Operating Margin to Show Slight Improvement
In 2007, we expect an operating margin for the adidas Group
of around 9%, which will be modestly higher than in 2006.
Gross margin improvements at all brands will drive this
development, largely offset by higher operating expenses at
Reebok, TaylorMade-adidas Golf and within HQ/Consolidation.
At Reebok, this increase is mainly due to the € 50 million
of additional spend we announced in November 2006 necessary
to accelerate the return to growth of the Reebok brand.
These costs are primarily related to advertising, product
development and own-retail expansion in the emerging markets.
In addition, effects from purchase price allocation (in an
expected amount of between € 10 million and € 20 million)
will negatively impact Reebok’s operating margin in 2007. At
TaylorMade-adidas Golf, operating expenses as a percentage
of net sales are expected to increase slightly as a result of
a higher marketing working budget to support new product
initiatives, and operating profit will also be modestly affected
as a result of the divestiture of the GNC wholesale business.
HQ/Consolidation will show a higher loss in 2007 compared
to the prior year due to increased integration costs related to
Reebok, in line with our plan to realize synergies.
Net Income Growth for the adidas Group to Approach 15%
We expect net income attributable to shareholders for the
adidas Group to grow at double-digit rates, approaching 15%
versus the 2006 level of € 483 million and outpacing sales
development. This represents the seventh consecutive year
of double-digit net income growth. Top-line improvement
and increased profitability will be the primary drivers of this
positive development. In addition, we expect lower interest
expenses as a result of a reduction in average debt to have
a positive impact on net income, partially offset by a higher
tax rate versus the prior year. The higher tax rate is a consequence
of the non-recurrence of one-time tax benefits we
realized in the fourth quarter of 2006.
adidas Group 2007 Targets
| Currency-neutral sales growth | mid-single-digit |
| Gross margin | 45 to 47% |
| Operating margin | approx. 9% |
| Net income growth | double-digit, approaching 15% |
Continued Supply Chain Improvements in Global Operations
In 2007, we will continue our efforts to increase operational
efficiency throughout the Group’s supply chain. The integration
of Reebok has already brought several benefits to our
business. The “World Class Buyer” program, initiated in 2006
to maximize purchasing leverage across all our brands, will
continue to provide cost of sales improvements. We will build
on our “World Class Supply Chain” initiative eliminating time
and cost, getting closer to the market and ensuring we miss
no appropriate market opportunities (see Global Operations).
Own-Retail Activities Expected to Drive Personnel Increases
In 2007, we expect the number of personnel at the adidas
Group to grow modestly. Own retail is again anticipated to be
the major driver of this increase. Personnel expenses for the
adidas Group are projected to grow in line with the number of
newly hired employees.
R&D Spending Focused on Technological Innovations
In 2007, the Group will continue to spend around 1% of sales on
research and development. Areas of particular focus include
running, football and basketball at the adidas and Reebok
brands, as well as golf hardware at TaylorMade-adidas Golf.
The number of employees working in research and development
throughout the Group will increase in 2007.
