Significant improvement in financial position in the first nine months of 2009 * Currency-neutral inventories down 8% versus the prior year * Net borrowings reduced by 12% versus the prior year * Currency-neutral Group sales decline 7% in Q3 and first nine months * Full year diluted EPS to reach level of EUR 1.15 to EUR 1.30 Third quarter adidas Group currency-neutral sales decrease 7% During the third quarter of 2009, Group sales declined 7% on a currency-neutral basis. Revenues for the adidas segment decreased 6% on a currency-neutral basis. Growth in the Sport Style division could not offset declines in major sports categories in the Sport Performance division. Currency-neutral revenues in the Reebok segment decreased 12% versus the prior year, as a result of declines in all divisions. Third quarter revenues for the TaylorMade-adidas Golf segment decreased 12% on a currency-neutral basis. This was mainly due to the challenging macroeconomic environment and the non-recurrence of sales related to several new product launches in the prior year period. Currency movements positively impacted Group sales in euro terms. Group revenues decreased 6% in euro terms to EUR 2.888 billion in the third quarter of 2009 from EUR 3.083 billion in 2008. Third quarter diluted EPS EUR 1.03 The Group's gross margin decreased 3.7 percentage points to 45.3% (2008: 49.0%) in the third quarter as a result of higher clearance sales, higher input costs and currency devaluation effects, in particular related to the Russian rouble. Group gross profit decreased 14% to EUR 1.307 billion (2008: EUR 1.511 billion). As a result of the lower gross margin as well as higher other operating expenses as a percentage of sales, the Group's operating margin decreased 3.7 percentage points to 11.6% in the third quarter of 2009 versus 15.3% in the prior year. Operating profit decreased 29% to EUR 336 million versus EUR 473 million in 2008. In the third quarter of 2009, the Group's net income attributable to shareholders decreased 30% to EUR 213 million (2008: EUR 302 million) mainly due to the Group's lower operating profit. Diluted earnings per share for the third quarter declined 29% to EUR 1.03. "This year, our industry and our Group have faced unprecedented challenges. However, we have tackled the challenges head-on," commented Herbert Hainer, adidas Group CEO. "We have successfully adapted to our difficult surroundings. And our drive for operational excellence has meant we have strongly improved our financial position generating almost EUR 740 million in net cash from operations over the last six months." adidas Group currency-neutral sales decline 7% in first nine months In the first nine months of 2009, Group revenues decreased 7% on a currency-neutral basis, as a result of lower sales in all business segments. The adidas segment decreased 7%, the Reebok segment 9% and the TaylorMade-adidas Golf segment 5%. Currency translation effects positively impacted sales in euro terms. Group revenues in euro terms declined 4% to EUR 7.923 billion in the first nine months of 2009 from EUR 8.225 billion in 2008. +-------------------------------------------------------------------+ | | Nine | Nine | Change | Change | | | Months | Months | y-o-y | y-o-y | | | 2009 | 2008 | in euro | currency- | | | | | terms | neutral | |-----------------------+----------+----------+---------+-----------| | | EUR in | EUR in | in % | in % | | | millions | millions | | | |-----------------------+----------+----------+---------+-----------| | adidas | 5,779 | 6,004 | (4) | (7) | |-----------------------+----------+----------+---------+-----------| | Reebok | 1,497 | 1,587 | (6) | (9) | |-----------------------+----------+----------+---------+-----------| | TaylorMade-adidas | 633 | 614 | 3 | (5) | | Golf | | | | | |-----------------------+----------+----------+---------+-----------| | HQ/Consolidation | 13 | 20 | (32) | (36) | |-----------------------+----------+----------+---------+-----------| | Total | 7,923 | 8,225 | (4) | (7) | +-------------------------------------------------------------------+ Nine months net sales growth by segment Currency-neutral sales decrease in nearly all regions Currency-neutral adidas Group sales declined in all regions except Latin America in the first nine months of 2009. Group sales in Europe decreased 8% on a currency-neutral basis, due to declines in most major markets impacted by the non-recurrence of strong prior year sales related to the UEFA EURO 2008(TM). In North America, Group sales decreased 11% on a currency-neutral basis due to declines in both the USA and Canada. Sales for the adidas Group in Asia decreased 9% on a currency-neutral basis, mainly as a result of declines in Japan and China. In Latin America, sales grew 19% on a currency-neutral basis, with double-digit increases in 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 9% to EUR 3.442 billion in the first nine