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Exquisite elegant footwork.
Unpredictable moves.
Once in possession of the ball, Kakà is almost unstoppable.
His anticipation and creativity bring football to another level.

 

Group Business Performance

2005 was another year of outstanding financial performance. Currency-neutral sales for the Group’s continuing operations increased 12%. In euro terms, revenues grew 13% to € 6.636 billion in 2005 from € 5.860 billion in 2004. The Group’s gross margin grew 0.2 percentage points to 48.2% in 2005 (2004: 48.0%) as a result of increased own-retail activities at adidas, our improving product mix and hedging activities that enabled us to capitalize on favorable currency movements. These developments drove a 21% increase in the Group’s operating profit from continuing operations to € 707 million in 2005 versus € 584 million in 2004. The Group’s income before taxes was € 655 million, up 25% versus € 526 million in 2004, helped also by a decrease in net financial expenses. The Group’s net income from continuing operations grew 31% to € 434 million in 2005 from € 333 million in 2004, also helped by a lower tax rate. On a comparable basis excluding the effects of IFRS changes, the Group’s operating profit and IBT from continuing operations would have increased 14% and 17% respectively in 2005. Net income from continuing operations on a comparable basis increased 18% in 2005. The income from discontinued operations decreased by 287% to negative € 44 million from negative € 11 million in the prior year. The Group’s net income attributable to shareholders from continuing and discontinued operations increased 22% to € 383 million from € 314 million in 2004, representing the Group’s highest net income ever. As a consequence, basic earnings per share were € 8.19 in 2005 versus € 6.88 in the prior year.

Economic and Sector Development

Global Economy Expands
The global economy continued to expand in 2005, although at a slightly lower level than in 2004. The world’s industrialized countries developed heterogeneously. The European economy trended upwards only towards the end of 2005, whereas the American economy grew solidly throughout the year. The Asian as well as the Latin American economies also enjoyed strong growth.

Europe Trending Upwards After Slow Start
The European economy had a sluggish start into 2005. However, the economy improved in the second half of the year. Helped by the depreciating euro which fueled exports, a significant increase in corporate profits and favorable financing conditions, investments grew strongly. Germany’s performance gained momentum in the second half of the year, supported by exports and stronger investment activity. The region’s emerging markets were the strongest growth drivers. The UK suffered from a lack of domestic demand. The region as a whole posted GDP growth of approximately 1.5% in 2005.

North American Economy Benefits From Robust Private Consumption
In the USA, GDP grew approximately 4% over the year. In the first half of the year, investment activity and private consumption increased strongly. Hurricane Katrina, high oil prices and a less optimistic job market outlook depressed consumer confidence in the third quarter. This effect was partially offset by continuously buoyant housing prices and significant sales discounts in the automobile sector which supported consumer spending. Nonetheless, domestic demand trended downwards towards the end of the year and slowed overall growth.

China Important Growth Driver in Asia
In Asia (excluding Japan), growth rates slowed somewhat in 2005 compared to 2004, albeit on a high level of 8%. Exports were the main driver of the expansion. Growth of investments slowed slightly, but was compensated by stronger domestic demand across most countries. Japan continued its recovery, which started in 2003, and benefited from structural improvements initiated in previous years. Private consumption started strong in 2005, but lost some of its momentum towards the end of the year. However, the expansion of industrial production compensated for the decline. As a result, the Japanese economy grew by around 2%. China boomed as a result of fast investment growth as well as surging net exports and showed growth rates of over 9%.

Latin American Economy Develops Positively
Latin America grew approximately 4% in 2005. Many countries significantly reduced their level of foreign indebtedness and generated trade balance surpluses, which supported overall economic development. The Mexican economy picked up speed in the second half of the year. The Brazilian economy benefited from vivid export activity and a gradual decline of inflation. In Argentina, the government continued to be reluctant to reassume talks with the International Monetary Fund (IMF) to solve its conflicts with creditors. This uncertainty left the economic climate volatile and hampered economic growth.

European Sporting Goods Industry Challenging
The European sporting goods industry had a challenging year in 2005. The macroeconomic environment depressed consumer spending, especially in the first half of the year. In addition, consolidation continued among sporting goods retailers, who increasingly compete with fashion and general clothing retailers. Especially in the UK, the retail market became increasingly promotional. The region’s emerging markets, however, developed dynamically as expected. We estimate the overall European sporting goods market to have grown between 2 and 3% in 2005.

US Sporting Goods Industry Highly Competitive
The North American sporting goods industry had a promising start in 2005 as margins for performance products trended upwards in higher price segments. Increased consumer con- fidence and good weather conditions further supported this trend. A mixed back-to-school season and fears of a general market slowdown triggered increased promotional activities among retailers later in the year. This trend intensified again towards the holiday season, which was nonetheless solid overall. The sporting goods industry recorded overall growth of nearly 7%.

Asian and Latin American Sporting Goods Markets Flourish
The Asian sporting goods market continued to experience strong consumer demand and positive retail sentiment throughout the year. Mature markets such as Japan and Australia showed growth of below 5%, while the sporting goods market in developing nations such as China and India grew more than 20%, respectively. The Japanese market benefited from strong demand for high-tech footwear products, whilst the apparel segment was driven by fashion and innovation trends. The region’s emerging markets developed positively from a low base. In Latin America, the sporting goods industry enjoyed high-single-digit growth throughout the year.

adidas Group Develops Better Than Industry and Overall Economy in All Regions
In 2005, adidas Group revenues grew faster than both the economy and the overall sporting goods industry in all regions. Economic performance and the development of the sporting goods industry across all regions was in line with our original expectations except for Europe, where we were confronted with an even more challenging macroeconomic situation than we had originally anticipated. Nevertheless, our net sales growth developed slightly better than the overall economy and we clearly outperformed our major competitor in the sporting goods industry. In all other regions, our operational strength enabled us to develop significantly better than the overall economy and the sporting goods industry.

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