidas Group are also seeing the effects as currency-neutral adidas Group sales decreased by 6% in the first quarter. While 2009 will be a challenging year, the Group continues to be well positioned with strong recognisable brands and is moving forward with operational measures to mitigate the effects of the crisis. This will position the Group to be leaner and more efficient to more effectively seize future growth opportunities. Herbert Hainer CEO and Chairman of the Executive Board In the following interview, Herbert Hainer, adidas Group CEO and Chairman, reviews the first quarter of 2009 and discusses the Group s strategic and financial outlook. To Our Shareholders Interview with the CEO adidas Group First Quarter Report

6 Herbert, the first quarter of 2009 has been a challenge for many companies as the global recession is strongly impacting the consumer. Are you disappointed with the first quarter results? Before going into more detail, let me briefly put things into perspective: 2008 was an extremely successful year for the Group especially for the adidas and TaylorMade-adidas Golf segments. We not only profited from the UEFA EURO 2008 and the Beijing 2008 Olympic Games, but also operated at least in the first half of 2008 in a healthy economic environment. All these factors make comparisons with this year s first quarter extremely hard. So on a deeper look and being mindful of all that is going on around us during this difficult period, I believe the adidas Group has shown a lot of resilience and, more importantly, discipline and consistency with our long-term strategies. Therefore, although I am not satisfied with these results, we have to accept them given the current economic climate. As I told you in March, there was no doubt that the consumer would spend less in 2009 and we expected our sales and earnings to decline. But the strength of our brands is apparent and we continue to win over new consumers with the concept and product firepower which is at the heart of our organisation. At brand adidas, we continue to connect with more and more consumers, highlighted by double-digit sales increases in the Sport Style division. At Reebok, we are making solid progress on rebuilding our connection to the female consumer with the women s segment up at double-digit rates during the quarter. And at TaylorMade-adidas Golf, our market share has increased significantly in several categories including metalwoods and irons. Group profitability was down significantly in the first quarter. Can you outline the major impacts, in particular those you believe are one-off in nature? You just have to read the papers today to see the significant burden on corporate profitability from the economic climate and we have to accept that this is an unavoidable consequence of downturns. However, I believe that fundamentally the profitability of our business is solid and you will see the effect lessen considerably as we work our way through the year. There were various factors that impacted our results in the quarter. First of all, higher input prices and currency devaluation effects weighed heavily on our gross margin, accounting for over three quarters of the decline in the first quarter. Unfortunately, the highly promotional retail environment did not allow us to mitigate these factors. In addition, when we look at our operating expenses, we had several charges in the first quarter related to restructuring expenses at Reebok and TaylorMade-adidas Golf and costs associated with the integration of Ashworth. We also increased allowances for doubtful debts to reflect the economic downturn and we suffered currency losses on balance sheet items due to the high volatility of foreign exchange rates in some emerging markets. If you take all these items together, that s another 100 million impact we had to absorb in our first quarter result. Although some of these items will recur again as we go through the balance of the year, I am convinced we will put most of these effects behind us in To Our Shareholders Interview with the CEO adidas Group First Quarter Report

7 Do you think the adidas brand can use the weak environment to take market share from others? Did you see any areas of growth in the first quarter? Absolutely. adidas is a powerful brand built on a rich heritage and passion for the impossible. And even despite the crisis the amazing bond this brand has with consumers around the world continues to grow. Although sales were down 6% currency-neutral in the first quarter, we have certainly strengthened our position in several markets and categories around the world. Some of the highlights include our performance-enhancing TECHFIT apparel, which is growing strongly. In outdoor, we had double-digit increases in a category we are putting more and more resources behind for the long term. And in basketball, we are making big strides in Asia, where in markets like China this sport is the most viewed and most played. Our strongest development however this quarter has been in the Sport Style division where sales are up 12% currencyneutral in the first quarter. In an economic downturn the lifestyle segment is more exposed as the consumer tends to be more selective when spending is curtailed. This result therefore underpins just how desirable the adidas brand is today to the young trendy consumer. And we will continue to energise this space throughout