After entering 2010 with cautious optimism, the adidas Group can now look back on a year characterised by recovery and success. For the adidas Group, this was a year of major sports events such as the FIFA World Cup and the Olympic Winter Games.
Furthermore, thanks to innovative products and marketing campaigns, all of our brands met with a very positive response among our consumers. The Group grew in almost all regions. The positive effects of the new organisational structure also contributed to the significant improvement of the Group’s results in 2010.
Supervision and advice in dialogue with the Executive Board
In the past financial year, we regularly advised the Executive Board on the management of the company and carefully and regularly supervised its activities. In particular, we examined the legality, expediency and regularity of the Executive Board’s management.
The Executive Board informed us regularly, extensively and in a timely manner through oral and written reports, both at Supervisory Board meetings and in the periods between our meetings. This information covered the Group’s business policy as well as all relevant aspects of business planning, including finance, investment and personnel planning. We were also kept up-to-date on the course of business, the operational position of adidas AG and the Group (including the risk situation and risk management), the Group’s financial position and profitability, as well as all major decisions and business transactions.
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 transactions requiring Supervisory Board approval and in cases where, in our opinion, review by the Supervisory Board was necessary in the best interest of the Group.
To Our Shareholders Supervisory Board Report 21
We held five Supervisory Board meetings in 2010, one of them in the form of a conference call. In individual cases, we passed written circular resolutions. In addition, we held a meeting in February 2011, at which we discussed matters relating to the 2010 financial year. Apart from one meeting which one member was unable to attend due to an urgent business appointment that could not be postponed, all Supervisory Board members attended all meetings in the year under review. The same applies to the committee meetings. The external auditor, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), attended four meetings of the Supervisory Board and all meetings of the Audit Committee. The Supervisory Board Chairman and the Audit Committee Chairman, an independent financial expert as defined by the German Stock Corporation Act, also maintained regular contact with the Chief Executive Officer and the Chief Financial Officer between the Supervisory Board meetings and informed themselves on the current developments of the business situation and major business transactions. The Executive Board regularly provided us with detailed reports for the preparation of our meetings. After in-depth examination and consultation, we resolved upon the Executive Board’s resolution proposals.
Main topics discussed and examined by the entire Supervisory Board
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 all but one of our meetings and were subsequently discussed together. Other Supervisory Board agenda items included numerous individual topics, which we discussed in depth with the Executive Board. These discussions did not give rise to any doubt as to the legality, expediency or regularity of the Executive Board’s management in carrying out its duties.
At our February 10, 2010 meeting, which the Executive Board did not attend, we discussed in detail and resolved upon the 2010 Performance Bonus Plan for the Executive Board including the relevant criteria and targets as proposed by the General Committee.
Furthermore, we amended the wording of the Rules of Procedure of the Executive Board, to be in line with the German Corporate Governance Code, and aligned the business allocation plan to the new segmental reporting. Subsequently, we resolved upon the Declaration of Compliance which had been prepared in detail by the Audit Committee at its previous meeting.
The main topic on the agenda of the March 2, 2010 financial statements meeting was the review of the consolidated financial statements and the adidas AG annual financial statements as well as the respective Management Reports for the year ending December 31, 2009, as certified by KPMG. We also reviewed the Executive Board’s proposal regarding the appropriation of retained earnings. Following initial Audit Committee examination and consultation, we discussed material aspects of these financial statements with the Executive Board and KPMG. Both the Executive Board and KPMG provided us with detailed responses to all of our questions. After having carefully considered adidas AG’s financial position and the expectations of shareholders and the capital market, we approved the proposal submitted by the Executive Board regarding the appropriation of retained earnings.
Following the discussion and resolution on the agenda items for the 2010 Annual General Meeting, we dealt comprehensively with the budget and investment plan for 2010, which we subsequently approved.
At our May 5, 2010 meeting, the Executive Board reported in detail on the current business development and the financial situation of the Group after the first quarter of 2010. Furthermore, we discussed the method and scope of the upcoming efficiency examination of the Supervisory Board. Additionally, we dealt with the economic situation and the potential for development of the Retail segment and the eCommerce distribution channel. Following a detailed presentation by the Executive Board and subsequent discussion of this topic, we approved the transfer of shares held in FC Bayern München AG from adidas International B.V. to adidas AG.
