First Half Year Report 2010

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First Half Year Report 2010

adidas Group

EvEry Product tElls a story

Q1 Q2 Q3

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adidas Group FiRst HalF YeaR RepoRt 2010 2

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N°- FiRst HalF YeaR 2010 Results at a Glance € IN MIllIoNs First half year 2010 First half year 2009 change second quarter 2010 second quarter 2009 change Wholesale Net sales 3,826 3,480 10.0% 1,928 1,605 20.1% Gross profit 1,608 1,434 12.2% 790 636 24.3% Gross margin 42.0% 41.2% 0.8pp 41.0% 39.6% 1.4pp segmental operating profit 1,233 1,104 11.7% 607 490 23.8% segmental operating margin 32.2% 31.7% 0.5pp 31.5% 30.5% 0.9pp Retail Net sales 1,061 886 19.8% 602 486 23.8% Gross profit 659 513 28.5% 392 295 32.7% Gross margin 62.1% 57.9% 4.2pp 65.1% 60.8% 4.4pp segmental operating profit 199 97 105.1% 147 82 78.4% segmental operating margin 18.7% 10.9% 7.8pp 24.4% 17.0% 7.5pp other Businesses Net sales 703 657 6.9% 387 362 6.9% Gross profit 313 255 22.9% 171 139 23.3% Gross margin 44.6% 38.8% 5.8pp 44.2% 38.3% 5.9pp segmental operating profit 197 128 53.0% 105 85 22.9% segmental operating margin 28.0% 19.5% 8.4pp 27.1% 23.5% 3.5pp Group Net sales 5,590 5,034 11.0% 2,917 2,457 18.7% Gross profit 2,727 2,269 20.2% 1,427 1,105 29.2% Gross margin 48.8% 45.1% 3.7pp 48.9% 45.0% 4.0pp operating profit 454 129 251.2% 195 72 172.3% operating margin 8.1% 2.6% 5.6pp 6.7% 2.9% 3.8pp sales by Brand adidas 4,101 3,667 11.8% 2,103 1,750 20.2% reebok 811 724 12.1% 435 350 24.4% taylorMade-adidas Golf 492 449 9.6% 269 255 5.6% rockport 114 115 (1.0%) 58 55 5.4% reebok-ccM Hockey 73 68 6.6% 52 44 18.1% rounding differences may arise in percentages and totals.

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N°- Financial HiGHliGHts (iFRs)

First half year

2010 First half year

2009 change second quarter

2010 second quarter

2009 change

operating Highlights (€ in millions)

Net sales 5,590 5,034 11.0% 2,917 2,457 18.7%

operating profit 454 129 251.2% 195 72 172.3%

Net income attributable to shareholders 295 13 2,098.7% 126 9 1,375.1%

Key Ratios

Gross margin 48.8% 45.1% 3.7pp 48.9% 45.0% 4.0pp

other operating expenses

as a percentage of net sales 42.8% 44.3% (1.6pp) 43.9% 43.9% 0.0pp

operating margin 8.1% 2.6% 5.6pp 6.7% 2.9% 3.8pp

Effective tax rate 29.5% 66.8% (37.2pp) 28.1% 71.3% (43.2pp)

Net income attributable to shareholders

as a percentage of net sales 5.3% 0.3% 5.0pp 4.3% 0.3% 4.0pp

operating working capital

as a percentage of net sales¹⁾ 21.7% 26.2% (4.5pp) 21.7% 26.2% (4.5pp)

Equity ratio 44.6% 33.9% 10.7pp 44.6% 33.9% 10.7pp

Net borrowings/EBItda 1.0 2.9

Financial leverage 23.1% 85.7% (62.6pp) 23.1% 85.7% (62.6pp)

Balance sheet and cash Flow data (€ in millions)

total assets 10,608 9,407 12.8% 10,608 9,407 12.8%

Inventories 2,049 2,041 0.4% 2,049 2,041 0.4%

receivables and other current assets 2,829 2,434 16.2% 2,829 2,434 16.2%

Working capital 2,038 1,685 20.9% 2,038 1,685 20.9%

Net borrowings 1,090 2,732 (60.1%) 1,090 2,732 (60.1%)

shareholders’ equity 4,729 3,189 48.3% 4,729 3,189 48.3%

capital expenditure 80 116 (30.8%) 53 60 (12.5%)

Net cash used in operating activities (73) (366) (80.0%)

per share of common stock (€)

Basic earnings 1.41 0.07 1,933.7% 0.60 0.04 1,264.4%

diluted earnings 1.41 0.10 1,367.9% 0.60 0.06 959.6%

operating cash flow (0.35) (1.89) (81.5%)

share price at end of period 39.88 27.10 68.0% 39.88 27.10 68.0%

other (at end of period)

Number of employees 40,791 38,935 4.8% 40,791 38,935 4.8%

Number of shares outstanding 209,216,186 193,515,512 8.1% 209,216,186 193,515,512 8.1%

average number of shares 209,216,186 193,515,512 8.1% 209,216,186 193,515,512 8.1% rounding differences may arise in percentages and totals.

all Group figures comprise the brand segments and HQ/consolidation.

1) twelve-month trailing average.

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N°- FiRst HalF YeaR net sales

€ IN MIllIoNs 2006 2007 2008 2009 2010

4,887 4,938 5,142 5,034

5,590

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N°- FiRst HalF YeaR net income attRiButaBle to sHaReHoldeRs € IN MIllIoNs

2006 2007 2008 2009 2010

226 232

286 13

295

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adidas Group FiRst HalF YeaR RepoRt 2010 4 to ouR sHaReHoldeRs operational and sporting Highlights

operational and sporting Highlights

second QuaRteR 2010

04.05. taylorMade-adidas Golf’s Penta tP golf ball earns a Gold rating in Golf digest magazine’s annual golf ball “hot list”.

11.05. adidas football superstars lionel Messi and david villa present the F50 adiZero™. Weighing an impressive 165 grams (at uK size 8.5), this is the lightest adidas football boot ever.

13.05. adidas and volkswagen join forces and unveil the special edition Golf GtI adidas.

