(Extract from the Annual Report 2012)
Dear Shareholders, We look back on 2012 as an extremely successful year. Thanks to strong brands as well as innovative products and marketing campaigns, the adidas Group was able to grow in all markets, achieving record sales as well as record operating cash flow. The visibility of the adidas brand at the year’s major sports events and the market share gains of TaylorMade-adidas Golf were key highlights. The Group was, however, not without challenges in 2012, with the continuation of the sovereign debt crisis in Europe and the discovery of commercial irregularities at Reebok India Company being particular headwinds. Nevertheless, these issues have been proactively and resolutely managed. With a strong balance sheet, the Group is well positioned to enjoy another year of progress in 2013. Supervision and advice in dialogue with the Executive Board In the past year, we again regularly advised the Executive Board on the management of the company and carefully and continuously supervised its management activities, assuring ourselves of the legality, expediency and regularity thereof. We were directly involved in all of the Group's fundamental decisions. After in-depth consultation and examination of the detailed information submitted to us by the Executive Board, we approved individual transactions where required by law. The Executive Board informed us extensively and in a timely manner through written and oral reports at our Supervisory Board meetings. This information covered all relevant aspects of the Group's business strategy and business planning, including finance, investment and personnel planning, the course of business and the Group's financial position and profitability. We were also kept up to date on matters relating to the risk situation, risk management and compliance as well as all major decisions and business transactions. The Executive Board regularly provided us with detailed reports for the preparation of our meetings. We thus always had the opportunity to critically analyse the reports and resolution proposals within the committees and within the Supervisory Board as a whole and, after in-depth examination and consultation, to put forward any suggestions we might have before resolving upon the Executive Board's resolution proposals. In the periods between our meetings, the Executive Board kept us continuously informed about the current business situation by means of monthly reports. We held five Supervisory Board meetings in 2012. In addition, we held a meeting in February 2013, at which we discussed matters relating to the 2012 financial year. Apart from one meeting, which two members were not able to attend due to urgent business appointments that could not be postponed, all Supervisory Board members attended all meetings in the year under review. The average attendance rate at Supervisory Board meetings was therefore just under 97%. All the committee meetings were fully attended. The external auditor, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), attended all meetings of the Supervisory Board, inasfar as they did not deal with Executive Board matters. KPMG attended all meetings of the Audit Committee. The employee representatives held separate meetings to prepare agenda items for the meetings of the entire Supervisory Board. In the periods between meetings, the Supervisory Board Chairman and the Audit Committee Chairman maintained regular contact with the Chief Executive Officer and the Chief Financial Officer with respect to matters such as corporate strategy, business development and planning, the risk situation and risk management as well as compliance and major business transactions. The consultations and examinations of the entire Supervisory Board focused on the following topics: Business development The development of sales and earnings, the employment situation as well as the financial position of the Group and the business development of individual markets were presented to us in detail by the Executive Board at every Supervisory Board meeting following the close of the respective quarter and were subsequently discussed together. At each meeting, we placed considerable focus on the possible impact of global economic developments and the development of individual brands. We dealt intensively with the business development of the Reebok brand and its future strategic orientation. The Executive Board informed us that Reebok's sales were forecasted to be below original expectations and explained the main reasons for the decline, pointing out that this was expected to be offset by the very positive sales development of the other brands. At our meeting in November, we discussed the future strategic positioning of one of the smaller business segments, for which we established the ad hoc committee “Project 99”. The KPMG-certified 2011 annual financial statements and consolidated financial statements, including the combined management report for adidas AG and the Group, as well as the Executive Board's proposal regarding the appropriation of retained earnings, were discussed and examined in the presence of the Executive Board and the auditor on March 6, 2012. At our meeting in August, the Executive Board provided us with detailed information on the compliance case that had arisen in connection with Reebok India Company. We discussed this matter in detail under the aspects of compliance, risk management and the potential impact on the previous year's consolidated financial statements as well as on the business development for the year under review. Transactions requiring Supervisory Board approval In accordance with statutory regulations and the Rules of Procedure of the Supervisory Board, certain transactions and measures require a