the year as we celebrate our 60th birthday under the banner of 60 Years of Soles and Stripes and with unique collections like Originals by Originals and new lines such as Style Essentials. I am convinced we will take market share but, as I have often mentioned, we want to do this in a controlled and consistent way. We also intend to use this period of economic weakness to position ourselves correctly for the long term, ensuring our inventories and distribution channels are clean to secure the type of profitable growth you have come to expect from the adidas brand. At Reebok, the first quarter results suggest there is still a long way to go before the segment is a meaningful contributor to the Group. Are you confident you can make Reebok a success? Although we are still somewhat away from the financial performance we had expected to be delivering three years after the acquisition of Reebok, I believe we have taken considerable steps to recalibrate the brand. The last few years have been tough. The damage that had been done to the brand after years of careless distribution was higher than we expected. However that being said, I have never doubted the potential of the Reebok brand. And today, I really believe we are in the midst of a step change at Reebok. We ve had a lot on the drawing board, and now I am seeing that with consistency of approach we can indeed turn our ideas into commercial success. Let s look at our Women s initiatives. Reebok s partnership with Cirque du Soleil was brought to life in February with the launch of JUKARI Fit to Fly, a new workout experience especially designed for women. The response has been nothing short of phenomenal. Another key product initiative, the EasyTone, which helps tone key leg muscles, has been a hit at retail, with extremely high sell-through rates. With a price point above US $ 100, this kind of result is exceptional in the current economic climate when consumers are tending to trade down. Both these concepts are leading to commercial success with sales in the Women s segment up at double-digit rates in the quarter. Innovations like these, whether concepts or products, are our most important tools for rebuilding the connection to the consumer and getting Reebok back onto retailers shelves. We are creating a lot of positive energy right now with customers and consumers alike. In markets like Germany, Scandinavia, Japan and India, we are harnessing elements from all three pillars of our brand strategy, driving positive momentum. In terms of Reebok s contribution to the Group, like our other divisions, this year the segment will be hit by one-time effects and the repercussions of the tough environment on profitability I already outlined. Nevertheless, I believe Reebok will be a meaningful contributor to our Group s financial performance in the medium to long term. To Our Shareholders Interview with the CEO adidas Group First Quarter Report

8 The international golf market is reported to be highly promotional. How does this affect TaylorMade-adidas Golf, and what are your strategies to deal with the environment? The golf industry is off to a very weak start in 2009, with most major markets around the world contracting at double-digit rates. Consumers are hesitating to buy new equipment or even postponing their purchase decisions indefinitely. Therefore standing out from the competition is critical in this environment. And our results prove we are on the right course, as we have gained significant market share in several categories and regions throughout the quarter. TaylorMadeadidas Golf continues to significantly outperform its competitors and with sales down only 6% on a currency-neutral basis we are pleased with what we have achieved so far this year. Our recipe for success at TaylorMade is threefold: 1) having the right product, 2) building early demand and 3) launching at the right time. And we executed flawlessly in the first quarter. The launch of our R9 driver is a great example of this and contributed to TaylorMade s strongest March sales in its history in the USA. The R9 is already the top-selling driver at retail in the USA and is the number one played driver on the major worldwide golf tours. We also set a new market share record for TaylorMade in irons, adding four percentage points during the quarter. Now entering the important golf playing months of the year, we continue to follow this formula. And I fully expect that we will stay on top of the leaderboard as all three of our golf brands, TaylorMade, adidas Golf and Ashworth, continue to resonate with the golf consumer. Can you give us a quick update on your outlook and financial priorities for the remainder of the year? Our performance in the first quarter highlights the challenges we outlined back in March. At the moment I do not see any material indication that the environment is going to improve in the short term. We continue to forecast that full year sales will decline at a low- to mid-single-digit rate currency-neutral and earnings per share is also expected to decline. Although you can be assured that we are working at full steam on internal measures to cut back costs, higher input prices, currency devaluation effects and costs related to restructuring activities as well as other one-time costs will hurt our profitability. We forecast earnings per share to be around breakeven in the first six months of However, we will generate significantly positive earnings per share again in the second half of the year, albeit at lower levels compared to the prior year. This will be a consequence of a moderation of input cost increases and positive impetus ahead of the 2010 FIFA World Cup. In 2009, reduction of net borrowings will continue to be a key priority. Tight working capital management, particularly through working down our inventories, and controlled investment activities will help optimise the Group s free cash flow and contribute to this goal. To Our Shareholders Interview with the CEO adidas Group First Quarter Report

