Reebok 2009 Annual Report Download - page 164

160 GROUP MANAGEMENT REPORT – FINANCIAL REVIEW Subsequent Events and Outlook
Group operating expenses to decrease
as a percentage of sales
In 2010, the Group’s operating expenses
as a percentage of sales are expected to
decrease modestly (2009: 42.3%). Sales
and marketing working budget expenses
as a percentage of sales are expected to
increase modestly versus the prior year
to support adidas presence at the 2010
FIFA World Cup™ as well as to sustain
Reebok’s growth strategy in muscle
toning and conditioning. However, this
increase will be more than offset by
lower operating overhead expenditures
as a percentage of sales. This will be
largely due to the continued hiring freeze
in non-retail-related functions and vari-
ous efficiency improvement measures
introduced in 2009, such as the imple-
mentation of joint operating models for
the adidas and Reebok brands and the
elimination of regional headquarters.
These efficiency gains will outweigh
higher administrative and personnel
expenses in the Retail segment as a
result of the build-up of management
expertise and the planned expansion of
the Group’s store base.
We expect the number of employees
within the adidas Group to increase
versus the prior year level. Ongoing
initiatives to streamline our organisation
are forecasted to be more than offset by
new hirings related to own-retail expan-
sion. The majority of new hirings will
be employed on a part-time basis and
located in emerging markets.
The adidas Group will continue to spend
around 1% of sales on research and
development in 2010. Areas of particular
focus include training, running, football,
basketball and outdoor at adidas, and
women’s fitness and men’s training at
Reebok see Research and Development,
p. 92. The number of employees working
in research and development through-
out the Group will remain virtually
unchanged in 2010.
Operating margin to show improvement
In 2010, we expect the operating margin
for the adidas Group to be around 6.5%
(2009: 4.9%). Gross margin improvements
as well as lower operating expenses as
a percentage of sales are expected to
contribute to the improvement compared
to the prior year.
Earnings per share to increase to a
level between € 1.90 and € 2.15
Earnings per share are expected to
increase strongly to a level between
€ 1.90 and € 2.15 (2009 diluted earnings
per share: € 1.22). Top-line improve-
ment and an increased operating margin
will be the primary drivers of this posi-
tive development. In addition, we expect
lower interest rate expenses as a result
of a lower average level of net borrowings
in 2010 compared to the prior year. The
Group tax rate is expected to be slightly
below the prior year level (2009: 31.5%)
as a result of the non-recurrence of prior
year charges related to the write down of
deferred tax assets.
Operating working capital as a
percentage of sales to improve
Improving operating working capital
management continues to be a priority
in our efforts to optimise cash flow from
operations. In 2010, our goal is to reduce
average operating working capital as
a percentage of sales (2009: 24.3%).
Optimisation of order volumes based on
expected sales development and rigor-
ous monitoring of inventory ageing are
at the forefront of our activities. We will
also focus on tightly managing accounts
receivable and payment terms with our
suppliers.
Investment level to be between
€ 300 million and € 400 million
In 2010, investments in tangible and
intangible assets are expected to amount
to € 300 million to € 400 million (2009:
€ 240 million). Investments will focus
on adidas and Reebok controlled space
initiatives, in particular in emerging
markets. These investments will account
for almost 50% of total investments in
2010. Other areas of investment include
the further development of the adidas
Group Headquarters in Herzogenaurach,
Germany, and the increased deployment
of SAP and other IT systems in major
subsidiaries within the Group. The most
important factors in determining the
exact level and timing of investments will
be the rate at which we are able to suc-
cessfully secure own-retail opportunities.
All investments within the adidas Group
in 2010 are expected to be fully financed
through cash generated from operations.
N °-
02
ADIDAS GROUP 2010 OUTLOOK
Currency-neutral sales low- to mid-single-digit increase
Gross margin 46% to 47%
Operating margin around 6.5%
Earnings per share € 1.90 to € 2.15