Reebok 2010 Annual Report Download - page 182

178 Group Management Report – Financial Review Subsequent Events and Outlook
Group other operating expenses to
decrease as a percentage of sales
In 2011, the Group’s other operating
expenses as a percentage of sales are
expected to decrease modestly (2010:
42.1%). Sales and marketing working
budget expenses as a percentage of
sales are projected to decline modestly
compared to the prior year. Marketing
investments to support Reebok’s growth
strategy in the men’s and women’s
fitness category, as well as investments
to support growth in our key attack
markets North America, Greater China
and Russia/CIS will be offset by the
non-recurrence of expenses in relation to
adidas’ presence at the 2010 FIFA World
Cup. Operating overhead expenditures
as a percentage of sales are forecasted
to decline slightly in 2011. Higher
administrative and personnel expenses
in the Retail segment due to the planned
expansion of the Group’s store base will
be offset by leverage and efficiency gains
in the Group’s non-allocated central
costs.
We expect the number of employees
within the adidas Group to increase
versus the prior year level. Additional
hires will be mainly related to own-retail
expansion. The majority of new hires will
be employed on a part-time basis and
will be located in emerging markets.
The adidas Group will continue to spend
around 1% of Group sales on research
and development in 2011. Areas of
particular focus include customisation
and digital sports products at adidas,
as well as supporting the expansion of
Reebok’s fitness and training positioning
see Research and Development, p. 110.
Operating margin to continue to expand
In 2011, we expect the operating margin
for the adidas Group to increase to a level
between 7.5% and 8.0% (2010: 7.5%).
Lower other operating expenses as a
percentage of sales are expected to be
the primary driver of the improvement.
Earnings per share to increase to a
level between € 2.98 and € 3.12
Earnings per share are expected to
increase at a rate of 10% to 15% to a level
between € 2.98 and € 3.12 (2010 diluted
earnings per share: € 2.71). Top-line
improvement and an increased operating
margin will be the primary drivers of
this positive development. In addition,
we expect lower interest rate expenses
in 2011 as a result of a lower average
level of net borrowings. The Group tax
rate is expected to be at a similar level
compared to the prior year level (2010:
29.5%).
Operating working capital as a
percentage of sales to increase
In 2011, average operating working
capital as a percentage of sales is
expected to increase compared to the
prior year level (2010: 20.8%). This is
mainly due to working capital increases
to support the growth of our business.
Investment level to be between
€ 350 million and € 400 million
In 2011, investments in tangible and
intangible assets are expected to amount
to € 350 million to € 400 million (2010:
€ 269 million). Investments will focus
on adidas and Reebok controlled space
initiatives, in particular in emerging
markets. These investments will account
for almost one-third of total investments
in 2011. 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. All investments within the
adidas Group in 2011 are expected to be
fully financed through cash generated
from operations.
Excess cash to be used to support
growth initiatives
In 2011, we expect continued positive
cash flows from operating activities. Cash
will be used to finance working capital
needs, investment activities, as well as
dividend payments. We intend to largely
use excess cash to invest in our Route
2015 growth initiatives and to further
reduce net borrowings. Over the long
term, we aim to maintain a ratio of net
borrowings over EBITDA of less than two
times as measured at year-end (2010
ratio: 0.2).
Efficient liquidity management in
place for 2011 and beyond
Efficient liquidity management continues
to be a priority for the adidas Group
in 2011. We focus on continuously
anticipating the cash inflows from
the operating activities of our Group
segments, as this represents the main
source of liquidity within the Group. On
a quarterly basis, liquidity is forecasted
on a multi-year financial and liquidity
plan. Long-term liquidity is ensured
by continued positive free cash flows
and sufficient unused committed and
uncommitted credit facilities. In 2011, we
do not expect any financing activities in
order to replace maturing credit facilities
see Treasury, p. 146.
Management to propose
dividend of € 0.80
In light of the strong cash flow generation
in 2010 and the significantly reduced
level of net borrowings, Management
will recommend paying a dividend of
€ 0.80 to shareholders at the Annual
General Meeting (AGM) on May 12,
2011, representing an increase of 129%
compared to 2009 (2009: € 0.35). Subject
to shareholder approval, the dividend will
be paid on May 13, 2011. The proposal
represents a payout ratio of 30% of net
income as in the prior year and complies
with our dividend policy, according to
which we intend to pay out between 20%
and 40% of net income attributable to
shareholders annually. Based on the
number of shares outstanding at the end
of 2010, the dividend payout will increase
to € 167 million compared to € 73 million
in the prior year.