9 You have talked about doing what is necessary to face the downturn. Can you give us a more concrete idea of what measures you will take? I promised you in March that we would do everything possible to position our Group to emerge from the crisis stronger and more efficient. And we are delivering on that promise. We have already implemented a joint operating model between adidas and Reebok in Europe and Latin America. We trimmed headcount at Reebok, Rockport and TaylorMade-adidas Golf. And we continue to refine and reduce complexity in the product creation process. Our efforts, though, are not purely about reacting to the crisis and reducing cost. They are more about finding the structural direction we need to follow in order to satisfy our major guiding principle: to bring the adidas Group s brands and products closer to the consumer. And I believe we are now in a position to make a real game-changing structural refinement that will propel our business forward for the long-term sustainable success of our Group. Since 2000, the adidas Group has grown significantly in complexity from 95 companies to 190 represented in all regions of the world. Our business has also evolved from predominantly a wholesale model to include a far more significant retail component. With over 1.8 billion in own-retail sales, we are on a growth path that will take us into the top 250 global retailers in the medium term. So firstly, as a consequence of the increased organisational complexity, we have decided to take out one complete level of management the regional offices. This means that, going forward, the Group will no longer operate regional headquarters in Europe and Asia. Instead, we will strengthen the direct interaction between the global organisation and the local markets. In addition, the wholesale part of our business, where products are sold and distributed via retail partners, will be consolidated under a new Chief Sales Officer. And to support the growing own-retail business, which is an integral part of our controlled space strategy, a dedicated Global Retail organisation will be set up under the leadership of a Chief Retail Officer. Although all details of the measures we are working on have yet to be finalised, it is our goal that upon completion these will lead to annual cost savings of more than 100 million as well as a significant contribution to the top line. I ll keep you posted on our progress further down the line, but let me assure you we are creating the right platform to ensure a healthy company and solid business foundation for the good of all our stakeholders. Herbert, thank you for this interview. To Our Shareholders Interview with the CEO adidas Group First Quarter Report

10 Our Share In the first quarter, the global economy continued to suffer from the effects of the economic crisis. The negative international stock market development reflected lower consumer confidence levels, high unemployment rates as well as decreasing retail sales. Interest rates of major central banks at record low levels have not yet had a positive effect on the economy. The DAX-30 lost 15% while the adidas share declined 8% in the first quarter. Global stock indices decline in first quarter International stock markets declined in the first quarter of 2009, continuing the negative trend of the prior year. Major economic indicators signalling falling industrial output and orders, record low consumer confidence, decreasing retail sales and rising unemployment weighed on market sentiment. In addition, gloomy earnings outlooks added to weak investor sentiment typified by low trading volumes throughout the quarter as investors took a watchful stance. In particular, difficulties in the financial sector highlighted by further losses as well as increasing government intervention burdened markets throughout the quarter. The DAX-30 decreased 15% and closed the first quarter at 4,084 points. The MSCI World Textiles, Apparel and Luxury Goods Index, which comprises the Group s main competitors, declined 10%. adidas AG share price recovers in March In line with general market conditions, our share price declined at the beginning of January mainly due to weak economic data. As a response to cost savings initiatives announced at Reebok and TaylorMade-adidas Golf, the adidas share started to rise again in mid-january, outperforming the rest of the stock market. This positive momentum continued into early February as market confidence grew in expectation that our Group would meet our 2008 guidance. While sustaining our market outperformance, our share price declined sharply in February as investor sentiment worsened. Weak retail sales data and the lack of catalysts for a quick economic recovery led to a market revaluation. At