Adidas 2000 Annual Report Download - page 55

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adidas-Salomon ANNUAL REPORT 2000
51
Management Discussion & Analysis
Gross Margins to Remain within Target Range
For the adidas-Salomon Group, we anticipate keeping gross
margins in a range of 41 to 43% during 2001. There are two
factors which will negatively affect margins. Increased product
purchasing costs will put pressure on margins of products in
our largest market, Europe. Additionally, promotional pressure
in the United States is likely to impact the prices of our products,
thereby pushing down margins. On the positive side, increasing
own-retail activities and a better product mix as a result of our
new initiatives should contribute to high-level margins in 2001.
Declining Expenses will Lead to Improved Operating Profits
Following the successful implementation of our Growth and
Efficiency Program, earnings will improve significantly in 2001
and beyond. In particular, marketing working budget will
decline for the adidas brand and consequently for the Group.
For brand adidas, we intend to push this figure down signifi-
cantly in the future to a medium-term target range of between
12 and 13%. We will maintain the flexibility to shift funds within
the regions as necessary to appropriately address global
marketing priorities. This demonstrates our belief that market-
ing can be done more efficiently. For the Group we are expect-
ing a small decline in
operating expenses, as new efficiencies
will be partially compen
sated for by continued investments in
Salomon and TaylorMade to maximize their brand power.
Non-Operating Result will Decline
A decline in the non-operating result is likely in 2001. Stable
development of goodwill depreciation as well as royalty and
commission income is expected. We also anticipate higher
interest expense in 2001 as a result of higher average interest
rates compared to 2000.
Net Income to Increase 15%
As a result of increased top-line improvements at all the brands
and the decline of our operating expenses as a percent of net
sales, we anticipate improving net income for the Group by
15% in 2001. Decreasing minority interests and a small decline
in the Group tax rate will also contribute to this increase.
Capital Expenditure will be Stable
In 2001, capital expenditure for the Group will continue at
levels consistent with 2000. Major projects for the year include
“adidas Village”, our new headquarters for adidas America, and
global supply chain improvements, in particular IT hardware
and software.
Net cash provided by operating activities will be in excess of
the investment volume necessary in 2001. This surplus will be
used to reduce our borrowings. It is our goal to decrease net
borrowings for the Group by c 100–150 million annually going
forward.
Beyond 2001
adidas-Salomon is now poised for the next phase of growth.
We have successfully completed the Growth and Efficiency
Program, which has prepared our systems and structures for
the major changes now underway within the Group. A key
driver of growth for brand adidas will be the new marketing
strategy. Growth of our other brands will also continue. With a
new consumer focus in our designs, technologies and market-
ing we are confident that double-digit earnings growth for the
future years will be possible.