In the 2007 Annual report, Herbert Hainer the CEO of Adidas discusses some of the issues of the previous year (2007). One of the issues is about the integration of Reebok. Two years ago, Adidas surprised investors with their bid for Reebok. "most (investors) agree that the deal will help to compete against Nike," was one of the headlines by that time, as well as: "Warren Buffet will continue investing in Nike."
Hainer responds to some of the concerns, like that of the flat sales of Reebok in 2007.
… major management changes at the Reebok brand, like that to improve the US distribution; even stopping supply to the brand's largest customer where excess inventories had led to a significant decline in profitability … But the real test is still in front of us – making the Reebok brand more relevant to consumers. The brand needs simple messages that stick, and that's why its 2008 products and marketing strategies focus on two important concepts – fit and choice. Reebok is striving to be the brand that "fits me".
Reebok has sharpened its 2008 product offering by including 893 new fit initiatives throughout its collections … According to the report, sales will grow in nearly all other markets – especially Russia and China – where the brand took over distribution for the first time in 2007 .
Another concern is the economic climate in North America which "has deteriorated in recent months."
– Yes, economic conditions in North America have become more difficult. Nonetheless, I am optimistic we will outperform most of our competitors during this period of relative economic weakness. We are a regionally diversified Group, which is one of our most significant strengths … Today, we have a much broader distribution base and a significantly improved performance product and partnership portfolio in the region. Therefore, I am confident that the adidas brand will again grow in North America in 2008 – although it is likely to be at lower levels than in recent years. At Reebok … growth in this market in 2009.
About the performance of TaylorMade-adidas Golf in 2007 and about the priority for this business going forward …
… strives to be the best performance golf business in the world. … adidas Golf sales of footwear and apparel grew at double-digit rates for the fifth consecutive year. Segment like-for-like sales, excluding the effects of the Greg Norman Collection wholesale business divestiture, grew 9% on a currency-neutral basis, driven by increases in all major categories. For 2008, increasing profitability is our top priority. … We sold Maxfli because we now have all the know-how we need to be successful in the premium golf ball category. We are focused on growing our core golf brands: TaylorMade and adidas Golf.
About the financial performance in 2008 (after a solid 2007 …):
… We expect high-single-digit currency-neutral sales growth – driven by improvements at all of our brands. Gross margin will range between 47.5% and 48%. And our operating margin will expand to at least 9.5%. Through this strong operational performance, we will increase net income by at least 15%.
In 2008 there will be additional costs related to the year major sporting events. And the company will continue with the share buyback program. Adidas will be able to deliver earnings improvement of at least 15% – "marking our eighth consecutive year of double-digit earnings growth."
Since completing the Reebok acquisition (Q1 2006) Adidas has reduced net borrowings by around EUR 1.2 billion. The financial leverage at the end of 2007 is 58.4%. "We now have flexibility to deliver more aggressive shareholder returns." Total dividend will be increased by 19%, "we will return more to shareholders in 2008 than ever before."
It is interesting to see that Adidas is much to do about style. In the annual report, the executive board members do not wear a tie … There are four members, "each responsible for at least one major business unit within the Group:"
- Herbert Hainer (previous with Procter & Gamble), joined adidas Germany in 1987, joined the board in 1997 and became CEO in 2001. He is also Deputy Chairman of the Supervisory Board of FC Bayern München AG, Munich, Germany.
- Glenn Bennett (New Hampshire, USA) began his professional career with Reebok International Ltd. In 1993 (thus long before the acquisition of Reebok) Glenn Bennett joined adidas. In 1997, Glenn Bennett was appointed to the Executive Board where he assumed responsibility for all Footwear, Apparel and Accessories & Gear Operations activities shortly thereafter.
- Robin J. Stalker (New Zealand) joined adidas AG in 1996, Chief Financial Officer since 2000 and was appointed to the Executive Board, responsible for Finance, in 2001. In 2005, he assumed additional responsibility as Labor Director.
- Erich Stamminger (Rosenberg, Germany) joined adidas in 1993. He served in numerous marketing positions before becoming Managing Director for Germany. In 1997, he was appointed to the Executive Board and became Head of Global Marketing in 2000. Four years later, he was named President and CEO of adidas North America, while maintaining his position as Head of Global Marketing. In 2006, he was named President and CEO of the adidas brand.
The organization is managed through three main Divisions:
- AdidAs (69% of Group sales). With Sport performance … to support athletes in all sports, the sport performance division is mainly focused on four key categories: running, football, basketball and training. "Engineered to perform." Technological innovation and a commitment to performance are the cornerstones of this division. And with Sport Style the adidas sport style division is a leading supplier of authentic sports lifestyle products with its originals line.
- … during 2007 the previous divisions sport heritage and sport style have been realigned into a single division
- tAYloRMAde-AdidAs Golf (8% 1) of Group sales) With Taylormade … a leader in the industry and is the number one metalwood supplier. And AdidaS Golf
- Reebok (23% of Group sales). Reebok … an American-inspired, global brand that creates and markets sports and lifestyle products built upon a strong heritage and authenticity in sports, fitness and women's categories. Other brands are: Reebok-ccm Hockey, and Rockport.
When examining the financial figures, the highest growth rates seem to be those achieved during the olympic years (2004, 2000, 1996) … and probably 2008?