adidas AG is the parent company of the adidas Group. It includes operating business functions, primarily for the German market, as well as corporate headquarter functions such as Marketing, Treasury, Taxes, Legal and Finance. adidas AG also administers the company’s shareholdings.
OPERATING ACTIVITIES AND CAPITAL STRUCTURE OF ADIDAS AG
The majority of the operating business of adidas AG consists of the sale of merchandise to retailers and own-retail activities.
In addition to its own trading activities, the results of adidas AG are significantly influenced by its holding function for the company as a whole. This is reflected primarily in currency effects, transfer of costs for services provided, interest result and income from investments in related companies.
The opportunities and risks as well as the future development of adidas AG largely reflect those of the company as a whole. see Subsequent Events and Outlook, p. 115 see Risk and Opportunity Report, p. 118
The asset and capital structure of adidas AG is significantly impacted by its holding and financing function for the company. For example, 53% of total assets as at December 31, 2016 related to financial assets (2015: 56%), which primarily consist of shares in affiliated companies. Intercompany accounts, through which transactions between affiliated companies are settled, represent another 35% of total assets (2015: 27%) and 45% of total equity and liabilities as at December 31, 2016 (2015: 44%).
PREPARATION OF ACCOUNTS
Unlike the consolidated financial statements, which are in conformity with the International Financial Reporting Standards (IFRS), as adopted by the European Union as at December 31, 2016, the following financial statements of adidas AG have been prepared in accordance with the rules set out in the German Commercial Code (Handelsgesetzbuch – HGB).
44 INTEREST RATE DEVELOPMENT 1 IN %
2016 2.3
2015 2.4
2014 3.1
2013 3.8
2012 4.4
1 Weighted average interest rate of gross borrowings.
GROUP MANAGEMENT REPORT – FINANCIAL REVIEW
Business Performance – Financial Statements and Management Report of adidas AG
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In the financial statements as at December 31, 2016, the requirements of the German Accounting Directive Implementation Act (Bilanzrichtlinie-Umsetzungsgesetz – BilRUG), as adopted by the Bundestag on June 18, 2015, have been implemented for the first time. In particular, the new definition of revenues pursuant to
§ 277 section 1 HGB (new version) and the related adjustment of cost of materials have impacted the financial statements. This resulted in reclassifications from other operating income to sales and from other operating expenses to cost of materials. Detailed explanations as well as the presentation of the effects from the restatement are contained in the financial statements of adidas AG in the section
‘Notes to the annual financial statements of adidas AG for the year ended December 31, 2016’. http://adidas-group.com/s/financial-report-2016 Furthermore, for the sake of better comparability, adidas AG has opted to present a three-column income statement. This contains the prior year income statement pursuant to § 277 section 1 HGB, the prior year income statement prepared in accordance with the provisions of the new version of § 277 section 1 HGB and the income statement for the year under review.
All references to prior year figures hereinafter refer to the prior year figures after application of the new version of § 277 section 1 HGB.
INCOME STATEMENT
45 STATEMENT OF INCOME IN ACCORDANCE WITH HGB (CONDENSED) € IN MILLIONS
Other operating income 439 1,060 1,478
Cost of materials (1,127) (947) (663)
Personnel expenses (588) (488) (488)
Depreciation and amortisation (100) (96) (96)
Other operating expenses (1,803) (2,039) (2,324)
Operating profit 110 323 323
Financial result 600 394 394
Taxes (93) (78) (78)
Net income 617 639 639
Retained earnings brought forward 322 4 4
Allocation to other revenue reserves (300) 0 0
Utilisation for the repurchase of treasury
shares (11) 0 0
Retained earnings 629 643 643
NET SALES INCREASE 16%
Sales of adidas AG comprise external revenues generated by adidas Germany with products of the adidas and Reebok brands, external revenues from Y-3 products as well as revenues from foreign subsidiaries. Reported revenues also include royalty and commission income, mainly from affiliated companies, and other revenues. In 2016, adidas AG net sales grew 16% to € 3.289 billion (2015: € 2.833 billion). This growth was mainly due to an increase in royalty income from affiliated companies as well as higher sales at adidas Germany. see Table 46
OTHER OPERATING INCOME DOWN 59%
In 2016, other operating income of adidas AG decreased 59% to
€ 439 million (2015: € 1.060 billion). This was primarily attributable to a decline in income from currency translation as well as in income from the disposal of fixed assets.