months of 2009 from EUR 3.776 billion in 2008. Sales in North America declined 3% to EUR 1.822 billion from EUR 1.871 billion in 2008. Revenues in Asia grew 1% to EUR 1.894 billion in the first nine months of 2009 from EUR 1.875 billion in 2008. Sales in Latin America grew 10% to EUR 713 million from EUR 647 million in the prior year. +-------------------------------------------------------------------+ | | Nine Months | Nine Months | Change | Change | | | 2009 | 2008 | y-o-y | y-o-y | | | | | in euro | currency- | | | | | terms | neutral | |-------------+-------------+-------------+-----------+-------------| | | EUR in | EUR in | in % | in % | | | millions | millions | | | |-------------+-------------+-------------+-----------+-------------| | Europe | 3,442 | 3,776 | (9) | (8) | |-------------+-------------+-------------+-----------+-------------| | North | 1,822 | 1,871 | (3) | (11) | | America | | | | | |-------------+-------------+-------------+-----------+-------------| | Asia | 1,894 | 1,875 | 1 | (9) | |-------------+-------------+-------------+-----------+-------------| | Latin | 713 | 647 | 10 | 19 | | America | | | | | |-------------+-------------+-------------+-----------+-------------| | Total[1] | 7,923 | 8,225 | (4) | (7) | +-------------------------------------------------------------------+ Nine months net sales growth by region ______________________________ [1] Including HQ/Consolidation. Gross margin negatively impacted by higher clearance sales The gross margin of the adidas Group decreased 4.3 percentage points to 45.1% in the first nine months of 2009 (2008: 49.4%). This development was mainly due to higher clearance sales, higher input costs and currency devaluation effects, in particular related to the Russian rouble. As a result, gross profit for the adidas Group declined 12% in the first nine months of 2009 to EUR 3.576 billion versus EUR 4.062 billion in the prior year. Operating margin declines 5.8 percentage points The operating margin of the adidas Group decreased 5.8 percentage points to 5.9% in the first nine months of 2009 (2008: 11.7%). The decline was due to the decrease in Group gross margin as well as higher other operating expenses as a percentage of sales. Other operating expenses as a percentage of sales increased 1.8 percentage points to 41.0% in the first nine months of 2009 from 39.1% in 2008, mainly as a result of higher expenses to support the Group's development in emerging markets. As a result, Group operating profit decreased 52% to EUR 465 million versus EUR 963 million in 2008. Financial income down 37% Financial income decreased 37% to EUR 15 million in the first nine months of 2009 from EUR 23 million in the prior year, mainly due to changes in the fair value of financial instruments. Financial expenses increase 1% Financial expenses increased 1% to EUR 137 million in the first nine months of 2009 (2008: EUR 136 million). Negative exchange rate variances were partly offset by a decline in interest expenses. Income before taxes decreases 60% Income before taxes (IBT) as a percentage of sales decreased 6.0 percentage points to 4.3% in the first nine months of 2009 from 10.3% in 2008. This was mainly a result of the Group's operating margin decrease. IBT for the adidas Group declined 60% to EUR 343 million from EUR 850 million in 2008. Net income attributable to shareholders declines 62% The Group's net income attributable to shareholders decreased 62% to EUR 226 million in the first nine months of 2009 from EUR 588 million in 2008. The Group's lower operating profit was the primary reason for this development. The Group's tax rate increased 3.7 percentage points to 34.2% in the first nine months of 2009 (2008: 30.5%), mainly due to a less favourable regional earnings mix. Basic and diluted earnings per share decrease 61% and 59% respectively Basic earnings per share decreased 61% to EUR 1.17 in the first nine months of 2009 versus EUR 2.96 in 2008. The weighted average number of shares used in the calculation of basic earnings per share decreased to 193,515,512 in the first nine months of 2009 (2008 average: 198,868,061) due to the share buyback programme from January to October 2008. Diluted earnings per share in the first nine months of 2009 decreased 59% to EUR 1.13 from EUR 2.78 in the prior year. The weighted average number of shares used in the calculation of diluted earnings per share was 209,247,568 (2008 average: 214,671,394). The dilutive effect largely results from approximately sixteen million additional potential shares that could be created in relation to the Group's convertible bond. Currency-neutral Group inventories down 8% Group inventories decreased 9% to EUR 1.652 billion at the end of September 2009 versus EUR 1.812 billion in 2008. On a currency-neutral basis, inventories were down 8%. This development was mainly due to reduced production volumes as well as clearance of excess