Reebok 2007 Annual Report Download - page 122

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ANNUAL REPORT 2007 --- adidas Group GROUP MANAGEMENT REPORT – OUR FINANCIAL YEAR - Outlook
OUTLOOK
2008
is poised to be another strong
y
ear for the adidas Group. Based on our cur-
rent product p
i
pel
i
ne and planned market
i
n
g
i
n
i
t
i
at
i
ves, we expect stron
g
top- and bottom-
l
ine results despite some negative macro-
economic signals in important markets such
as
t
he
USA
. Th
i
s year’s two
g
lobal sport
i
n
g
events
,
the
U
EFA E
U
R
O
2008™
and the Be
iji
n
g
2008
O
lym
p
ic
G
ames, are ex
p
ected to su
pp
ort
d
evelop ment of the adidas segment in 2008
.
Further pro
g
ress on the Reebok revitalization
p
rocess will be another area of
p
ar ticular focus.
C
om
p
ared to the
p
rior year,
G
rou
p
revenue
a
nd cost synergies resulting
f
rom the Reebok
inte
g
ration will increase. Conse quently, we
expect to
g
row currency-neutra
l
sa
l
es at
a
hi
g
h-sin
g
le-di
g
it rate for the adidas
G
roup,
d
r
i
ven by growth at all our brands. In add
i
t
i
on,
w
e project increases in both our gross and
o
peratin
g
mar
g
ins, which will be between
4
7.
5
a
n
d
4
8
%
a
n
d
a
t
leas
t
9
.
5
%
,
respect
i
vely.
Further
,
we
f
orecast net income attributable
to shareholders to grow by at least
1
5
%
.
MAJOR SPORTING EVENTS TO IMPACT 2008 RESULTS Our
Group’s operating activities will be positively infl uenced by this
year’s major sporting events: the UEFA EURO 2008™ and the
Beijing 2008 Olympic Games.
As Offi cial Sponsor of the UEFA EURO 2008™, adidas will
benefi t from this event in terms of positive brand visibility but
also in terms of additional sales of adidas football products.
As a result, we forecast brand adidas sales in the important
football category to increase strongly to a new record level
of over € 1.2 billion in 2008. The operating margin of the adidas
brand, however, is not expected to be positively impacted
by this event as the related top-line growth is projected to be
offset by a modest marketing working budget increase.
The Olympic Games will be the most important sports event
ever in China, one of the fastest-growing markets for sporting
goods in the world. adidas is the Offi cial Sportswear Partner
for the Beijing 2008 Olympic Games and the outfi tter of
16 National Olympic Committees. As a result, adidas will be
the most visible brand during this event, out fi tting all technical
offi cials and more than 100,000 volunteers. Further, we antici-
pate a positive impact on brand Reebok. In China, Reebok will
benefi t from the partnership with Yao Ming, China’s most
prominent athlete. As a result, we expect our involvement in
the Beijing 2008 Olympic Games to have a positive long-term
impact on the image and sales development of both adidas
and Reebok. Supported by this event, we expect the adidas
Group to become the market leader in China in 2008. How ever,
we expect no signifi cant sales increase related to the Olympic
Games in 2008, as we have only limited opportunities to com-
mercialize products for highly specialized Olympic disciplines.
Additionally, event-related marketing costs will lead to a minor
marketing working budget increase at both brands.
INCREASING REVENUE AND COST SYNERGIES IN 2008
We have ambitious revenue and cost synergy targets related to
the Reebok integration in 2008. adidas Group revenue syner-
gies will grow to around € 250 million in 2008 (2007: around
€ 100 million) and are expected to positively impact the sales
development of both the adidas and Reebok seg ments. The
majority of revenue synergies will be related to accelerating
sales growth in Europe’s emerging markets and Asia where
Reebok has bought out distributor and joint venture partners.
We also expect adidas to continue to benefi t from increasing
revenue synergies. These relate to the further expansion
of adidas’ exclusive relationship with the NBA – particularly
in Asia – as well as to the utilization of the Sports Licensed
division for other licensed products in North America such
as college sports. One-time costs associated with achieving
these synergies are estimated to be between € 15 million and
€ 25 million in 2008 (2007: around € 25 million).
We expect cost synergies related to the Reebok integration
to be around € 175 million in 2008 (2007: around € 90 million).
This increase will positively impact both cost of sales and
operating expense development. We will continue to achieve
cost of sales synergies through supply chain optimization.
Cost synergies within the Group’s operating expenses will be
realized through various initiatives such as joint media buying,
offi ce consolidation in Europe and Asia, harmonizing and
consolidating our IT systems, eliminating duplicative corporate
functions as well as sharing fi nance and administrative ser-
vices across the Group. One-time costs associated with
achieving these cost synergy targets are expected to remain
on a level of around € 70 million in 2008 (2007: around € 70 mil-
lion). As a result, net cost synergies are expected to rise to
around € 105 million in 2008 (2007: around € 20 million).