the beginning of March, the publication of our 2008 annual results, which exceeded analysts expectations, improved our share price notably. Many investors and analysts expressed their belief that the adidas Group remains positioned for future growth beyond the current crisis. Nonetheless, potential negative effects from foreign currency movements and Reebok s financial performance remain issues of concern for investors. Accordingly, the adidas AG share closed the quarter at 25.06, representing a decrease of 8% compared to the end of Our share thereby outperformed the DAX-30, which lost 15% over the period, as well as the MSCI, which declined 10% in the first quarter. The adidas AG share Number of shares outstanding first quarter average 193,515,512 at March 31 1) 193,515,512 Type of share No-par-value share Free float 100% Initial Public Offering November 17, 1995 Share split June 6, 2006 (in a ratio of 1: 4) Stock exchange All German stock exchanges Stock registration number (ISIN) DE Stock symbol ADS, ADSG.DE Important indices 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 Index Excellence Global Ethibel Index Excellence Europe ASPI Eurozone Index 1) All shares carry full dividend rights. Historical performance of the adidas AG share and important indices at March 31, 2009 in % YTD 1 year 3 years 5 years since IPO adidas AG (8) (40) (39) DAX-30 (15) (37) (32) 6 86 MSCI World Textiles, Apparel & Luxury Goods (10) (43) (35) (9) 41 To Our Shareholders Our Share adidas Group First Quarter Report

11 Number of ADRs remains stable The number of Level 1 ADRs (American Depository Receipts) remained stable in the first quarter, underlining the continued support from North American investors. At March 31, 2009, 8.9 million ADRs were outstanding. In comparison to March 31, 2008, when 12.7 million ADRs were outstanding, the number of ADRs decreased significantly. The Level 1 ADR closed the quarter at US $ 16.56, reflecting a decrease of 14% compared to the end of December Stable dividend proposed The adidas AG Executive and Supervisory Boards will recommend paying a stable dividend of 0.50 (2007: 0.50) per share for the financial year Subject to approval by our shareholders at the Annual General Meeting on May 7, 2009, the dividend will be paid on May 8, Management has decided to maintain the dividend level in light of the tough business environment and our focus on reducing net borrowings. Based on the number of shares outstanding at the end of this quarter, this represents a dividend payout of 97 million (2007: 99 million). The decrease is mainly due to the reduction of shares outstanding after last year s share buyback. This represents a payout ratio of 15% versus 18% in 2007 and follows our dividend policy, under which the adidas Group intends to pay out between 15 and 25% of consolidated net income. Share price development in ) Dec. 31, 2008 Mar. 31, 2009 adidas AG DAX-30 MSCI World Textiles, Apparel & Luxury Goods 1) Index: December 31, 2008 = 100. Shareholder rights notifications received in first quarter 2009 Changes in shareholder base In the first quarter of 2009, the Group received seven voting rights notifications according to 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 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 com/directors_dealings. No directors dealings notifications were received in the first quarter of Date of notification Notifying party Threshold crossed Voting rights of total shares outstanding Date of change Jan. 05, 2009 Jan. 19, 2009 Feb. 03, 2009 Mar. 03, 2009 Mar. 04, 2009 Mar. 04, 2009 Mar. 27, 2009 Capital Research and Management Company Euro Pacific Growth Fund The Bank of New York Mellon Group > 5% 9,695,127 (5.01%) > 3% 6,021,253 (3.11%) > 3% 5,901,424 (3.05%) UBS AG > 3% 6,525,021 (3.37%) FMR LLC < 3% 5,700,013 (2.95%) UBS AG < 3% 2,010,607 (1.04%) Invesco Ltd. < 3% 5,894,813 (2.97%) Dec. 19, 2008 Jan. 13, 2009 Jan. 14, 2009 Feb. 25, 2009 Feb. 26, 2009 Feb. 26, 2009 Sep. 30, 2008 The above information is based on notifications in accordance with 21 German Securities Trading Act (Wertpapierhandelsgesetz WpHG) received and published by adidas AG in the first quarter of Voting rights notifications published by adidas AG can be viewed on our corporate website at www/adidas-group.com/en/investor/statutory_publications/. To Our Shareholders Our Share adidas Group First Quarter Report

12 Group Business Performance In the first quarter of 2009, the adidas Group results were negatively impacted by significantly slowing consumer demand and high levels of promotional activity due to the adverse macroeconomic climate. Currency- neutral Group sales decreased 6% as a result of declines in all segments. In euro terms, adidas Group revenues decreased 2% to billion from billion in The Group s gross margin declined 4.0 percentage points to 45.2% (2008: 49.1%), mainly driven by higher input costs, currency devaluation effects as well as a highly promotional retail environment. Consequently, the Group s gross profit declined 10% to billion in the first quarter of 2009 versus billion in The Group s operating margin decreased 8.5 percentage points to 2.2% from 10.8% in 2008, due to the lower gross margin as well as higher other operating expenses as a percentage of sales. The Group s operating profit declined 79% to 58 million in the first quarter of 2009 versus 282 million in The Group