formal resolution or the prior approval of the Supervisory Board. At our meeting on March 6, 2012, we discussed and resolved upon the resolutions to be proposed to the 2012 Annual General Meeting, including the proposal regarding the appropriation of retained earnings for the 2011 financial year. At this meeting, following in-depth discussion, we also approved the sale of land belonging to GEV Grundstücksgesellschaft Herzogenaurach mbH & Co. KG (“GEV KG”) to the town of Herzogenaurach (“the Town”) and the purchase of the remaining share in GEV KG held by the Town. At the same meeting, we dealt intensively with the possible issuance of a convertible bond by adidas AG in an amount of up to € 500 million. We delegated granting approval of the issuance of the convertible bond and determination of the terms and conditions, within the framework approved by the Supervisory Board, to the ad hoc committee “Convertible Bond/Bond with Warrants”, which was established at this meeting. Furthermore, following a detailed presentation by the Executive Board relating to the planned expansion of the Group's golf segment, we discussed the possibility of acquiring Adams Golf, Inc., the market leader in the hybrid sector. In order to pursue this project efficiently, we formed the “Apple” committee, which was responsible for final approval of the acquisition that was subsequently completed in June 2012. At our meetings in August and November, respectively, we also discussed in detail and approved a capital injection for Reebok India Company in an amount of up to € 300 million and for adidas Canada Limited in an amount of CAD 50 million (approximately € 39 million). Matters relating to the Executive Board A key topic of our meeting on February 8, 2012, was the variable compensation components payable to the Executive Board. Following in-depth discussion, we resolved upon the General Committee's proposals for the amount of the 2011 Performance Bonus to be granted to each member of the Executive Board and the LTIP Bonus 2009/2011 to be granted for the three-year period from 2009 to 2011. Furthermore, following in-depth consultation, we resolved upon the key performance criteria for granting the 2012 Performance Bonus, together with the individual short-term targets, as well as the Performance Bonus target amount relevant for each Executive Board member, as proposed by the General Committee. As the LTIP 2009/2011 had expired at the end of the 2011 financial year, we also discussed and approved the General Committee's proposal to set up a new compensation plan with long-term incentive effect covering the three-year period from 2012 to 2014 (“LTIP 2012/2014”). When determining the two variable compensation components, we took into account that the compensation incentive of the 2012 Performance Bonus Plan shall not exceed the compensation incentive resulting from the sustainability-oriented variable compensation component, the LTIP 2012/2014. The Annual General Meeting approved the changed compensation system on May 10, 2012. At our meeting on November 7, 2012, following detailed discussion of the proposal submitted by the General Committee, we resolved upon an appropriate increase in the Chief Executive Officer's fixed annual salary, which had remained unchanged for the past three years, to become effective from spring 2013. We took this decision in particular in light of his outstanding personal performance and the excellent position of the Group. Key topics at our meeting in February 2013 as well as of our circular resolution were the Performance Bonuses for the 2012 financial year and for the previous years. We dealt with the impact on the degree of target achievement for the Performance Bonuses as determined in the previous years, resulting from adjustments made to the 2011 consolidated financial statements in the context of the 2012 consolidated financial statements. We discusses in-depth the proposal prepared by the General Committee, based on the adjusted figures, and subsequently resolved upon a redetermination of the Performance Bonuses for the 2011 financial year and the previous years, including a corresponding obligation for repayment by the Executive Board, while upholding the LTIP Bonus 2009/2011, the latter requiring no redetermination. The Executive Board members and the Chairman of the General Committee were already in agreement prior to the meeting that the Performance Bonuses should be partially repaid. We further resolved upon the proposal submitted by the General Committee with regard to the 2012 Performance Bonus. Further information on compensation for the 2012 financial year can be found in the Compensation Report. Corporate governance The Supervisory Board regularly monitors the application and further development of the corporate governance regulations within the company, in particular the implementation of the recommendations of the German Corporate Governance Code (the “Code”). In addition to our February meetings, at which corporate governance is usually the focal point, at our August meeting, we dealt with the implementation of the efficiency examinations scheduled for the year under review and resolved to conduct these examinations by means of a questionnaire and the involvement of an external consultant. Another topic of this meeting was the amendments to the Code which were adopted by the Government Commission on the German Corporate Governance Code on May 15, 2012. The Code now recommends, inter alia, that in the objectives the Supervisory Board resolves upon with regard to its composition, it shall specify the number of independent Supervisory Board members it considers adequate. At our meeting on February 12, 2013, we reviewed the objective we had resolved upon in February 2011, which