17.05. adidas and disney consumer Products present the new fall/winter 2010 kids and infant collection from adidas, coinciding with the release of “disney-Pixar’s toy story 3” picture 03. 19.05. taylorMade-adidas Golf introduces the r9™ superdeep tP, a pure player’s driver for tour pros and highly skilled players

picture 04.

26.05. reebok launches the campaign “Get stronger With Every step”, supporting the market introduction of its men’s toning shoe range in the us picture 05.

09.04. supermodel Helena christensen launches reebok & cirque du soleil’s JuKarI Fit to Flex™ workout in london picture 01. 15.04. taylorMade-adidas Golf ranks as the No. 1 driver brand at the Masters for the 10th consecutive year.

20.04. adidas unveils the special match ball for the final of the 2010 FIFa World cup south africa™. Jo’BulaNI is a unique gold-coloured version of the JaBulaNI picture 02.

27.04. adidas originals and Burton snowboards announce a limited adidas originals x Burton lifestyle collection.

11.06. the 2010 FIFa World cup™ kicks off in south africa. adidas is the official sponsor, supplier and licensee of the event. In the 2010 World cup, adidas equips more than 200 players and 12 teams

picture 06.

15.06. the German Bundesliga gets its own official adidas match ball named “torfabrik”, which will be used in the upcoming season.

22.06. adidas micoach, the personal coaching and training system, wins a prestigious stevie award in the 2010 american Business awards.

23.06. reebok announces its partnership with basketball phenomenon and #1 NBa draft pick John Wall.

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adidas Group FiRst HalF YeaR RepoRt 2010 5 to ouR sHaReHoldeRs Interview with the cEo

interview with the ceo

the adidas Group had an outstanding first half in 2010. driven by the FiFa World cup™ and the resurgence of the Reebok brand in north america, the Group achieved record first half sales and diluted earnings per share. although the speed and rate of economic recovery continues to be fragile, underlying business fundamentals for the Group are strong, prompting an upward revision to its full year financial outlook.

in the following interview, Herbert Hainer, adidas Group ceo, reviews the first half of 2010 and discusses the Group’s strategic and financial outlook.

HeRBeRt HaineR

We had a fantastic first half with all of our segments and brands making big strides. We took full advantage of major sporting events such as the World cup and our brands are right on the consumer pulse with strong product concepts in toning, lightweight technologies and lifestyle. We achieved record sales of € 5.6 billion, an increase of 11% or 7% currency-neutral compared to the prior year.

More importantly, our profitability improved substantially. Gross margin is up 3.7 percentage points year-to-date to 48.8%, driven by lower input costs, a larger share of higher-margin retail sales and positive currency effects. the latter mainly relates to the russian rouble which you may remember was a significant headwind last year. due to our marketing initiatives around the 2010 FIFa World cup™ as well as for reebok, we saw a 7% increase in our other operating expenses versus the first half of 2009. Nevertheless, through the leverage we achieved from our strong top-line performance, other operating expenses as a percentage of sales declined 1.6 percentage points. at the same time, we also benefited from a much lower debt level compared to 2009, which helped reduce our net financial income and expenses by 62%. and the bottom line is that our first half net income attributable to shareholders jumped to € 295 million, which represents the highest ever first half net income in the Group’s history. In addition, our balance sheet also strengthened significantly compared to the prior year. operating working capital as a percentage of sales stands at its lowest ever level of 21.7%. our equity ratio improved 10.7 percentage points to 44.6%, the second highest level in the past 10 years. and our net debt is 60% lower compared to the prior year at just over

€ 1 billion. this strong performance is a credit to the hard work of 2009 to build a healthier and more focused organisation and provides us with plenty of firepower and flexibility to accelerate our marketing offensives in the coming quarters.

Question

Herbert, your Group excelled in the first half. What were the most important highlights from a financial perspective?

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HeRBeRt HaineR

the 2010 FIFa World cup™ will be remembered as a celebration of football – colourful, passionate and full of energy, a clear reflection of its african hosts. Before the first whistle was blown we knew that this World cup was going to be a powerful event for our Group, and it turned out even bigger and better than we had expected. on the pitch, our sponsored federations and players were outstanding. Four adidas teams competed in the quarter- finals, two in the semi-finals and in the end the three-striped spanish team deservedly secured their first title. over 200 players wore adidas boots and the F50 adiZero™ was by far the top scoring boot with a total of 41 out of 145 goals. adidas players swept the individual awards, as voted by media representatives, with diego Forlán (uruguay) winning the adidas Golden Ball (best player), thomas Mueller (Germany) claimed the adidas Golden Boot (top scorer) and the best young player award, while reebok’s Iker casillas (spain) won the adidas Golden Glove for best goalkeeper. off the pitch we also had a powerful performance.

according to NM Incite and sport+Markt, adidas generated the most online buzz and had the strongest visibility of any brand associated with the event.

the impact on our business has been significant. With more than 6.5 million replica jerseys sold, the number of federation jerseys sold has more than doubled compared to 2006 (3 million). In 2010, adidas will also sell more footballs than ever before. More than 13 million of the 20 million footballs we will sell this year feature the design of the JaBulaNI, the official Match Ball of the 2010 FIFa World cup™. In total, football sales in the first half were up almost 50% currency-neutral compared to the prior year, and over 60% in the second quarter. therefore, we are expecting record sales of at least € 1.5 billion in football for 2010. this represents an increase of more than 15% compared to 2008, and an increase of 25% compared to the year of the last FIFa World cup™ in 2006. No matter how you look at it, adidas has once again shown its ability to drive commercial success from large sporting events and there can be no argument who is and continues to be the undisputed No. 1 football brand.

Question

adidas enjoyed fantastic presence and visibility at the 2010 FIFa World cup™.

can you share with us your view on the tournament and the impact on your business?