s net income attributable to shareholders decreased 97% to 5 million from 169 million in Diluted earnings per share decreased 95% to 0.04 in the first quarter of 2009 versus 0.79 in Economic and Sector Development GDP declines in all regions The sharp downturn in global economic activity continued in the first quarter of Steep declines in manufacturing and industrial output were the primary contributor to declining global GDP. Restrained corporate investment activity leading to rising unemployment in the first quarter resulted in consumer confidence reaching new lows. In Europe, interest rate reductions had little impact on improving sentiment. The region s emerging markets also showed signs of more significant economic weakness. In Russia, industrial production decreased at double-digit rates, leading to rising unemployment and sharp declines in retail sales growth. In the USA, consumer confidence plunged again to new all-time lows. Manufacturing and construction activity declines intensified, contributing to unemployment reaching its highest point since October In Asia, the economic environment also worsened. In Japan, the fall in external demand sustained the country s deep recession. In China, although exports continue to weaken, government stimulus has solidified domestic demand, resulting in GDP growth of 6% in the quarter. In Latin America, the region recoupled to the trends seen in other markets as several major countries entered recession. Lower commodity prices, falling domestic and external demand as well as growing unemployment contributed to declining GDP in the region. Weak development of global sporting goods industry High levels of promotional activity, focus on inventory management by retailers and slowing consumer demand impacted the development of the global sporting goods industry in the first quarter of In Europe, sporting goods sales declined, as consumers postponed or cancelled their purchases in the face of heightened unemployment fears. Sporting goods apparel and footwear declined more than equipment in the region during the quarter, as equipment sales were boosted by the best winter sports conditions in several years. In the USA, sporting goods sales declined in line with the challenging retail climate and slowing consumer traffic. Higher price point equipment items such as golf clubs were the most affected as consumers were reluctant to change or upgrade their equipment. In Asia, after years of solid growth, the sporting goods industry showed signs of decline even in the emerging markets. In China, sporting goods sales growth slowed considerably, negatively impacted by the weakening labour markets and higher inventories. The Japanese sporting goods market was also affected by the steep economic recession the country is faced with. Momentum in Latin America also slowed, however the sporting goods industry remains more resilient than in other markets. Quarterly consumer confidence development by region Q Q Q Q Q USA 1) Euro Zone 2) (12) (17) (19) (30) (34) Japan 3) ) Source: Conference Board. 2) Source: European Commission. 3) Source: Economic and Social Research Institute, Government of Japan. Exchange rate development 1) 1 equals Average rate 2008 Q Q Q Q Average rate ) USD GBP JPY ) Spot rates at quarter-end. 2) Average rate for the first quarter. Interim Group Management Report Group Business Performance Economic and Sector Development adidas Group First Quarter Report

13 Income Statement Consolidation of new businesses impacts Reebok and TaylorMade- adidas Golf results In the first quarter of 2009, the performance of the adidas Group was impacted by the consolidation of new companies in Latin America in the Reebok segment and of Ashworth, Inc. in the TaylorMade- adidas Golf segment. Effective April 1, 2008, the adidas Group acquired 99.99% of the shares of Reebok Productos Esportivos Brazil Ltda. (formerly Comercial Vulcabras Ltda.), the distribution company for Reebok products in Brazil and Paraguay. Effective June 2, 2008, Reebok also founded a new company in Argentina, in which the adidas Group holds 99.99% of the shares. Ashworth Inc., a leader in cotton casual golf apparel, has been consolidated within the adidas Group since November 20, adidas Group currency- neutral sales decline 6% In the first quarter of 2009, Group revenues decreased 6% on a currency- neutral basis, as a result of lower sales in all business segments. Currency translation effects positively impacted sales in euro terms. Group revenues in euro terms declined 2% to billion in the first quarter of 2009 from billion in Currency- neutral sales decline in all segments Currency- neutral adidas segment revenues decreased 6% in the first quarter of 2009, driven in particular by a decrease in the football category resulting from the non-recurrence of strong prior year sales related to the UEFA EURO Currency- neutral sales in the Reebok segment declined 4% versus the prior year. Double-digit growth in the women s category was more than offset by declines in most other categories. The consolidation of the new companies in Latin America positively impacted this development. At TaylorMade- adidas Golf, currency- neutral revenues decreased 6%, due to declines in all major catego ries. However, this development was partly offset by the consolidation of Ashworth revenues. Sales recorded in the HQ/Consolidation segment, which