OTHER OPERATING EXPENSES DECLINE 12%
Other operating expenses of adidas AG decreased 12% in 2016 to
€ 1.803 billion (2015: € 2.039 billion). see Table 45 This was largely due to a decline in losses from currency translation, which was partly offset by an increase in intercompany cost transfers as well as legal and consultancy expenses.
DEPRECIATION AND AMORTISATION INCREASES 4%
Depreciation and amortisation for adidas AG rose 4% to € 100 million in 2016 (2015: € 96 million), mainly as a result of an increase in depreciation and amortisation of operating and office equipment.
OPERATING PROFIT DECLINES 66%
Operating profit decreased 66% to € 110 million (2015: € 323 million), primarily due to the decline in other operating income. see Table 45 46 ADIDAS AG NET SALES € IN MILLIONS
2016 2015
New Version
2015 Old Version
Royalty and commission income 1,580 1,373 1,371
adidas Germany 939 821 821
Foreign subsidiaries 137 137 139
Y-3 89 63 63
Other revenues 544 439 22
Total 3,289 2,833 2,416
GROUP MANAGEMENT REPORT – FINANCIAL REVIEW
Business Performance – Financial Statements and Management Report of adidas AG
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FINANCIAL RESULT IMPROVES STRONGLY
The financial result of adidas AG improved 52% to € 600 million in 2016 (2015: € 394 million). The increase was attributable to higher income from investments.
NET INCOME DECLINES SLIGHTLY
Net income, after taxes of € 93 million (2015: € 78 million), amounted to € 617 million in 2016 and was thus 3% below the prior year level (2015: € 639 million). see Table 45
BALANCE SHEET
TOTAL ASSETS ABOVE PRIOR YEAR
At the end of December 2016, total assets rose 6% versus the prior year to € 8.003 billion (2015: € 7.518 billion), as an increase in receivables and other assets was only partly offset by a decrease in cash and cash equivalents. see Table 47
47 BALANCE SHEET IN ACCORDANCE WITH HGB (CONDENSED) € IN MILLIONS
Dec. 31, 2016
Dec. 31, 2015
Assets
Intangible assets 112 118
Property, plant and equipment 493 449
Financial assets 4,205 4,216
Fixed assets 4,810 4,783
Inventories 50 48
Receivables and other assets 2,968 2,157
Cash and cash equivalents, securities 28 447
Current assets 3,046 2,652
Prepaid expenses 143 82
Active difference from asset allocation 4 1
Total assets 8,003 7,518
Equity and liabilities
Shareholders' equity 2,395 2,087
Provisions 525 446
Liabilities and other items 5,083 4,985
Total equity and liabilities 8,003 7,518
SHAREHOLDERS’ EQUITY UP 15%
Shareholders’ equity rose 15% to € 2.395 billion at the end of December 2016 (2015: € 2.087 billion). see Table 47 The equity ratio rose slightly to 29.9% (2015: 27.8%).
PROVISIONS INCREASE 18%
Provisions were up 18% to € 525 million at the end of 2016 (2015:
€ 446 million). see Table 47 The increase primarily resulted from higher pension provisions and other provisions for personnel.
LIABILITIES AND OTHER ITEMS UP 2%
At the end of December 2016, liabilities and other items increased 2%
to € 5.083 billion compared to the prior year level of € 4.985 billion.
see Table 47 This increase was mainly a result of higher payables to affiliated companies.
CASH OUTFLOW FROM FINANCING ACTIVITIES REFLECTS CHANGE IN CASH AND CASH EQUIVALENTS adidas AG generated a positive cash flow from operating activities of
€ 263 million (2015: € 1.076 billion). The change versus the prior year was mainly a result of higher receivables from affiliated companies.
Net cash outflow from investment activities was € 133 million (2015:
€ 830 million). This was primarily attributable to capital expenditure for tangible fixed assets of € 143 million, partly offset by disposals from financial assets of € 13 million. Financing activities resulted in a net cash outflow of € 549 million (2015: € 733 million). The net cash outflow from financing activities mainly relates to the dividend payment in an amount of € 320 million and the share buyback programme in an amount of € 229 million. As a result of all these developments, cash and cash equivalents of adidas AG decreased to
€ 28 million compared to € 447 million at the end of the prior year.
adidas AG has bilateral credit lines of € 1.7 billion. In addition, the company has a multi-currency commercial paper programme in an amount of € 2.0 billion. see Treasury, p. 101
adidas AG is able to meet its financial commitments at all times.
GROUP MANAGEMENT REPORT – FINANCIAL REVIEW
Business Performance – Disclosures pursuant to § 315 Section 4 and § 289 Section 4 of the German Commercial Code