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HeRBeRt HaineR

yes, our achievements with reebok in the second quarter underscore my confidence that the brand has finally been reenergised. currency-neutral sales are up 16% in the second quarter and 9% in the first half. and importantly, gross margins are also improving, up almost 500 basis points over the prior year in the first six months. reebok’s momentum in North america has been and will continue to be a key driver of this performance in the near term. revenues in this region significantly accelerated, jumping 30% currency-neutral in the second quarter compared to 6% in the first quarter. our toning platform, which now extends from walking to categories such as running and training, as well as men’s, and the highly successful debut of Zigtech™ have really inspired and brought consumers back to reebok. In addition to these positive developments, we are also seeing some healthy growth in other parts of our product offering, in particular in technical running, where our latest generation Premier and verona collections have shown meaningful improvements. With good visibility on orders and positive consumer feedback, I see no reason why these trends should not continue. to support our growth plan, we will be investing significantly more in marketing between now and year-end for the important back-to-school and holiday periods. toning will take centre stage in our activities as we continue to expand our reach in the us and internationally. another important highlight will be the introduction of the Zigtech™ in basketball where we plan a high-profile campaign centred on this year’s number one NBa draft John Wall. as a result, we now expect to sell up to eleven million pairs of toning product and over two million pairs of Zigtech™ this year.

Question

recent market share data suggests that reebok’s growth rates particularly in North america have significantly accelerated in the second quarter. can you confirm this and do you expect this trend to continue?

HeRBeRt HaineR

absolutely. While major events are an important stimulus, let me remind you that adidas is the broadest and most wide-reaching brand in our industry. From a product and innovation perspective, the brand is stronger than ever and we will definitely capitalise on this in the weeks and months ahead. While the World cup may be over, the new football season is just starting. and unlike many of our competitors, we have kept back additional marketing campaigns and initiatives to keep momentum going in what will be an exciting season. Here, we will intensify our F50 adiZero™

marketing efforts in many markets for back-to-school and we also have strong initiatives planned for the uEFa champions league and the build-up to next year’s 2011 FIFa Women’s World cup™ in Germany. In other performance categories we also have a lot of new initiatives to excite consumers.

this week, micoach launched the micoach mobile application for smartphones. this multi-sport application will be supported by a strong tv and online campaign including iconic athletes such as reggie Bush, Jessica Ennis, andy Murray, derrick rose and david villa. In training footwear, we are introducing the FluId traINEr, which through its soft technology and full-length cushioning system offers the ultimate in full foot flexibility and freedom of motion. We also expect continued momentum in our sport style division, which is up 19% year-to-date. this will be driven by exciting new product launches such as the adidas originals MEGa collection which incorporates iconic technologies such as torsion and softcell into street style.

Question

Now that the World cup is over, do you still see growth for the adidas brand in the coming quarters?

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HeRBeRt HaineR

china has been a difficult market over the past 18 months, suffering from high inventory levels and intense competition. However, I believe the steps we have taken during the past few months will allow adidas to turn the corner in china and grow in the second half of this year. From a branding perspective, there is no doubt that the adidas brand is one of the most sought-after international brands among chinese consumers. our own-retail stores which carry our most current product offering are clear evidence of this, with comparable store sales up double-digit in the first half of this year. Following the inventory reduction measures we have implemented since mid 2009, we have been able to reduce the amount of inventory in the market consid- erably. With our franchise partners enjoying a better product mix, we expect to see their store sales increase in the coming months. as we continue to fine-tune our marketing and merchan- dising approach as well as begin the implementation of a new long-term strategy for space expansion, I am confident we will see sales momentum building in the coming quarters. these measures will also ensure we fully exploit the tremendous potential the chinese market offers our Group for the long term.

HeRBeRt HaineR

yes, we are also facing these industry-wide headwinds as we move into next year. raw material, labour and transportation costs are all going up. and the us dollar appreciation is, generally speaking, not trending in our favour. although we do not have full visibility yet on what the final impact will be, we are working hard to mitigate these negative impacts. and as no stranger to these types of challenges, we have several mechanisms and instruments at our disposal. For example, our Global operations function is constantly working on optimising our product creation, manufacturing and distribution processes to bring our products to market more cost-efficiently. on the currency front, although the dollar is significantly stronger compared to the prior year, due to our 12- to 24-month hedging policy, we already have a significant portion of our hedging completed for 2011. although our average hedging rates are likely to be lower than 2010, they are not as extreme as current spot rates. While these toolkits provide us some relief, they may not be enough to fully offset the negative impacts. therefore the final measure we have at our disposal is ultimately our pricing strategy. Here there are operational and economic factors at play.

For example, reebok’s gross margin still has good growth potential due to the introduction of higher- margin products such as Easytone™ and Zigtech™. the bigger question mark at this stage, however, is whether the economic environment will be strong enough to bear broader price increases. Given the recovery in consumer sentiment seen so far this year, as well as cleaner inventory levels at retail, we probably have more flexibility in pricing than we had in 2009. But, I still believe an air of caution is warranted as the global economy is still very fragile.

Question

all regions for the Group increased at a double-digit rate in the second quarter with the exception of china.

can you give us an update on your clean-up activities, and when do you expect to see growth again in this market?

Question

your main competitors are pointing to upcoming gross margin pressures due to rising raw material and labour costs. Is your Group facing similar obstacles and if so, what steps will you be taking to tackle these challenges?

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HeRBeRt HaineR

In March, I told you that looking around the market I did not see any other company with a product and concept pipeline as compelling, original or technologically advanced as ours. and as the economy recovers, even if the pace is slow, it is imperative to be fast out of the blocks. Everything we are doing this year is to ensure we stay at the absolute forefront of the market. consumers are always craving for newness, be it innovation or style, and retailers are always looking for a new product edge to drive sales productivity.

our financial performance so far this year is living proof of the merits of this strategy. therefore, not only will we continue, we will accelerate our efforts on several fronts in the second half of this year. the profitability of the first half and the financial strength of our Group provide us with plenty of firepower. Whether it’s toning, lightweight technologies or lifestyle, our brands are right on the consumer pulse. and we will continue to prominently tell these stories through various media channels in the important back-to-school and holiday seasons. We are also striving to become a better and more efficient retailer. Here we will continue to invest in processes and people as well as open new and remodel existing stores in the second half. and, closely related, we are also now starting to move forward with a holistic ecommerce strategy. In the summer we have established a global leadership team for the Group’s ecommerce business to create a stronger competency in this area and leverage best practices for the benefit of all Group brands. I will give you more details on this during our Investor day in November. But let me assure you, the energy we create in the market this year through our various investment projects will be an important catalyst in propelling our Group to new heights in the years to come.