reflect revenues not attributable to the adidas, Reebok or TaylorMade- adidas Golf segments, decreased 10% on a currency- neutral basis. The sales decrease related to the expiration of our sourcing cooperation agreement with Amer Sports Corporation in February 2008 was partly offset by Gekko Brands sales. Acquired with Ashworth in November 2008, Gekko Brands was divested in March Currency translation effects positively impacted sales in all segments in euro terms. adidas sales in euro terms decreased 3% to billion in the first quarter of 2009 from billion in Sales at Reebok grew 1% to 458 million versus 454 million in the prior year. TaylorMade- adidas Golf sales increased 2% to 194 million in the first quarter of 2009 from 191 million in HQ/Consolidation sales decreased 2% to 8 million from 8 million in the prior year. Currency- neutral revenues decline in all product categories Currency- neutral Group sales declined in all categories in the first quarter of Currency- neutral footwear sales decreased 2% during the period. An increase in the Reebok segment could not offset declines in the adidas and TaylorMade- adidas Golf segments. First quarter apparel sales decreased 4% on a currency- neutral basis, driven by declines in the adidas and Reebok segments. The TaylorMade-adidas Golf segment grew due to the consolidation of the Ashworth business. Currency- neutral hardware sales declined 32% compared to the prior year, due to decreases in all segments. Currency translation positively impacted sales in euro terms. In euro terms, footwear sales increased 2% to billion in the first quarter of 2009 (2008: billion). Apparel sales grew 1% to billion from billion in Hardware sales decreased 29% to 205 million in the first quarter of 2009 from 287 million in First quarter net sales ) 1, ) 2, , , ,577 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 sales by segment 1) adidas 74% 1) HQ /Consolidation accounts for less than 1% of sales. TaylorMadeadidas Golf 8% Reebok 18% Interim Group Management Report Group Business Performance Income Statement adidas Group First Quarter Report

14 Currency- neutral sales decrease in nearly all regions Currency- neutral adidas Group sales declined in all regions except Latin America in the first quarter of Group sales in Europe decreased 5% on a currency- neutral basis, due to declines in most major countries impacted by the nonrecurrence of strong prior year sales related to the UEFA EURO In North America, Group sales declined 17% on a currency- neutral basis due to lower consumer demand and retailer destocking in the USA. Sales for the adidas Group in Asia decreased 6% on a currency- neutral basis, as a result of declines in Japan and China. In Latin America, sales grew 31% on a currency- neutral basis, with double-digit increases coming from most of the region s major markets, supported by the new Reebok companies in Brazil/Paraguay and Argentina. In euro terms, sales in Europe decreased 6% to billion in the first quarter of 2009 from billion in Sales in North America declined 7% to 538 million from 578 million in Revenues in Asia grew 6% to 628 million in the first quarter of 2009 from 594 million in Sales in Latin America grew 23% to 218 million from 177 million in the prior year. First quarter currency-neutral net sales growth 1) by segment and region in % Europe North America Asia Latin America Total adidas (6) (25) (4) 16 (6) Reebok (3) (16) (8) 148 (4) TaylorMadeadidas Golf 11 (1) (17) (17) (6) Total (5) (17) (6) 31 (6) 1) Versus the prior year. First quarter net sales growth in 1) by segment and region in % Europe North America Asia Latin America Total adidas (6) (16) 9 8 (3) Reebok (4) (6) (5) TaylorMadeadidas Golf (6) 10 (6) (12) 2 Total (6) (7) 6 23 (2) 1) Versus the prior year. Gross margin negatively impacted by higher input costs The gross margin of the adidas Group decreased 4.0 percentage points to 45.2% in the first quarter of 2009 (2008: 49.1%). This development was mainly due to higher input costs, currency devaluation effects, in particular related to the Russian rouble, as well as a highly promotional retail environment. As a result, gross profit for the adidas Group declined 10% in the first quarter of 2009 to billion versus billion in the prior year. Royalty and commission income decreases Royalty and commission income for the adidas Group decreased 11% on a currency- neutral basis. This development is mainly due to the non-recurrence of royalties from distribution partners in the Reebok segment in Brazil/Paraguay and Argentina. The distribution partnerships in these countries were replaced by own companies whose sales were consolidated for the first time effective April and June 2008, respectively. In euro terms, royalty and commission income decreased 4% to 20 million in the first quarter of 2009 from 21 million in the prior year. Other operating income grows 22% Other operating income increased 22% to 27 million in the first quarter of 2009 from 22 million in This development is mainly due to the release of accruals for personnel costs from First quarter net sales by region 1) Europe 46% Latin America 8% Asia 24% North America 21% 1) Excluding HQ /Consolidation. Interim Group Management Report Group Business Performance Income Statement adidas Group First Quarter Report