also covers this topic, with the result that, taking into account the employment contracts of the employee representatives, we continue to uphold our objective that all Supervisory Board members shall be independent as defined by the Code. Our other key objectives relating to the composition of the Supervisory Board also continue to apply. At this meeting, following in-depth consultation and the recommendation of the Audit Committee, which is also responsible for corporate governance topics, we then resolved upon the 2013 Declaration of Compliance. The deviation from the Code contained in the 2012 Declaration of Compliance – Supervisory Board compensation does not have any performance-related component – which we had resolved upon at our meeting on February 8, 2012, is no longer included in the 2013 Declaration of Compliance as the new version of the Code no longer contains the recommendation to include a performance-related component for Supervisory Board members. The Declarations of Compliance were made permanently available to shareholders on the corporate website at: www.adidas-Group.com/corporate_governance. There was no indication of any conflicts of interest on the part of the members of the Executive and Supervisory Boards which would require immediate disclosure to the Supervisory Board and would also require reporting to the Annual General Meeting. There are no direct advisory or other service relationships between the company and a member of the Supervisory Board. Further information on corporate governance at the adidas Group can be found in the Corporate Governance Report including the Declaration on Corporate Governance. Efficient committee work In order to perform our tasks in an efficient manner, we have five Supervisory Board standing committees and also four project-related ad hoc committees, which were established in 2009 and 2012. These committees have the task of preparing topics and resolutions of the Supervisory Board. In appropriate cases, and within the legal framework, we have delegated the Supervisory Board's authority to pass resolutions to individual committees. The respective chairman always informed the Supervisory Board about the content and results of the committee meetings at the subsequent meeting of the entire Supervisory Board. The committees' work in the year under review is summarised as follows:
The chairmen of the committees reported to the Supervisory Board on the results of the meetings in detail and in a timely manner, in oral and sometimes written form. Examination of the adidas AG 2012 annual financial statements and consolidated financial statements KPMG audited the 2012 consolidated financial statements prepared by the Executive Board in accordance with § 315a German Commercial Code (Handelsgesetzbuch – HGB) in compliance with IFRS and issued an unqualified opinion thereon. The auditor also approved without qualification the 2012 annual financial statements of adidas AG, prepared in accordance with HGB requirements, as well as the combined management report for adidas AG and the Group. The financial statements, the proposal put forward by the Executive Board regarding the appropriation of retained earnings and the auditor's reports were distributed by the Executive Board to all Supervisory Board members in a timely manner. We examined the documents in depth, with a particular focus on legality and regularity, in the presence of the auditor at the Audit Committee meeting held on March 1, 2013 and at the Supervisory Board's March 6, 2013 financial statements meeting, during which the Executive Board explained the financial statements in detail. We were informed in detail regarding the corrections made to the 2011 consolidated financial statements, which the Audit Committee had already dealt with in depth at its meeting. Key to these meetings were also the Executive Board's commentaries and the subsequent discussions concerning the goodwill impairment necessary for the 2012 financial year. At both meetings, the auditor reported the material results of the audit with a focus on the priority topics of the year under review as agreed with the Audit Committee and was available for questions and the provision of additional information. The auditor did not report any significant weaknesses with respect to the internal control and risk management system relating to the accounting process. We also discussed in depth with the Executive Board the proposal concerning the appropriation of retained earnings, which provides for a dividend of € 1.35 per dividend-entitled share and adopted it in light of the Group's good financial situation and future prospects as well as the expectations of our shareholders. Based on our own examinations of the annual and consolidated financial statements as well as the corrections to the 2011 consolidated financial statements, we are convinced that there are no objections to be raised. Following the recommendation of the Audit Committee, at our financial statements meeting, we therefore approved the audit results, including the audit of the corrections made to the 2011 consolidated financial statements, and the financial statements prepared by the Executive Board. The annual financial statements of adidas AG were thus approved. Expression of thanks The Supervisory Board wishes to thank the Executive Board and all adidas Group employees around the world for their tremendous personal dedication, their performance and their ongoing commitment, and we also thank the employee representatives for their good collaboration. For the Supervisory Board Igor Landau Chairman of the Supervisory Board March 2013
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Corporate Governance Report 2012
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