Question

you have outlined that 2010 is a year of brand investment for the adidas Group. Why have you chosen this year to accelerate your level of spending and what are the key initiatives you will be focusing on?

Herbert, thank you for this interview.

HeRBeRt HaineR

For the full year, I expect sales to increase at a mid-single-digit rate currency-neutral and to exceed the € 11 billion mark for the first time ever in the Group’s history. this performance will be driven by the Wholesale and retail segments which we expect to grow at a mid-single-digit and low-double-digit rate, respectively. Gross margin is now forecasted to be near the top end of the range we outlined in May, approaching 47.5%.

and due to the strong operational performance in the first half we expect operating margin to be around 7.5% which compares to our earlier expectations of around 7%.

this translates into earnings per share of € 2.50 to € 2.62, which represents an almost 20% increase compared to the range of € 2.05 to € 2.30 we had expected under our May guidance.

Question

How does the rest of 2010 look for the adidas Group?

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adidas Group FiRst HalF YeaR RepoRt 2010 10 to ouR sHaReHoldeRs our share

our share

in the second quarter of 2010, international stock markets declined markedly, reversing the positive trend from the first quarter.

this was mainly due to increasing fears regarding a potential slowdown of the global economic recovery and the sovereign debt crisis in the euro area’s peripheral countries. accordingly, the daX-30 declined 3% and the dow Jones decreased 10% compared to the end of march. However, the adidas aG share outperformed international indices over the three-month period and rose by 1%.

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N°- tHe adidas aG sHaRe

Number of shares outstanding

First half average 209,216,186

at June 30¹⁾ 209,216,186

type of share No-par-value share

Free float 100%

Initial Public offering November 17, 1995 share split June 6, 2006 (in a ratio of 1: 4) stock exchange all German stock exchanges stock registration number (IsIN) dE0005003404

stock symbol ads, adsG.dE

Important indices daX-30

MscI World textiles, apparel & luxury Goods deutsche Börse Prime consumer dow Jones stoXX

dow Jones Euro stoXX dow Jones sustainability FtsE4Good Europe

Ethibel Index Excellence Europe asPI Eurozone Index

EcPI Ethical Index EMu 1) all shares carry full dividend rights.

Global stock markets decline in the second quarter

International stock markets declined in the second quarter of 2010, offsetting the positive development of the first quarter.

While better than expected quarterly earnings announcements and outlook upgrades supported investor sentiment in april, intensifying concerns regarding significant budget deficits in several euro area countries were a negative catalyst for equity markets throughout the quarter. In addition, signals indicating a slowdown of the economic recovery intensified. Examples included record- low new home sales and declining consumer confidence in the us as well as a tighter monetary policy in china. as a consequence, risk aversion of investors increased significantly, highlighted by the gold price reaching new record highs. during the three-month period, the daX-30 decreased 1% and closed the second quarter at 5,966 points. the MscI World textiles, apparel & luxury Goods Index, which comprises the Group’s main competitors, declined 8% during the same period. the adidas aG share, however, gained 1% compared to the end of March 2010.

adidas aG share price outperforms peers

In april, in contrast to the general market environment, the adidas aG share price gained strongly and outperformed its peers and the general market.

the improvement accelerated towards the end of the month following the preliminary announcement of better than expected results for the first quarter and an improved outlook for the full year 2010. after having traded sideways at the beginning of the month, in mid-May analyst upgrades, positive feedback from a reebok investor event in london as well as increased sales expectations in the football category for 2010 supported the favourable momentum of our share. towards the end of the period, general market weakness as well as comments regarding future sourcing cost increases and negative currency effects from one of our main competitors weighed on our share price performance. Nevertheless, the adidas aG share finished the three-month period at € 39.88, representing an increase of 1% compared to the end of March 2010, thereby outperforming the daX-30 and the MscI World textiles, apparel &

luxury Goods Index, which declined 1%

and 8% respectively.

since the end of 2009, the adidas aG share has increased 6%, whereas both the daX-30 and the MscI World textiles, apparel & luxury Goods Index remained flat over the same period.

number of adRs increases

the number of level 1 adrs (american depository receipts) increased during the three-month period compared to the end of the first quarter of 2010. at June 30, 2010, 6.5 million adrs were outstanding (March 31, 2010: 5.5 million).

this represents a substantial increase compared to June 30, 2009, when 4.8 million adrs were outstanding. the level 1 adr closed the quarter at us$ 24.15, reflecting a 10% decrease compared to the end of March 2010. the decrease, which compares to a price increase of our ordinary share, was due to the continued appreciation of the us dollar during the second quarter.

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N°- HistoRical peRFoRmance oF adidas aG sHaRe¹⁾ aNd IMPortaNt INdIcEs at JuNE 30, 2010 IN %

ytd 1 year 3 years 5 years since IPo

adidas aG 6 47 (15) 15 312

daX-30 0 24 (25) 30 172

MscI World textiles,

apparel & luxury Goods 0 37 (13) 34 139

1) source: Bloomberg.

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adidas Group FiRst HalF YeaR RepoRt 2010 11 to ouR sHaReHoldeRs our share

dividend of € 0.35 per share paid at the annual General Meeting on May 6, 2010, shareholders approved the adidas aG Executive and supervisory Boards’ recommendation to pay a dividend of € 0.35 per share for the financial year 2009 (2008: € 0.50). the dividend was paid on May 7, 2010. Based on the number of shares outstanding at the time of the annual General Meeting, this represents a dividend payout of

€ 73 million (2008: € 97 million) and an increase of our payout ratio to 30% (2008:

15%). Going forward, we intend to pay out between 20% and 40% of net income attributable to shareholders.

changes in shareholder base

In the second quarter of 2010, the Group received one voting rights notification according to article 21, section 1 of the German securities trading act (Wertpapierhandelsgesetz – WpHG)

see 07. this voting rights notification and those received thereafter can be viewed on our corporate website www.

adidas-Group.com/voting_rights_notifications.

directors’ dealings reported on corporate website

the purchase or sale of adidas aG shares (IsIN dE0005003404) or related financial instruments, as defined by article 15a WpHG, conducted by members of our Executive or supervisory Boards, by key executives or by any person in close relationship with these persons, is reported on our website www.adidas- Group.com/directors_dealings. In the second quarter of 2010, adidas aG received notification that Herbert Hainer, adidas Group cEo, had purchased 2,570 shares on May 25, 2010.