15 Higher other operating expenses as a percentage of sales Other operating expenses as a percentage of sales increased 4.7 percentage points to 44.7% in the first quarter of 2009 from 40.0% in 2008 mainly as a result of higher expenses to support the Group s development in emerging markets. Costs related to restructuring at Reebok, higher allowances for doubtful debts and the integration of the Ashworth business also contributed to this development. In absolute terms, other operating expenses increased 10% to billion in the first quarter of 2009 from billion in the prior year. Global employee base continues to grow On March 31, 2009, the Group had 38,227 employees, which represents an increase of 15% versus 33,214 in the previous year. This development is primarily related to new employees in adidas and Reebok own retail, mainly on a part-time basis. Compared to the end of 2008, the number of employees declined 2%, mainly driven by restructuring initiatives at Reebok and TaylorMade-adidas Golf and the effects of the implementation of a hiring freeze throughout the adidas Group. Operating margin declines 8.5 percentage points The operating margin of the adidas Group decreased 8.5 percentage points to 2.2% in the first quarter of 2009 (2008: 10.8%). The operating margin decline was due to the decrease in Group gross margin as well as higher other operating expenses as a percentage of sales. As a result, Group operating profit decreased 79% to 58 million versus 282 million in First quarter gross profit , ,164 First quarter other operating income First quarter other operating expenses , ,153 First quarter operating profit Financial income up 8% Financial income increased 8% to 6 million in the first quarter of 2009 from 6 million in the prior year. Financial expenses increase 48% Financial expenses increased 48% to 56 million in the first quarter of 2009 (2008: 38 million). This development was primarily due to net foreign currency exchange losses in an amount of 19 million resulting from the revaluation of balance sheet positions in foreign currencies other than functional currencies. Interim Group Management Report Group Business Performance Income Statement adidas Group First Quarter Report

16 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, Income before taxes decreases 97% Income before taxes (IBT) as a percentage of sales decreased 9.2 percentage points to 0.3% in the first quarter of 2009 from 9.6% in This was a result of the Group s operating margin decrease and higher net financial expenses. IBT for the adidas Group declined 97% to 9 million from 250 million in Net income attributable to shareholders declines 97% The Group s net income attributable to shareholders decreased 97% to 5 million in the first quarter of 2009 from 169 million in The Group s lower operating profit was the primary reason for this development. The Group s tax rate increased 19.7 percentage points to 51.7% in the first quarter of 2009 (2008: 32.0%), mainly due to a less favourable regional earnings mix throughout the Group. Minority interests down The Group s minority interests decreased to negative 1 million in the first quarter of 2009 from positive 1 million in The decline was primarily due to the buyout of the Reebok joint venture partner in Spain, effective January Basic and diluted earnings per share decrease 97% and 95% respectively Basic earnings per share decreased 97% to 0.02 in the first quarter of 2009 versus 0.84 in The weighted average number of shares used in the calculation of basic earnings per share decreased to 193,515,512 in the first quarter of 2009 (2008 average: 202,443,070) due to the share buyback programme from January to October Diluted earnings per share in the first quarter of 2009 decreased 95% to 0.04 from 0.79 in the prior year. The weighted average number of shares used in the calculation of diluted earnings per share was 209,260,662 (2008 average: 218,240,051). 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 Interim Group Management Report Group Business Performance Income Statement adidas Group First Quarter Report

17 Balance Sheet and Cash Flow Statement Total assets increase 18% At the end of March 2009, total assets increased 18% to billion versus billion in the prior year. This was the result of an increase in both current and noncurrent assets. Compared to December 31, 2008, total assets increased 4%. Group inventories up 28% Group inventories increased 28% to billion at the end of March 2009 versus billion in On a currencyneutral basis, inventories grew 18%. This was mainly a result of lower customer demand compared to our expectations when planning production for the first half of In addition, the new Reebok companies in Latin America as well as the consolidation of the Ashworth business acquired in November 2008 contributed to the increase. Accounts receivable increase 15% At the end of March 2009, Group receivables increased 15% to billion (2008: billion). On a currency-neutral basis, receivables grew 11%. This increase reflects slower receipt of payments due to the difficult economic situation in some markets. The new Reebok companies in Latin America as well as the consolidation of the Ashworth business acquired in November 2008 also contributed to this increase. Balance sheet structure 1) in % of total assets Assets March 31, 2009 March 31, 2008 Cash and cash equivalents 2.4 Accounts receivable Inventories Fixed assets Other assets Total assets () 9,904 8,406 