Table
Contents TO OUR SHAREHOLDERS OUR COMPANY FINANCIAL REVIEW Letter to Shareholders .............................. 2 Interview with CEO .................................. 3 Brand Statement ...................................... 4 Strategy 5 Sportswear ............................................... 6 Franchise .................................................. 7 Innovation 8 Collaboration ........................................... 10 Fwifa World Cup 2022 ............................ 11 Global Production 12 Our People ............................................... 13 Financial Highlights .................................. 14 Cash Flow 15 Financial Calendar .................................. 16
of
TO OUR SHAREHOLDERS
Dear Shareholders,
2022 was a disappointing year for adidas. Geopolitical tensions as well as macroeconomic and companyspecific challenges, severely impacted adidas’ top- and bottom-line performance last year. While large parts of the global economy recovered from the coronavirus pandemic, business activity in Greater China was still negatively affected by strict lockdown measures throughout most of the year. In addition, the war in Ukraine, continued supply chain constraints, increasing inflation, tightened monetary policy and, as a result, a slowdown in consumer demand, had a significant adverse impact on the company’s business activities. In this challenging environment, adidas posted solid growth in its Western markets as well as in Asia-Pacific.
The company continued to invest into the creation and marketing of its products, the physical and virtual consumer experience as well as into driving its sustainability efforts and further improving its digital set-up. In addition to the challenging market backdrop, adidas faced company-specific challenges such as the slower recovery in Greater China and the termination of its Yeezy partnership. As a result, the company’s top- and bottom-line results came in significantly below our initial expectations. With the appointment of Bjørn Gulden as new CEO as of January 1, 2023, we have been paving the way for a successful restart of adidas. Consequently, the company is currently conducting a thorough strategic review, which also includes its longterm financial ambition.
2
SHAREHOLDERS
Interview with the CEO: BJØRN GULDEN
1. Hello Bjørn, and welcome to the three stripes. Or should we rather say: ‘welcome back’ to the three stripes?
Well, you can say both. It’s a ‘welcome’ and of course it’s a ‘welcome back’ and I appreciate both. It’s like coming home to the brand I have always had strong feelings for. My father was an adidas player and I played sports in adidas all the time when I was a kid. And of course, it was my first job. I followed adidas even when I was working in different parts of the industry, so being allowed to come back is a great honor.
we can make a positive shift. Although we have problems in the short term, we can get back to where we belong.
3. DO YOU HAVE ANY FINAL MESSAGE FOR OUR SHAREHOLDERS?
2. What are you most looking forward to in 2023?
Well, I look forward to the big sporting events including the FIFA World Cup 2023 in Australia and New Zealand. On the business side, I’m looking forward to making progress on our turnaround and showing our people that
adidas is a company like no other. There’s probably no other brand in the world that is as emotional as adidas. We are relevant in sport, in music, in entertainment, and in fashion. Our appeal is global and stretches over multiple generations. And when I look to the future, I see people doing more sport, dressing more casually and being even more brand-driven. Given all this, I think we’re a great company to invest in.
“WE HAVE ALL THE INGREDIENTS TO WIN.”
3
OUR COMPANY
PURPOSE
Through sport we have the power to change lives.
To be the best sports brand in the world. Impossible is nothing.
MISSION ATTITUDE 4
Brand Statement + Strategy
With sport playing an increasingly important role in more and more people’s lives, both on and off the field of play, we operate in a highly attractive industry. Based on the authenticity of the adidas brand and our constant efforts to understand our consumers’ needs, we aim at capitalizing on the acceleration of favorable long-term structural trends by pushing the boundaries of products, experiences, and services.
Since the creation and launch of our ‘Own the Game’ strategy, the economic and political environment we operate in has significantly changed. Macroeconomic
challenges as well as geopolitical tensions have had an adverse impact on our business, our consumers, and business partners. Paving the way for a restart, Bjørn Gulden joined adidas as new CEO in January 2023. In this context, we are currently conducting a thorough strategic review, which also includes the financial ambition for 2025. We will provide an update on the outcome of this review in the course of the second half of 2023 and, in the meantime, continue to diligently execute our functional priorities.
5
Sportswear
For over 70 years, we have innovated for sports. The performance logo therefore represents the product built for our athletes, helping them to perform at their best inside the lines of the playing field. ‘Performance’ products are built from sport and worn for sport. On the other hand, adidas Originals caters to lifestyle in a futuristic way and is motivated by the collective memory of sports. adidas Originals represents brand classics and new visionary designs. The brand with the iconic Trefoil celebrates products that connect to culture, leveraging our archive, and expanding into new premium and luxury segments. We are continuously sharpening our edges of adidas ‘Performance’ and ‘Lifestyle’ and therefore have introduced our new ‘Sportswear’ proposition as a part of adidas’ updated brand architecture.