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N°- sHaReHoldeR RiGHts notiFications ReceiVed in Q2 2010

date of

notification Notifying

party threshold

crossed voting rights of total

shares outstanding date of change

Jun. 24, 2010 Euro Pacific Growth Fund >3% 6,178,394

(2.95%) Jun. 21, 2010

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N°- sHaRe pRice deVelopment in 2010¹⁾

dec. 31, 2009 June 30, 2010

120 110 100 90 80

— adidas aG — daX-30 — MscI World textiles, apparel & luxury Goods Index 1) Index: december 31, 2009 = 100.

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adidas Group FiRst HalF YeaR RepoRt 2010 12 inteRim GRoup manaGement RepoRt Group Business Performance Economic and sector development

Group Business performance

in the first half of 2010, the adidas Group results improved significantly compared to the prior year period. currency-neutral Group sales increased 7% as a result of growth in the Wholesale and Retail segments as well as in other Businesses. in euro terms, adidas Group revenues grew 11% to € 5.590 billion from € 5.034 billion in 2009. the Group’s gross margin increased 3.7 percentage points to 48.8% (2009: 45.1%), supported by lower input costs, less clearance sales and a larger share of higher- margin Retail sales. consequently, the Group’s gross profit increased 20% to € 2.727 billion in the first half of 2010 versus

€ 2.269 billion in 2009. the Group’s operating margin increased 5.6 percentage points to 8.1% from 2.6% in 2009, primarily due to the higher gross margin as well as lower other operating expenses as a percentage of sales. in absolute terms, the Group’s operating profit grew to € 454 million in the first half of 2010 versus € 129 million in 2009. the Group’s net income attributable to shareholders increased to € 295 million from € 13 million in 2009. diluted earnings per share grew to € 1.41 in the first half of 2010 versus € 0.10 in 2009.

economic and sector development

positive global economic growth continues in second quarter

In the second quarter of 2010, growth of the global economy continued at a similar pace as in the first quarter. Increases in industrial production and global trade as well as stabilising unemployment and private consumption levels contributed to this development. In Western Europe, industrial output as well as strong increases in exports supported by a weak euro offset negative effects from sovereign debt concerns and relatively high unemployment levels.

the recovery in European emerging markets continued to gather pace in the second quarter with rising exports and improving domestic demand in some of the region’s major markets such as russia and turkey. despite high levels of unemployment, growth in the usa during the second quarter maintained a similar pace to the first three months of the year with the inventory replenishment cycle and fiscal stimulus remaining key drivers.

In china, while economic expansion remained robust, the economy started to feel the first effects of tighter monetary policy implemented to help stop the economy from overheating. Nevertheless, domestic demand growth remains strong and rising wage levels are helping drive increases in consumer confidence and spending. other asian markets benefited from strong GdP growth not just from export activity but also due to an increase in regional trade.

In Japan, the economy is slowly recover- ing, driven by exports, particularly to other asian countries. domestic consumption has also picked up but spending has been mainly focused on durable goods, supported by government subsidies. In latin america, most countries posted strong GdP growth during the quarter as falling unemployment levels helped drive public and private spending. Increasing commodity prices also contributed to overall growth in the region.

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N°- QuaRteRlY consumeR conFidence

deVelopment By rEGIoN

Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010

usa¹⁾ 49.3 53.4 53.6 52.3 54.3

Euro Zone²⁾ (25) (19) (16) (17) (17)

Japan³⁾ 38.1 40.7 37.9 41.0 43.6

1) source: conference Board.

2) source: European commission.

3) source: Economic and social research Institute, Government of Japan.

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N°- eXcHanGe Rate deVelopment¹⁾

€ 1 EQuals average

rate

2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010

average rate 2010²⁾ usd 1.3932 1.4643 1.4406 1.3479 1.2271 1.3394 GBP 0.8912 0.9093 0.8881 0.8898 0.8175 0.8703 JPy 130.23 131.07 133.16 125.93 108.79 121.57 1) spot rates at quarter-end.

2) average rate for the first half of 2010.

(13)

adidas Group FiRst HalF YeaR RepoRt 2010 13 inteRim GRoup manaGement RepoRt Group Business Performance Income statement

11

N°- FiRst HalF YeaR net sales

€ IN MIllIoNs 2006 2007 2008 2009 2010

4,887 4,938 5,142 5,034

5,590

12

N°- FiRst HalF YeaR net sales BY seGment¹⁾

13% other Businesses 19% retail

68% Wholesale

1) HQ/consolidation accounts for less than 1% of sales.

2010 FiFa World cup™ promotes positive trends in global sporting goods industry

the second quarter of 2010 saw the global sporting industry performing strongly. the 2010 FIFa Football World cup™ helped drive positive sales developments across most of the industry. toning was also identified as a key contributor to sporting goods revenues during the quarter. Western Europe, with its large number of national teams competing in this year’s FIFa World cup™, witnessed record sales in the football category. Good weather in the region also helped the running and outdoor categories. In European emerging markets, the sporting goods sector remained challenged with low consumer confidence as a result of high unemployment levels. In North america, the sporting goods industry continued to grow during the quarter, with strong momentum from the toning category.

In china, the sporting goods industry saw further retail expansion as well as improving consumption trends compared to the prior year. other asian markets grew strongly with the exception of Japan, where consumption continues to lag behind the rest of the region due to subdued spending on discretionary products. latin america’s sporting goods industry continued to outperform the overall industry as high levels of consumer confidence and positive stimulus from the 2010 FIFa World cup™

spurred demand.

income statement

segmental reporting comparatives updated

Following minor changes to the adidas Group’s organisational structure in the first quarter of 2010, the assignment of certain functions has been changed compared to the Group’s prior year annual financial statements. this development has a limited effect on the Group segmental structure. to ensure full comparability of Group financial results in 2010, the Group has decided to adjust the segmental reporting for 2009 retrospectively. these adjustments have no effect on total Group financial results.

details of the adjustments are available in the notes see note 7, p. 39/40. adidas Group currency-neutral sales increase at double-digit rate in Q2 during the second quarter of 2010, Group revenues increased 11% on a currency- neutral basis. currency translation effects had a positive impact on sales in euro terms. Group revenues grew 19%

to € 2.917 billion in the second quarter of 2010 from € 2.457 billion in 2009.

