Reebok 2007 Annual Report Download - page 84

080
ANNUAL REPORT 2007 --- adidas Group GROUP MANAGEMENT REPORT – OUR FINANCIAL YEAR -- Group Business Performance - Income Statement
Revenue synergies mainly occurred in the Reebok segment.
Sales increased incrementally in several countries for which
Reebok had purchased the distribution rights in order to better
control brand management and gain market share. Revenues
grew particularly strongly in Russia and China, where Reebok
took full control of distribution effective January 1, 2007. Reve-
nue synergies also had a small positive impact on sales devel-
opment in the adidas segment. This was a result of higher
revenues from the licensed business, in particular from our
partnership with the NBA.
Cost synergies resulting from the combination of adidas and
Reebok sourcing activities had a positive impact on the cost of
sales of both segments, in particular for adidas due to the
higher volume of products sourced compared to Reebok. Due
to the timing of sourcing improvements, cost synergies were
weighted towards the second half of the year. On a full year
basis, the positive impact on the Group’s gross margin was
largely offset by integration costs which negatively impacted
the Group’s operating expenses. These costs were recorded
in the HQ / Consolidation segment and to a lesser extent at
adidas and Reebok. In line with our initial expectations, we
realized revenue synergies of around € 100 million. Net cost
synergies exceeded initial expectations and amounted to
around € 20 million in the full year 2007.
ADIDAS GROUP CURRENCY-NEUTRAL SALES GROW 7 %
In 2007, Group revenues increased 7 % on a currency-neutral
basis, mainly as a result of sales growth in the adidas seg-
ment. This development was in line with initial Management
expec tations of mid-single-digit growth. Currency movements
negatively impacted Group sales in euro terms. Group reve-
nues grew 2 % in euro terms to € 10.299 billion in 2007 from
€ 10.084 billion in 2006. On a like-for-like basis, including
Reebok’s revenues for the full twelve-month periods of both
years and excluding the effect from the dives titure of the GNC
wholesale business, Group sales also increased 7 %.
I
NCOME STATEMENT
NO CHANGES IN ACCOUNTING POLICY The Group’s consoli-
dated fi nancial statements are prepared in accordance with
International Financial Reporting Standards (IFRS). In line with
IFRS, several new or amended standards and interpretations
were applied for the fi rst time in 2007.  see Note 1, p. 157 Never-
theless, there were no changes in the Group’s consolidation
and accounting prin ciples. Therefore, changes in accounting
policy and changes in management discretion in the application
of accounting standards had no impact on Group business
per formance in the reporting period.
TWELVE MONTHS OF REEBOK RESULTS CONSOLIDATED
Several factors infl uenced the comparison of 2007 reported
results for the Group and our segments with the prior year.
Only eleven months of Reebok’s results were consolidated in
2006 due to the acquisition date (February 1, 2006). In 2007,
twelve months of the segment’s results were consolidated. This
had a positive impact on the comparison of Reebok segment
sales to the prior year. The segment’s operating margin, how-
ever, was negatively affected, as the month of January is
tradi tio nally characterized by higher-than-average clearance
activities. In ad dition, Reebok’s operating profi t was negatively
impacted by purchase price allocation charges, however
to a signifi cantly lesser extent compared to the prior year.
In 2007, the negative effect on Reebok’s operating profi t amounted
to € 12 million (2006: € 89 million). Sales and operating
margin
at TaylorMade-adidas Golf were negatively affected by the
divestiture of the Greg Norman Collection (GNC) wholesale
business, which was completed on November 21, 2006.
SYNERGIES SUPPORT OPERATIONAL PERFORMANCE The
operational performance of the adidas and Reebok segments
was positively impacted by the realization of revenue and cost
synergies resulting from the integration of the Reebok business
into the adidas Group.
NET SALES
€
in milli
o
n
s
2003
2004 1)
2005 1)
2006 2)
2007
1
) Figures refl ect continuing operations as a result of the divestiture of the Salomon
b
usiness se
g
ment
.
2
)
Includin
g
Reebok business se
g
ment from February 1, 2006 onwards.
I
ncluding Greg Norman apparel business from February 1, 2006 to November 30, 2006.
5,860
6,636
10,084
10
,
29
9
6,267
NET SALES BY QUARTER 1)
€
in milli
o
n
s
Q1 2006
Q
1 200
7
Q2 2006
Q
2 200
7
Q3 2006
Q3
200
7
Q4 2006
Q
4 200
7
1)
Includin
g
Reebok business se
g
ment from February 1, 2006 onwards.
I
ncluding Greg Norman apparel business from February 1, 2006 to November 30, 2006.
2,
941
2,949
2
,
40
0
2,428
2,53
8
2,459
2
,
41
9
2,248