Our newest addition ‘Sportswear,’ is built for everyone. It is born from sport and worn for style. Sportswear provides everyday products that redefine comfort, versatility, and aesthetics, with the first collection launched in 2022.
6
Franchises as Lighthouses for Our Brand
We believe that brand perception is largely influenced by footwear and has the potential to drive consumer desire among product categories, a lever for growing market share. An archive that is unrivaled in the industry, cutting-edge technological breakthroughs, and access to fundamental athlete insights provide plenty of opportunities to create newness in footwear and push the industry boundaries. Franchises are one of our strategic priorities with the ambition to focus and reduce the number of footwear models overall. Simply put, franchises are our most iconic symbols of sport and culture acting as lighthouses for our brand. They represent the very best of adidas, influencing not only sport but also culture, reimagining the notions of performance and lifestyle footwear while contributing to building our brand equity. Key footwear franchises for the adidas brand include, among others, Superstar, Stan Smith, Samba, Ultraboost, and NMD. In 2022, key footwear franchises represented almost 33% of the brands footwear business.
SUPERSTAR STAN SMITH 7
ULTRABOOST
NMD
Innovation
BRA REVOLUTION MADE TO BE REMADE
Sports bras are among the most essential workout pieces, but many women aren’t wearing the right size. That is why we have redesigned our entire bra line with 43 new styles in 72 sizes to fit more bodies and workouts than ever before. In February 2022, we launched the ‘Bra Revolution’ campaign which was the biggest campaign activation for Training in 2022. Using the latest material and design innovations, the new collection features training bras, studio bras, everyday bras, and running bras.
The ‘Made To Be Remade’ program is adidas’ first approach to delivering the potential of circular fashion, following the launch of its Futurecraft.Loop shoe in 2019. The adidas by Stella McCartney garment, launched in 2022, is the latest milestone demonstrating the successful implementation of the entire value chain to produce a commercial end-of-life garment. Joining forces with leading names and innovators in the fashion industry to create, test, and innovate, the adidas by Stella McCartney tracksuit forms the pinnacle expression of the brand’s pilot circularity program
‘Made To Be Remade,’ a take-back program that allows consumers to wear down products and then return them by scanning a QR code on the product for it to be remade.
8
ADIZERO
Prime x Strung 4DFWD 2
Our first ever Adizero running shoe with a ’Strung’ upper. Strung is a textile innovation that transforms athlete data into a dynamic material tuned to the athlete's needs. It makes it possible to map and program different fiber properties thread by thread. With a flexible and a lightweight seamless cocoon feel around the foot, Strung helps optimize comfort and supports the athlete on long distance runs. The Strung upper is fused to a Prime X outsole packed with carbon EnergyRODS and three layers of Lightstrike Pro for a responsive run.
ADIZERO Adios Pro 3
The shoe’s industry-first bowtie-shaped lattice midsole transforms vertical pressure into a horizontal force, designed to move runners in one direction only: forward. With every stride, the new adidas 4DFWD 2 midsole compresses forward, reducing braking forces and transforming the impact energy into forward motion. The result is a smooth ride with less stop-and-go pounding on the pavement. With the 4DFWD 2, we have introduced a new Continental outsole that provides extra grip for a confident run in any weather condition. We also introduced an all-new Primeknit+ and engineered mesh upper construction for an extra supportive and snug fit. Complemented by a new integrated heel counter, Primeknit+ offers a sock-like fit, while areas of engineered mesh provide support exactly where runners need it most. The upper features at least 50% recycled content.
The newest addition to the iconic Adizero range, the Adizero Adios Pro 3 is a true testament to the brand’s continued dedication to elevating the performance of runners by helping them push the boundaries of what is possible. Launching in two colorways, the Adizero Adios Pro 3 features EnergyRODS
2.0 embedded in the midsole that run parallel to the metatarsals, Lightstrike Pro foam that provides cushioning and energy return to support runners, a new race-ready upper, and a Continental rubber outsole with traction to help take corners at a fast pace. In addition, the product is made in part with a series of recycled materials. In 2022, half of the twelve major marathons worldwide were won by athletes wearing Adizero.