Wholesale and Retail segments drive strong sales growth in Q2

In the second quarter of 2010, currency- neutral sales increased at a double- digit rate in the Wholesale and retail segments. other Businesses sales decreased slightly. currency-neutral Wholesale revenues increased 12%

during the period due to double- digit increases at adidas and reebok.

currency-neutral retail sales increased 17% versus the prior year as a result of double-digit adidas and reebok sales growth. revenues in other Businesses declined 1% on a currency-neutral basis.

sales growth at reebok-ccM Hockey could not offset declines at taylorMade- adidas Golf and rockport.

currency translation effects had a positive impact on segmental sales in euro terms. Wholesale revenues increased 20% to € 1.928 billion in the second quarter of 2010 from

€ 1.605 billion in 2009. retail sales increased 24% to € 602 million versus

€ 486 million in the prior year. sales in other Businesses grew 7% to

€ 387 million in the second quarter of 2010 (2009: € 362 million).

adidas Group currency-neutral sales increase 7% in the first half of 2010 In the first half of 2010, Group revenues increased 7% on a currency-neutral basis. currency translation effects had a positive impact on sales in euro terms. Group revenues grew 11% to

€ 5.590 billion in the first half of 2010 from € 5.034 billion in 2009 see 11.

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13

N°-

14

N°- FiRst HalF YeaR net sales GRoWtH¹⁾

(currENcy- NEutral) By sEGMENt aNd rEGIoN IN %

FiRst HalF YeaR net sales GRoWtH¹⁾ (IN €) By sEGMENt aNd rEGIoN IN %

Wholesale retail other

Businesses total

Western Europe 10 2 (2) 8

European Emerging

Markets (3) 27 6 13

North america 15 14 2 10

Greater china (24) 48 18 (16)

other asian Markets 5 (3) 9 4

latin america 20 45 (0) 23

total 6 16 3 7

1) versus the prior year.

Wholesale retail other

Businesses total

Western Europe 11 3 0 10

European Emerging

Markets 0 28 13 15

North america 16 16 5 12

Greater china (23) 49 19 (16)

other asian Markets 15 6 18 14

latin america 33 58 1 36

total 10 20 7 11

1) versus the prior year.

1) Excluding HQ/consolidation.

15

N°- FiRst HalF YeaR net sales BY ReGion¹⁾

11% latin america

16% other asian Markets 7% Greater china

23% North america 32% Western Europe

11% European Emerging Markets First half Group sales increase driven

by the Wholesale and Retail segments the adidas Group’s sales increase in the first half of 2010 was driven by double-digit growth in the retail segment as well as higher sales in the Wholesale segment and in other Businesses. currency-neutral Wholesale revenues increased 6% during the period driven by higher adidas and reebok sales. currency-neutral retail sales increased 16% versus the prior year as a result of double-digit adidas and reebok sales growth. revenues in other Businesses increased 3% on a currency- neutral basis due to sales growth at taylorMade-adidas Golf.

currency translation effects had a positive impact on segmental sales in euro terms. Wholesale revenues increased 10% to € 3.826 billion in the first half of 2010 from € 3.480 billion in 2009. retail sales increased 20% to

€ 1.061 billion versus € 886 million in the prior year. sales in other Businesses grew 7% to € 703 million in the first half of 2010 (2009: € 657 million).

currency-neutral sales increase in nearly all regions

In the first half of 2010, currency-neutral adidas Group sales increased in all regions except Greater china. revenues in Western Europe increased 8%, primarily as a result of double-digit sales increases in the uK, Germany and spain.

In European Emerging Markets, Group sales increased 13% on a currency- neutral basis due to growth in most of the region’s markets, in particular russia.

sales for the adidas Group in North america increased 10% on a currency- neutral basis due to strong increases in both the usa and canada. sales in Greater china decreased 16% on a currency-neutral basis. currency-neutral revenues in other asian Markets grew 4% due to increases in most markets.

In latin america, sales grew 23% on a currency-neutral basis, with double-digit increases in most of the region’s major markets see 13.

currency translation effects had a positive impact on regional sales in euro terms. Group revenues in Western Europe increased 10% to

€ 1.772 billion in the first half of 2010 from € 1.618 billion in 2009. In European Emerging Markets, sales grew 15% to

€ 633 million in the first half of 2010 from

€ 549 million in 2009. sales in North america increased 12% to € 1.312 billion from € 1.169 billion in 2009. revenues in Greater china decreased 16% to

€ 403 million in the first half of 2010 from € 481 million in 2009. In other asian Markets, sales increased 14%

to € 868 million versus € 764 million in the prior year. revenues in latin america grew 36% to € 601 million from

€ 443 million in the prior year see 14.

Group sales increase in all product categories

In the first half of 2010, sales increased in all product categories on a currency- neutral basis. currency-neutral footwear sales increased 5% during the period.

this development was due to increases in all segments, with a double-digit increase in retail. apparel revenues increased 6% on a currency-neutral basis. Growth in the retail and Wholesale segments was partly offset by a decline in other Businesses. currency-neutral hardware sales increased 21% compared to the prior year, primarily due to double- digit growth in Wholesale and other Businesses.

currency translation effects had a positive impact on sales in euro terms.

Footwear sales in euro terms increased 9% to € 2.573 billion in the first half of 2010 (2009: € 2.357 billion). apparel sales increased 10% to € 2.392 billion in the first half of 2010 (2009: € 2.183 billion).

Hardware sales increased 26% to

€ 495 million in 2009.

(15)

Group gross margin increases 3.7 percentage points

the gross margin of the adidas Group increased 3.7 percentage points to 48.8%

in the first half of 2010 (2009: 45.1%)

see 17. this development was mainly due to lower input costs, less clearance sales and a larger share of higher- margin retail sales. Positive currency effects related to the appreciation of the russian rouble also had a minor effect on Group gross margin. as a result, gross profit for the adidas Group grew 20% in the first half of 2010 to € 2.727 billion versus € 2.269 billion in the prior year

see 16.