22 To Our Shareholders Supervisory Board Report
The main focus of our August 3, 2010 meeting were the results of the first half year, which were well above market expectations, as well as the anticipated development of business for the remainder of 2010. Moreover, the Executive Board extensively reported on the IT strategy of the Group and we dealt in detail with the new provisions of the German Corporate Governance Code which came into force in July 2010. Furthermore, we renewed Erich Stamminger’s mandate as Executive Board member and approved the conclusion of his new service contract prepared by the General Committee.
At our Supervisory Board meeting held on November 3, 2010, discussions centred on the report for the first nine months of the year and the outlook for the remainder of the 2010 financial year. Following the Executive Board’s detailed presentation of the strategic business plan “Route 2015” for the years 2011 to 2015, we focused on the medium-term business development of the Group. Furthermore, the Executive Board informed us about the growth potential of the adidas Outdoor category. Another major point of focus was the report of the Audit Committee Chairman on the key contents of the Audit Committee meetings held on September 29, 2010 and November 2, 2010, which dealt with the Audit Committee’s examination of the effectiveness of the updated risk management system, the internal control system and the compliance system. The Audit Committee, to which we have delegated monitoring of the effectiveness of these systems, explained that the systems comply with statutory regulations.
At our meeting on February 9, 2011, at which the Executive Board was present only part of the time, we discussed and approved the budget and investment plan for 2011 based on the detailed presentations provided by the Executive Board. Following a comprehensive report by the Executive Board, we furthermore approved the sale of Herzo Base real estate. We subsequently focused on the objectives for the future composition of the Supervisory Board and, in addition, we also resolved upon the content of the 2011 Declaration of Compliance. Furthermore, we resolved upon the General Committee’s proposal concerning the amount of the 2010 Performance Bonus to be granted to each member of the Executive Board.
Report from the committees
In order to perform our tasks in an efficient manner, we have five Supervisory Board standing committees and also the project-related Committee for Real Estate Projects, which was established ad hoc in 2009 see Supervisory Board, p. 18. These committees not only have the task of preparing topics and resolutions of the Supervisory Board, they partly also make decisions on behalf of the Supervisory Board.
The committees’ work in the year under review is summarised as follows:
– The Steering Committee, which is authorised to pass resolutions on behalf of the entire Supervisory Board in particularly urgent cases, did not meet in the year under review. All Supervisory Board resolutions were able to be passed by the Supervisory Board as a whole.
– The General Committee, which is responsible for preparing personnel decisions of the Supervisory Board and for submitting proposals with regard to the Executive Board compensation and also the contents, structure and conclusion of the Executive Board members’ service contracts, met twice in 2010. A further meeting, dealing with topics of the year under review, took place in February 2011. At the meetings of the General Committee, the resolution proposals on the criteria and targets for the 2010 Performance Bonus Plan to be submitted to the Supervisory Board were prepared following detailed discussion. In addition, the committee comprehensively dealt with the service contract to be concluded in connection with the reappointment of Erich Stamminger as a member of the Executive Board. Furthermore, the members of the committee discussed the Performance Bonus payments to be made to the members of the Executive Board for the 2010 financial year.
To Our Shareholders Supervisory Board Report 23
– The Audit Committee held five meetings in 2010, and also one meeting in February 2011 dealing with topics of the year under review. The auditor and the Chief Financial Officer were present at these meetings. The committee members focused on the examination of the annual financial statements and the consolidated financial statements including the Management Reports for 2009 as well as the discussion of the audit reports with the auditor and the detailed examination of the first half year report and quarterly financial reports prior to their publication. The auditor reported to the committee members in detail on his auditing activities and results. Furthermore, the Audit Committee obtained the required auditor’s declaration of independence and prepared the Supervisory Board proposal for the Annual General Meeting recommending the auditor for the 2010 financial year.
