Reebok 2007 Annual Report Download - page 128

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ANNUAL REPORT 2007 --- adidas Group GROUP MANAGEMENT REPORT – OUR FINANCIAL YEAR - Outlook
AMBITIOUS NON-FINANCIAL GOALS FOR 2008 AND BEYOND
In addition to our Group’s ambitious fi nancial targets for 2008,
we have several non-fi nancial targets to ensure the continued
long-term success of the adidas Group. Major non-fi nancial
developments within the adidas Group in 2008 and beyond are
expected to be:
- Controlled space: We intend to increase our controlled space
initiatives  see Group Strategy, p. 044 to at least 30 % of Group sales
by 2010. As a result, we intend to further grow our Group’s
own-retail activities. New openings will concentrate on emerg-
ing markets, in particular Russia. Here, we plan to open over
100 stores for the Group in 2008. We are also extending our
franchise network in countries such as India, Turkey, Korea
and Poland. Our mono-branded adidas and Reebok store base
in China is targeted to increase to 7,000 stores by 2010 (year-end
2007: around 4,000). In addition, key account initiatives such as
shop-in-shop or similar solutions, especially in the USA and
UK, are an important trend that we plan to extend substantially
going forward.
- Global Operations: As our products are almost entirely manu-
factured by independent suppliers, our Group’s Global Operations
function continuously strives to optimize our Group’s supplier
network and implement initiatives to maximize cost effi ciency,
reduce lead times and ensure consistently high product quality.
In 2008, we are again committed to further supply chain
improvements.
 see Global Operations, p. 062
- Sustainability: As a responsible company, we are committed
to further strengthening our social and environmental perfor-
mance in the coming years. For 2008, we plan to further intensify
our outreach to governments in key sourcing countries to promote
social and legislative changes for the benefi t of our employees
and our suppliers’ workers. In addition, we strive to improve
the external monitoring of our tier two and three suppliers.
Finally, we plan to commission external verifi cation of the tools
and processes developed for selecting organic and recycled
materials used in our products.
EFFICIENT LIQUIDITY MANAGEMENT IN PLACE FOR 2008 AND
BEYOND Effi cient liquidity management continues to be a pri-
ority for the adidas Group in 2008. We focus on continuously
anticipating the cash infl ows from the operating activities of our
Group segments as this represents the main source of liquidity
within the Group. Liquidity is forecasted on a multi-year fi nan-
cial and liquidity plan on a quarterly basis. Long-term liquidity
is ensured by continued positive free cash fl ows and suffi cient
unused credit lines.  see Treasury, p. 091 Consequently, we do not
plan any signifi cant fi nancing initiatives in 2008.
19 % DIVIDEND INCREASE TO BE PROPOSED We are com-
mitted to maintaining the Group’s dividend payout ratio cor-
ridor of between 15 and 25 % of net income. At our Annual
General Meeting on May 8, 2008, we intend to propose a
dividend of € 0.50 per share for the 2007 fi nancial year
(2006: € 0.42). Based on the number of shares outstanding
at the end of 2007, the dividend payout will increase 19 %
to € 102 million (2006: € 85 million), outpacing the earnings
growth of 14 % for the year. This represents a payout ratio of
19 % versus 18 % in 2006, highlighting our confi dence in the
Group’s future business performance. However, as a result
of the share buyback program, the total dividend payout and
the payout ratio could decrease slightly. Going forward, we
expect the dividend payout to grow broadly in line with net
income attributable to shareholders.
NO MAJOR CHANGES IN LEGAL STRUCTURE EXPECTED In
2008, we expect only minor legal changes within the adidas
Group. Changes in the Reebok segment could arise from the
buyback of Reebok distribution rights, which will be evaluated
on a case-by-case basis in 2008. Buybacks could be realized
in countries where we anticipate long-term growth opportu-
nities for the Reebok business and the price for a buyback is
reasonable. In the TaylorMade-adidas Golf segment, no major
changes will arise from the divestiture of the Maxfl i brand.
 see Subsequent Events, p. 117
INVESTMENT LEVEL TO BE BETWEEN € 300 MILLION AND
€ 400 MILLION In 2008, investments in tangible and intangible
assets are expected to amount to € 300 million to € 400 million
(2007: € 289 million). Expenditures will focus on own-retail
expansion and retail support at brand adidas. In emerging
markets, own-retail expansion of the Reebok brand will also
impact investments. Expenditure per brand will be roughly in
line with our sales split.
Around 50 % of total investments in 2008 will be dedicated to con-
trolled space initiatives within the adidas Group. Other areas
of investment are the increased deployment of SAP and other
IT systems in major subsidiaries within the Group, the further
development of the adidas Group Headquarters in Herzogen-
aurach, Germany, as well as investments for the joint adidas
and Reebok warehouse projects in the USA and UK in order
to generate cost synergies in the future. The most important
factors in determining the exact level and timing of investments
will be the rate at which we are able to successfully secure
controlled space opportunities and integrate new SAP systems
within existing applications. All investments within the adidas
Group are expected to be fully covered through cash generated
in our operating business.
EXCESS CASH TO BE USED FOR ADIDAS SHARE BUYBACK
In 2008, we expect continued strong cash fl ows from operating
activities. We intend to largely invest our excess cash of
€ 300 million to € 400 million in the buyback of adidas shares
to support earnings per share growth for increasing share-
holder value.  see Subsequent Events, p. 117 As a result, we expect
net borrowings to be at or slightly below the prior year level.
Cash infl ows from operating activities will be used to fi nance
working capital needs, investment activities as well as dividend
payments. Tight working capital management and disciplined
investment activities are expected to help optimize the Group’s
cash fl ow in 2008. For 2009 and beyond, we see the potential
for free cash fl ow generation to increase and we are well on
track to achieving our medium-term fi nancial leverage target
of below 50 % (2007: 58.4 %).