1) For absolute figures see Consolidated Balance Sheet, p. 28. Balance sheet structure 1) in % of total liabilities and equity Liabilities and equity March 31, 2009 March 31, 2008 Short-term borrowings 7.4 Accounts payable 8.9 Long-term borrowings 25.4 Other liabilities 22.7 Total equity 35.6 Total liabilities and equity () 9,904 8,406 1) For absolute figures see Consolidated Balance Sheet, p Other current financial assets up 186% Other current financial assets increased 186% to 263 million at the end of March 2009 from 92 million at the end of March This development was mainly due to higher fair values of financial instruments. Other current assets up 4% Other current assets increased 4% to 508 million at the end of March 2009 from 488 million in 2008, mainly as a result of increased prepaid expenses related to newly opened own-retail stores, as well as prepayments for promotional contracts. Interim Group Management Report Group Business Performance Balance Sheet and Cash Flow Statement adidas Group First Quarter Report

18 Inventories 1) , ,016 1) At March 31. Receivables 1) , ,884 1) At March 31. Accounts payable 1) ) At March 31. Shareholders equity 1) , ,525 1) At March 31, excluding minority interests. Net borrowings 1) , ,883 1) At March 31. Fixed assets increase 18% Fixed assets increased 18% to billion at the end of March 2009 versus billion at the end of March This was mainly the result of positive currency translation effects in an amount of 424 million on fixed assets denominated in currencies other than the euro. Continued own-retail expansion, investment into the Group s IT infrastructure, the transfer of assets held-for-sale to fixed assets as well as the acquisition of Ashworth, Inc. and Textronics, Inc. also impacted this development. Additions of 527 million were partly offset by depreciation and amortisation of 257 million as well as disposals in an amount of 53 million. Compared to December 31, 2008, fixed assets increased 3%. Assets held-for-sale decrease 68% At the end of March 2009, assets held-for-sale decreased 68% to 23 million (2008: 71 million). In the second quarter of 2008, land and buildings in Herzogenaurach, Germany, which are no longer in the scope of a sale, were transferred to fixed assets. At the end of March 2009, assets held-for-sale mainly related to warehouses for sale in the UK and in the USA, and property in Herzogenaurach. Accounts payable grow 34% Accounts payable increased 34% to 880 million at the end of March 2009 versus 656 million at the end of March On a currency-neutral basis, accounts payable were up 18%. This development was mainly a result of a higher volume of inventories at the end of the first quarter of The new Reebok companies in Latin America as well as the consolidation of the Ashworth business acquired in November also contributed to the increase. Other current financial liabilities decrease 73% Other current financial liabilities decreased 73% to 44 million at the end of March 2009 from 162 million at the end of March 2008, primarily due to a decrease in the fair value of hedging instruments. Accrued liabilities decrease 12% Accrued liabilities decreased 12% to 634 million at the end of March compared to 720 million at the end of March 2008, due to timing of payments. Equity grows due to increase in net income Shareholders equity rose 24% to billion at the end of March 2009 versus billion at the end of March The net income generated during the last twelve months and positive currency translation effects in an amount of 358 million more than offset the buyback of adidas AG shares. Compared to December 31, 2008, shareholders equity increased 4%. Cash flow development reflects increased working capital needs In the first quarter of 2009, cash outflow from operating activities was 617 million (2008: 107 million). The increase in cash used in operating activities compared to the prior year was primarily due to higher working capital needs. Cash outflow for investing activities was 53 million (2008: 58 million) and was mainly related to spending for property, plant and equipment such as investments in the furnishing and fitting of adidas and Reebok own-retail stores and in IT systems. Cash inflows from financing activities were related to an increase in long-term borrowings in an amount of 891 million, which was partly offset by the repayment of short-term borrowings in an amount of 228 million. Consequently, net cash provided by financing activities totalled 663 million (2008: 158 million). As a result of this development, cash and cash equivalents decreased by 8 million to 236 million at the end of March 2009 (December 31, 2008: 244 million). Net borrowings up by 810 million Net borrowings at March 31, 2009 amounted to billion, which represents an increase of 810 million, or 39%, versus billion at the end of March Higher working capital requirements were the main reason for the net debt increase. Since March 31, 2008, cash in an amount of 275 million has been used for the meanwhile completed share buyback programme. Currency translation effects negatively impacted net borrowings by an amount of 136 million. Consequently, the Group s financial leverage increased to 81.8% at the end of March 2009 versus 72.9% in the prior year. Interim Group Management Report Group Business Performance Balance Sheet and Cash Flow Statement adidas Group First Quarter Report