Royalty and commission income grows royalty and commission income for the adidas Group increased 3% to

€ 45 million in the first half of 2010 from € 44 million in the prior year. on a currency-neutral basis, royalty and commission income increased 3% as a result of higher licensee sales.

other operating income increases other operating income includes items such as gains from the disposal of fixed assets and releases of accruals and provisions. other operating income increased 49% to € 72 million in the first half of 2010 from € 48 million in 2009. this development was mainly due to the settlement of a lawsuit and the divestiture of a trademark, each of which had a positive low-double-digit million euro impact on the Group’s financial results.

other operating expenses as a percentage of sales down 1.6 percentage points

other operating expenses, including depreciation and amortisation, consist of items such as sales working budget, marketing working budget and operating overhead costs. other operating expenses as a percentage of sales decreased 1.6 percentage points to 42.8% in the first half of 2010 from 44.3% in 2009. In absolute terms, other operating expenses increased 7% to € 2.390 billion in the first half of 2010 (2009: € 2.232 billion)

see 18. thereof, sales and marketing working budget expenditures amounted to € 756 million, which represents an increase of 20% versus the prior year level (2009: € 630 million). the increase was primarily related to higher expenditures to support adidas presence at the 2010 FIFa World cup™. as a result of the higher Group sales base, however, sales and marketing working budget expenditures as a percentage of sales increased only 1.0 percentage points to 13.5% (2009: 12.5%).

number of Group employees increases 5%

at the end of the first half of 2010, the Group employed 40,791 people. this represents an increase of 5% versus the prior year level of 38,935. New hirings related to the expansion of the Group’s own-retail store base were the main driver of this development. these more than offset declines due to reorganisation initiatives and a hiring freeze the Group implemented for all non-retail-related functions. on a full-time equivalent basis, the number of employees increased 6%

to 35,379 at the end of the first half of 2010 (2009: 33,249).

operating margin increases 5.6 percentage points

the operating margin of the adidas Group increased 5.6 percentage points to 8.1% in the first half of 2010 (2009:

2.6%) see 20. the operating margin increase was primarily due to the higher gross margin as well as lower other operating expenses as a percentage of sales. as a result, Group operating profit increased 251% to € 454 million versus

€ 129 million in 2009 see 19. Financial income up 217%

Financial income increased 217% to

€ 7 million in the prior year, mainly due to positive exchange rate effects.

18

N°-

19

N°-

20

N°- FiRst HalF YeaR otHeR opeRatinG eXpenses

€ IN MIllIoNs

FiRst HalF YeaR opeRatinG pRoFit

€ IN MIllIoNs

FiRst HalF YeaR opeRatinG maRGin IN %

2009 2010

2,232 2,390

129

454

2.6

8.1

16

N°-

17

N°- FiRst HalF YeaR GRoss pRoFit

€ IN MIllIoNs

FiRst HalF YeaR GRoss maRGin IN %

2009 2010

2,269 2,727

45.1 48.8

(16)

22

N°- FiRst HalF YeaR income BeFoRe taXes

€ IN MIllIoNs 2009 2010

37

419

23

N°-

24

N°- FiRst HalF YeaR net income attRiButaBle to sHaReHoldeRs € IN MIllIoNs

FiRst HalF YeaR diluted eaRninGs peR sHaRe IN €

2006 2007 2008 2009 2010

226 232

286 13

295

1.06 1.09

1.35 0.10

1.41 Financial expenses decrease 41%

Financial expenses decreased 41% to

€ 58 million in the first half of 2010 (2009: € 99 million) see 21. the non-recurrence of prior year negative exchange rate effects as well as lower interest expenses contributed to the decline.

income before taxes increases strongly Income before taxes (IBt) as a percentage of sales increased 6.8 percentage points to 7.5% in the first half of 2010 from 0.7%

in 2009. this was primarily a result of the Group’s operating margin increase and lower financial expenses. IBt for the adidas Group increased to € 419 million from € 37 million in 2009 see 22.

net income attributable to shareholders reaches record level the Group’s net income attributable to shareholders increased to € 295 million in the first half of 2010 from € 13 million in 2009 see 23. this is the highest ever first half result achieved by the adidas Group. Higher operating profit was the primary reason for this development. the Group’s tax rate decreased 37.2 percentage points to 29.5% in the first half of 2010 (2009:

66.8%), mainly due to a more favourable regional earnings mix compared to the prior year. Net income attributable to non-controlling interests amounted to

€ 0 million in the first half of 2010 versus negative € 1 million in 2009.

earnings per share reach € 1.41 Following the full conversion of the Group’s convertible bond in the fourth quarter of 2009, the Group has no dilutive potential shares anymore. as a result, diluted earnings per share equal basic earnings per share. In the first half of 2010, basic and diluted earnings per share amounted to € 1.41 see 24. In the prior year period, basic earnings per share amounted to € 0.07 and diluted earnings per share to € 0.10. the weighted average number of shares used in the calculation was 209,216,186 in the first half of 2010. In the prior year period, the number amounted to 193,515,512 for the calculation of basic earnings per share and 209,259,974 for the calculation of diluted earnings per share.

21

N°- FiRst HalF YeaR Financial eXpenses

99 58

(17)

adidas Group FiRst HalF YeaR RepoRt 2010 17 inteRim GRoup manaGement RepoRt Group Business Performance Balance sheet and cash Flow statement

25

N°-

26

N°- Balance sHeet stRuctuRe¹⁾

IN % oF total assEts

Balance sHeet stRuctuRe¹⁾ IN % oF total lIaBIlItIEs aNd EQuIty

assets June 30, 2010 June 30, 2009

total assets

(€ in millions) 10,608 9,407

1) For absolute figures see consolidated Balance sheet (IFrs), p. 33.

liabilities and equity June 30, 2010 June 30, 2009

total liabilities and equity

(€ in millions) 10,608 9,407

1) For absolute figures see consolidated Balance sheet (IFrs), p. 33.

cash and cash equivalents ...5.6

short-term borrowings ...2.8

18.4

11.3 1.9

6.4 21.7

25.9 42.6

22.5 15.4

33.9 Fixed assets ...40.1

other liabilities ...24.8 accounts receivable ...18.9

accounts payable ...13.8 other assets ...16.1

total equity ...44.6 Inventories ...19.3

long-term borrowings ...14.0

Balance sheet and cash Flow statement

total assets increase 13%

at the end of June 2010, total assets increased 13% to € 10.608 billion versus € 9.407 billion in the prior year.

this was the result of an increase in both current and non-current assets.

compared to december 31, 2009, total assets increased 20%.

