Reebok 2007 Annual Report Download - page 127

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ANNUAL REPORT 2007 --- adidas Group
03
OPERATING MARGIN TO SHOW IMPROVEMENT In 2008, we
expect the operating margin for the adidas Group to increase
to at least 9.5 % from 9.2 % in 2007 as a result of operating
margin improvements in all segments. Gross margin improve-
ments are expected to more than compensate operating over-
head increases as a percentage of sales in all segments.
NET INCOME FOR THE ADIDAS GROUP TO GROW AT LEAST
15% Net income attributable to shareholders is projected
to grow by at least 15% in 2008 versus the 2007 level of
€ 551 million. This represents the eighth consecutive year
of double-digit net income growth. Top-line improvement and
an increased operating margin will be the primary drivers of
this positive development. In addition, we expect slightly lower
interest expenses as a result of a reduction in average debt to
also have a positive impact on net income. However, this effect
will be partially offset by a higher tax rate versus the prior year
as a result of small changes in the earnings mix. Minority
interests are expected to remain broadly unchanged in 2008.
WORKING CAPITAL MANAGEMENT TO IMPROVE BALANCE
SHEET Operating working capital management is a major focus
of our efforts to improve the Group’s balance sheet.  see Internal
Group Management System, p. 056 Our goal is to further reduce operat-
ing working capital as a percentage of sales in 2008. Inventory
management in particular will be an important mechanism for
the realization of further improvements. Optimizing inventory
levels for fast replenishment and rigorous control of inventory
aging are the top priorities for our Working Capital Task Force
in 2008. We also target further improvement in accounts
receivable by improving collection efforts, and in accounts pay-
able by optimizing payment terms with our suppliers.
MODEST INCREASE IN OPERATING OVERHEAD COSTS
EXPECTED The adidas Group’s operating overhead costs as
a percentage of sales are expected to grow modestly due to
increases in all brand segments, largely as a result of the
expansion of own-retail activities at adidas and Reebok in fast-
growing emerging markets such as Russia. This will more than
offset cost synergies related to the Reebok integration into the
adidas Group. Operating overhead costs as a percentage of sales
at TaylorMade- adidas Golf are also expected to increase
modestly due to our plans to expand TaylorMade’s presence
in the golf ball cate gory. A portion of the operating overhead
increases at the brands will be offset by lower costs in the
HQ / Consolidation segment. These are expected to decline
as a percentage of sales due to increasing cost synergies
resulting from the Reebok integration.
Primarily as a result of the anticipated strong retail expansion
and growth in the emerging markets, we expect the number
of employees within the adidas Group to grow mod estly.
Accordingly, personnel expenses for the adidas Group will
also increase.
The adidas Group will continue to spend around 1 % of sales on
research and development in 2008. Areas of particular focus
include running, football, basketball and training at the adidas
and Reebok brands, as well as golf hardware at TaylorMade-
adidas Golf. The number of employees working in research
and development throughout the Group will increase in 2008 to
support our increasing number of inno vation projects.
Accounting effects related to purchase price allocation follow-
ing the Reebok acquisition are expected to impact Group
operating expenses in a range of € 10 million to € 20 million
in 2008 (2007: € 12 million).
ADIDAS GROUP 2008 TARGETS
ADIDAS SEGMENT 2008 TARGETS
REEBOK SEGMENT 2008 TARGETS
TAYLORMADE-ADIDAS GOLF SEGMENT 2008 TARGETS
Currency-neutral sales growth high-single-digit
Gross margin 47.5 to 48 %
Operating margin at least 9.5 %
Net income growth at least 15 %
Currency-neutral sales growth high-single-digit
Gross margin increase
Operating expenses as a percentage increase
of sales
Operating margin increase
Currency-neutral sales growth low- to mid-single-digit
Gross margin increase
Operating expenses as a percentage increase
of sales
Operating margin increase
Currency-neutral sales growth mid-single-digit
Gross margin increase
Operating expenses as a percentage increase
of sales
Operating margin increase