Reebok 2006 Annual Report Download - page 117

Medium-Term Cost Synergies from Reebok Integration
During our integration planning phase, we have identified an
annual cost of sales and operating expense synergy potential
in an amount of € 175 million. We expect to realize the full
savings effect by 2009. In particular, we project cost savings
to come from the following areas:
» Cost of sales: By integrating Reebok into our Global Oper-
ations function, we see the potential to achieve a cost of sales
reduction of € 75 million through scale advantages on pur-
chasing by 2009.
» Sales and marketing, distribution, administration and IT:
We have also identified the opportunity to generate € 100 mil-
lion in operating expense savings by realizing various ini-
tiatives such as joint media buying, co-locating sales and
global operations teams throughout most of Europe and Asia,
harmonizing and consolidating our SAP systems, eliminat-
ing duplicative corporate functions and sharing finance and
administrative services across the Group.
We expect to generate 50% of the targeted synergies in 2007
and the full 100% as of 2008. To generate these annual sav-
ings we estimate remaining one-time costs of € 140 million,
50% of which are to occur in 2007 and 50% in 2008.
Phasing of Integration Revenue Synergies € in millions
2007 2008 2009
Incremental annual
revenue 100 250 500
Average one-time
cost per year 15 – 25 15 – 25 15 – 25
Phasing of Integration Cost Synergies € in millions
2007 2008 2009
Annual cost saving 87.5 175 175
One-time cost per year 70 70 —
Net effect 17.5 105 175
Annual currency-neutral sales growth high-single-digit
Gross margin 46 to 48%
Operating margin approx. 11%
Annual net income growth double-digit
Group Medium-Term Financial Targets to 2009
Strong Medium-Term Outlook
As a result of continued underlying growth of our brands and
the synergies from the Reebok integration, we expect a strong
top- and bottom-line development over the medium term. We
project sales for the Group to increase at high-single-digit
rates on a currency-neutral basis in 2008 and 2009, respec-
tively. This development will be driven by continued strength at
adidas and TaylorMade-adidas Golf as well as a revitalization
of the Reebok business segment. The Group’s gross margin
is expected to grow annually to a corridor of between 46 and
48% in 2009, driven by increases at all brands. In particular,
this development will reflect positive effects from an improv-
ing product and geographical mix, own-retail expansion and
cost of sales synergies derived as a result of the integration
of Reebok. In the medium term, we also expect the Group’s
operating margin to increase to approximately 11% in 2009,
driven by improvements at all brands. Efficiency gains related
to the integration of the Reebok business segment will play
a major role in this development. Net income is expected to
increase by double-digit rates in 2008 and 2009, respectively,
as a result of our continuing top-line growth and improved
profitability projected at all brands.
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