Group inventories stable

Group inventories remained stable at

€ 2.049 billion at the end of June 2010 versus € 2.041 billion in 2009 see 27. on a currency-neutral basis, inventories declined 11%. this was mainly a result of clearance of excess inventories at all of our brands throughout the last twelve months, primarily in the second half of 2009.

accounts receivable increase 16%

at the end of June 2010, Group receivables increased 16% to

€ 1.999 billion (2009: € 1.729 billion

see 28. on a currency-neutral basis, receivables grew 3%. this development compares to a currency- neutral Group sales increase of 11% in the second quarter of 2010, reflecting our strict discipline in implementing the Group’s trade terms and improved collection of receivables as the economic situation in most markets continued to improve.

other current financial assets up 99%

other current financial assets grew 99% to € 311 million at the end of June 2010 from € 157 million in 2009. this development was mainly due to the increase of the fair value of financial instruments.

other current assets down 8%

other current assets decreased 8% to

€ 428 million at the end of June 2010 from € 467 million in 2009, mainly as a result of a decrease in prepayments.

Fixed assets increase 6%

Fixed assets increased 6% to

€ 4.256 billion at the end of June 2010 versus € 4.011 billion in 2009.

this mainly reflects positive currency translation effects in an amount of € 402 million on fixed assets denominated in currencies other than the euro. additions in an amount of

€ 215 million were primarily related to the continued expansion of our own-retail activities and investment into the Group’s It infrastructure. additions were offset by depreciation and amortisation amounting to € 289 million, disposals of € 49 million and a net transfer of fixed assets to assets held-for-sale totalling € 34 million.

compared to december 31, 2009, fixed assets increased 12%.

assets held-for-sale increase 189%

at the end of June 2010, assets held-for- sale increased 189% to € 79 million compared to € 27 million in 2009, due to additional assets now being in the scope of a sale. assets held-for-sale primarily relate to the planned sale of land and buildings in Herzogenaurach, Germany, as well as certain warehouses in various other locations.

other non-current financial assets up 191%

other non-current financial assets grew 191% to € 124 million at the end of the first half of 2010 from € 42 million in 2009, mainly driven by the increase of the fair value of financial instruments.

accounts payable increase 38%

accounts payable were up 38% to

€ 1.464 billion at the end of June 2010 versus € 1.060 billion at the end of June 2009 see 29. on a currency-neutral basis, accounts payable increased 29%.

this development was mainly attributable to increased production volumes compared to the prior year as well as improved terms with our suppliers.

other current financial liabilities decrease 4%

other current financial liabilities declined 4% to € 107 million at the end of June 2010 from € 111 million in 2009, primarily as a result of a decrease in the negative fair value of financial instruments.

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adidas Group FiRst HalF YeaR RepoRt 2010 18 inteRim GRoup manaGement RepoRt Group Business Performance Balance sheet and cash Flow statement

27

N°-

28

N°-

29

N°-

30

N°-

31

N°- inVentoRies¹⁾

€ IN MIllIoNs

ReceiVaBles¹⁾

€ IN MIllIoNs

accounts paYaBle¹⁾

€ IN MIllIoNs

sHaReHoldeRs’ eQuitY¹⁾

€ IN MIllIoNs

net BoRRoWinGs¹⁾

2009 2010

2,041 2,049

1,729 1,999

1,060

1,464

3,189

4,729

2,732 1,090

1) at June 30.

accrued liabilities grow 42%

accrued liabilities increased 42% to

€ 823 million at the end of the first half of 2010 from € 580 million in 2009, mainly due to an increase in accruals for payment of goods and services not yet invoiced.

other current liabilities up 33%

other current liabilities were up 33% to

€ 268 million at the end of June 2010 from € 202 million in 2009, mainly due to increases in tax liabilities other than income taxes.

equity growth supported by conversion of convertible bond shareholders’ equity rose 48% to

€ 4.729 billion at the end of June 2010 versus € 3.189 billion at the end of June 2009 see 30. the net income generated during the last twelve months and the full conversion of our convertible bond were the main contributors to this development. currency translation effects in an amount of € 563 million positively impacted this development.

compared to december 31, 2009, shareholders’ equity increased 25%.

cash flow reflects improved Group profitability

In the first half of 2010, net cash outflow from operating activities was € 73 million (2009: € 366 million). the decrease in cash used in operating activities compared to the prior year was primarily due to the improved Group profitability.

Net cash outflow from investing activities was € 64 million (2009: € 63 million) and was mainly related to spending for property, plant and equipment such as investments in the furnishing and fitting of stores in our retail segment, in new office buildings and in It systems.

Net cash outflow from financing activities totalled € 62 million (2009:

€ 364 million net inflow). cash inflows from financing activities were related to an increase in long-term borrowings in an amount of € 197 million, which was more than offset by the repayment of short-term borrowings totalling

€ 186 million and dividends paid in an amount of € 73 million. Exchange rate effects in an amount of € 18 million positively impacted the Group’s cash position in the first half of 2010 (2009:

negative 3 million). as a result of all these developments, cash and cash equivalents decreased by € 181 million to € 594 million at the end of June 2010 compared to € 775 million at the end of december 2009.

net borrowings down € 1.642 billion Net borrowings at June 30, 2010 amounted to € 1.090 billion, which represents a decrease of € 1.642 billion, or 60%, versus € 2.732 billion at the end of June 2009 see 31. lower working capital requirements and the complete conversion of our € 400 million convertible bond in the fourth quarter of 2009 were the main reasons for the net debt decline. this positive development was partly offset by negative currency translation effects in an amount of

€ 35 million. consequently, the Group’s ratio of net borrowings over 12-month rolling EBItda decreased to 1.0 at the end of June 2010 versus 2.9 in the prior year.

First Half Year Report 2010