inventories at all brands, partly offset by higher inventories in Latin America. Currency-neutral accounts receivable decrease 7% At the end of September 2009, Group receivables decreased 9% to EUR 1.866 billion (2008: EUR 2.055 billion). On a currency-neutral basis, receivables were down 7%. This decrease reflects the decline in sales as well as strict discipline in the Group's trade terms management despite the difficult economic situation in most markets. Net borrowings reduced by EUR 299 million Net borrowings at September 30, 2009 amounted to EUR 2.294 billion, which represents a decrease of EUR 299 million, or 12%, versus EUR 2.593 billion at the end of September 2008. Lower working capital requirements were the main reason for the net debt decline. This positive effect more than offset cash outflows in an amount of EUR 32 million in relation to the meanwhile completed share buyback programme as well as negative currency translation effects in an amount of EUR 5 million. Consequently, the Group's financial leverage decreased to 70.2% at the end of September 2009 versus 78.5% in the prior year. adidas Group sales to decrease in 2009 adidas Group sales are expected to decline at a low- to mid-single-digit rate on a currency-neutral basis in 2009. Sales development will be negatively impacted by weaker consumer demand due to low levels of consumer confidence and rising unemployment in many major markets. The Group projects a low- to mid-single-digit sales decline on a currency-neutral basis for the adidas brand in 2009. Reebok segment sales are also expected to decline at a low- to mid-single-digit rate compared to the prior year on a currency-neutral basis in 2009. Currency-neutral sales at TaylorMade-adidas Golf are now projected to decline at a low- to mid-single-digit rate, despite the consolidation of Ashworth for the full twelve-month period. adidas Group earnings per share to decrease in 2009 In 2009, the adidas Group gross margin is forecasted to decline to a level between 45.0% and 45.5%. Higher sourcing costs due to increased raw material and labour costs, in particular in the first half of the year, as well as currency devaluation effects, primarily from the depreciation of the Russian rouble, will contribute to this development. A promotional environment in mature markets is expected to also have a negative impact on gross margin development in 2009. The Group's other operating expenses as a percentage of sales are expected to increase in 2009. Higher expenses for controlled space initiatives in the adidas and Reebok segments as well as costs related to reorganisation activities will drive this development, partially compensated by positive effects from efficiency improvements throughout the organisation. As a result of the expected Group gross margin decline and the projected increase in other operating expenses as a percentage of sales, the operating margin for the adidas Group is expected to decline to a level around 5.0%. Net income attributable to shareholders and earnings per share are projected to decline in 2009. Due to a more moderate increase of input costs and positive impetus ahead of the 2010 FIFA World Cup(TM), Group profitability will be significantly better in the second half compared to the first half of the year. Full year diluted earnings per share are expected to reach a level between EUR 1.15 and EUR 1.30. Working capital management to improve balance sheet Tight working capital management and disciplined investment activities are expected to help optimise the Group's free cash flow in 2009. Group inventories are expected to be significantly below the prior year level at the end of 2009 as a result of the clearance of excess inventories and a significant reduction of sourcing volumes in the second half of 2009. Excess cash will largely be used to reduce net borrowings, which are forecasted to be below the prior year level. Herbert Hainer stated: "Consumer and retailer sentiment still hovers between fear and optimism. However, we are well prepared to face any challenges thrown our way and I am cautiously optimistic. With a firm grip on inventories, a better financial position and a leaner organisation, we turn into the 2010 event year with innovative products, exciting concepts and clear focus on the tasks at hand." *** Contacts: Media Relations Investor Relations Jan Runau John-Paul O'Meara Chief Corporate Communications Officer Head of Investor Relations Tel.: +49 (0) 9132 Tel.: +49 84-3830 (0) 9132 84-2751 Katja Schreiber Dennis Weber Corporate PR Manager Investor Relations Manager Tel.: +49 (0) 9132 84-3810 Tel.: +49 (0) 9132 84-4989 Please visit our corporate website: www.adidas-Group.com This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement. http://hugin.info/139192/R/1352448/327200.pdf www.adidas-group.com Copyright © Hugin AS 2009. All rights reserved.
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