9
adidas x CALM Collaboration
Originally debuting on the ‘Exquisite Gucci’ runway, the first adidas x Gucci collection dropped in June 2022 in select Gucci stores, dedicated popup stores and digital channels. Reflecting a shared commitment to innovation, progress, sustainability goals, and collective action, the collection features multiple pieces crafted with future-conscious material fabrications including polyester, cotton, and viscose.
On World Mental Health Day, adidas announced a new partnership with ‘Calm,’ the world’s leading mental health platform. The brands are uniting with the ambition of progressing sports performance by supporting mental well-being. The initial collaboration will be based on the concept of ‘Rest. Restore. Perform.’ with the practice of mindfulness and mental fitness helping to strengthen how athletes of all levels perform. In the longer term, the aim is to explore a range of co-created, unique, and experience-based benefits for adiClub members, as well as a broader integration of both digital ecosystems.
adidas Originals unveiled the brand’s first NFT collection of wearables, which is a new, interoperable product category adidas calls ‘Virtual Gear.’ The launch of this 16-piece collection accelerates adidas Originals’ drive towards strengthening its community-based, member-first, and open metaverse strategy. Designed to be worn by virtual avatars, and accessible through a Profile Picture dressing tool, every piece within the NFT offering is interoperable with other identity-based projects and worlds.
adidas x Gucci NFTs 10
Al Rihla
‘Al Rihla’ means ‘the journey’ in Arabic and was inspired by the architecture, iconic boats, and flag of Qatar. The ball is designed to support the highest game speeds as it travels faster in flight than any other World Cup ball. Designed from the inside out using data from rigorous testing in adidas labs, wind tunnels, and on the field, Al Rihla offers the highest level of accuracy and reliability on the field of play, in part due to its new panel shape and surface textures. Additionally, 1% of all ball net sales in Football will be donated to the Common Goal movement to help drive social change and support grassroots football communities
11
Global Production
BY
PRODUCTION
Footwear Accessories and Gear Apparel Indonesia 34% Vietnam 32% Other 18% China 16%
PRODUCTION VOLUMES
CATEGORY Footwear Accessories and Gear Apparel in million pairs in million units in million units 419 340 379 448 409 482 482 528 465 457 117 116 127 100 113 ADIDAS VS. PARTNER-OWNED AND-OPERATED DISTRIBUTION CENTERS PER REGION 9 20 1 11 4 7 5 2 4 3 43 23 partner-owned adidas-owned Asia-Pacific EMEA Greater China North America Latin America TOTAL ‘22 ‘21 ‘20 ‘19 ‘18 ‘22 ‘21 ‘20 ‘19 ‘18 ‘22 ‘21 ‘20 ‘19 ‘18 Other 44% Cambodia 22% Vietnam 17% China 17% Pakistan 21% Turkey 25% Other 26% China 28% 12
WORLDWIDE
VOLUMES
COUNTRY
TOTAL
BY
Our People
59,258
32 Average Employee Age
TOTAL EMPLOYEES
39% Female Management 61% Male Management 48% Male 52% Female
5 Average Employee Career (in years) 13
FINANCIAL REVIEW
Financial Highlights
14 Operating Highlights (€ in millions) Net Sales 22,511 21,234 6% Gross Profit 10,644 10,765 (1%) Other operating expenses 10,260 8,892 15% EBITDA 1,874 3,066 (39%) Operating profit 669 1986 (66%) Net income from continuing operations 254 1,492 (83%) Net income attributable to shareholders 612 2,116 (71%) Key
Gross margin 47.3% 50.7% (3.4pp) Other operating expenses in 1% of net sales 45.6% 41.9% 3.7pp Operating margin 3.0% 9.4% (6.4pp) Effective tax rate 34.5% 19.4% 15.0pp Net income attributable to shareholders in 1% of net sales 2.7% 10.0% (7.2pp) Average operating working capital in % of net sales 24.0% 20.0% 4.0pp Equity ratio 24.6% 34.0% (9.4pp) Adjusted net borrowings/EBITDA 3.2 0.7 n.a. Financial leverage 121.2% 27.7% 93.5pp Return on equity 12.3% 28.1% (15.9pp) 2022 2021 Change
Ratios
Cash Flow
REVIEW
15 Cash and cash equivalents at the end of 2021 Net cash used in operating activities Net cash generated from investing activities Net cash used in financing activities Effect of exchange rates Cash and cash equivalents at the end of 2022 3,828 (543) 495 (2,963) (19) 798
Financial Calendar
MAY 5, 2023
1st quarter results
MAY 11, 2023
Annual general meeting
AUGUST 3, 2023
First half results
NOVEMBER 8, 2023
Nine months results
16