Together with the auditor, the Audit Committee established the priority topics for the audit of the 2010 annual financial statements and consolidated financial statements and resolved upon the assignment of the audit to the auditor. In addition, the committee members focused on monitoring the independence of the auditor, the auditor’s qualification as well as the other advisory services rendered and the audit fees. In the course of the examination of the effectiveness of the updated risk management system, the internal control system as well as the internal audit system and the compliance organisation, the members of the Audit Committee were informed in detail on applied methods, systems and the efficiency thereof through written and oral reports. They discussed these matters in depth, inter alia with the auditor, and assured themselves of the effectiveness of the systems. Furthermore, the Audit Committee, which under the Rules of Procedure of the Supervisory Board is also responsible for matters relating to corporate governance, dealt with the new provisions of the German Corporate Governance Code as amended on May 26, 2010 and discussed the contents of the Declaration of Compliance to be issued by the Supervisory Board. At its last meeting in the financial year under review, the members of the committee discussed the draft budget and investment plan for 2011 as explained by the Chief Financial Officer. The Audit Committee Chairman reported orally on the results of the Audit Committee meetings in the following Supervisory Board meetings and furthermore regularly provided the Supervisory Board with written information.
– The Mediation Committee again had no reason to meet in 2010.
– The Nomination Committee also had no reason to meet, as there are no Supervisory Board elections scheduled.
– The Committee for Real Estate Projects, which had been established ad hoc in 2009, also did not meet in 2010.
Corporate Governance and Declaration of Compliance
In the past financial year, we comprehensively dealt with the new provisions of the German Corporate Governance Code and their implementation within the Group. In the second half of the year, the Supervisory Board examined the efficiency of its activities including the collaboration with the Executive Board by means of detailed questionnaires. Following the respective self-assessment by the members of the Supervisory Board, an external consultant critically analysed the results and presented them to the entire Supervisory Board. This analysis did not give rise to any doubts concerning the efficiency of the activities of the Supervisory Board. In the year under review, our Supervisory Board members again had no conflicts of interest as defined by the German Corporate Governance Code. After detailed discussions on corporate governance topics within the Audit Committee, we followed the recommendation of the Audit Committee and on February 11, 2011, issued an updated Declaration of Compliance pursuant to § 161 German Stock Corporation Act (Aktiengesetz – AktG), which is permanently available to shareholders on the corporate website at www.adidas-Group.com/corporate_governance. Further information on corporate governance including the compensation of the Executive Board and the Supervisory Board is contained in the Corporate Governance Report including the Declaration on Corporate Governance see p. 25.
24 To Our Shareholders Supervisory Board Report
Examination of the adidas AG annual financial statements and consolidated financial statements
KPMG audited the consolidated financial statements and the Group Management Report for 2010 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 2010 annual financial statements and the Management Report of adidas AG prepared in accordance with HGB requirements. The financial statements, the proposal put forward by the Executive Board regarding the appropriation of retained earnings and the auditor’s reports were distributed to all Supervisory Board members by the Executive Board in a timely manner. We examined them in depth in the presence of the auditor at the Audit Committee meeting held on February 25, 2011 and at the Supervisory Board’s March 1, 2011 financial statements meeting during which the Executive Board explained the financial statements in detail. At both meetings, the auditor reported on the material results of the audit with focus on the priority topics for the year under review as agreed with the Audit Committee. The auditor did not report any significant weak points with respect to the system for early risk detection and the internal control system. The auditor was available for questions and the provision of additional information to the Audit Committee and the other Supervisory Board members. Based on our own examinations, 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 and the financial statements prepared by the Executive Board. The annual financial statements of adidas AG were thus approved. We also discussed with the Executive Board the proposal concerning the appropriation of retained earnings with regard to the dividend policy and adopted it in light of the position of the company and the expectations of shareholders and the capital market.
In memoriam
We will always honour the memory of our long-standing Supervisory Board Chairman, Mr. Henri Filho, who passed away on December 25, 2010 at the age of 79. As a member of the Supervisory Board from April 1993 and Chairman of the Supervisory Board from April 1994 until November 2007, he provided the adidas AG Executive Board with outstanding supervisory and advisory support to the benefit of the adidas Group. During his tenure, the adidas Group became one of the global leaders in the sporting goods industry.
Expression of thanks
The Supervisory Board wishes to express its appreciation of the tremendous personal dedication, the performance and the ongoing commitment of the Executive Board, the management of the Group companies, the Works Council and all adidas Group employees, which was decisive for achieving the Group’s excellent results.
For the Supervisory Board
Igor Landau
Chairman of the Supervisory Board March 2011
To Our Shareholders Corporate Governance Report including the Declaration on Corporate Governance 25