Reebok 2012 Annual Report Download - page 57

adidas Group
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2012 Annual Report
To Our Shareholders
35
2012
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01.2
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Interview with the CEO
Herbert, looking at your 2012 results, have the financials
lived up to your expectations?
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Yes, absolutely. 2012 has been another successful year for the
adidas Group. Our products and brands again enjoyed several important
market share wins in key categories and markets. Sales grew 6%
currency-neutral, adding € 1.6 billion in revenues to a new record level
of € 14.9 billion. We also made strong bottom-line progress. The Group’s
operating margin excluding goodwill impairment losses improved to
8.0% and earnings per share excluding goodwill impairment losses
grew 29% to € 3.78, also our highest ever. As a result, we ended the year
with a net cash position of € 448 million, a fivefold increase compared to
a year ago. This significant cash flow generation once again underpins
the trajectory and value we are unlocking with our Route 2015 strategic
business plan.
What were the key highlights for the Group from
your perspective?
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Two of our Group’s most important values are passion
and performance. These really shine through in many of our 2012
achievements. The obvious highlight has to be the role adidas played
at the year’s major sporting events, which spurred brand sales up
10% currency-neutral. In particular, the London 2012 Olympic and
Paralympic Games count amongst the most memorable and inspiring
sporting events of our time. The Games not only delivered great feats
of athletic performance, they also united a passionate public, creating
a spectacular celebration showcasing all that is good about sport. The
adidas brand as the official sportswear partner of the event and of Team
GB played its role to perfection. It delivered its most comprehensive
offering of high-performance products ever and contributed significantly
to the emotion of the event with the highly acclaimed “Take the Stage”
campaign. In total, adidas kitted out over 5,000 athletes, 11 National
Olympic Committees and 21 national sporting federations, including
many medal winners wearing adidas, amongst them gold medallists
David Rudisha, Jessica Ennis, Andy Murray and the US women’s
gymnastics team, to name just a few.
Similarly in Poland and Ukraine, standout performances from
our teams and players at the UEFA EURO 2012 were another catalyst
which truly inspired consumers and fans. Through their purchases, they
overwhelmingly reconfirmed adidas as the number one football brand,
highlighting that our passion for innovation continues to be the lever
that sets us apart from the competition. Be it our iconic Predator and
f50 football boots, the match ball or federation jerseys, we once again
dominated the world’s favourite sport, achieving new record levels
of sales of well above € 1.7 billion, eclipsing even our own very high
expectations. This passion for innovation leads me to another major
highlight of our year – TaylorMade-adidas Golf. With sales up 48% in just
two years, our golf business has already rocketed past its initial Route
2015 targets. Considering that the golf industry is still relatively stagnant,
this is a remarkable testament to its relentless focus on helping golfers
perform better.
Finally, our long-standing and proven ability to tackle internal
and external challenges with speed and determination also warrants
particular mention for 2012. Be it the full mitigation of the considerable
sourcing cost pressures which cost us 3.8 percentage points of gross
margin, the countless hours of vigorous effort to solve the commercial
irregularities at Reebok India Company or the discipline and restraint
in managing our business in a persistently uncertain global economy,
I am proud of the passion and dedication of our employees to tackle
these challenges. And more importantly, all of this was achieved while
continuing to stay diligent and focused on ensuring we remain fully on
course to deliver our ambitious Route 2015 strategic goals.
Can you outline the reasons for and details related to the
restatement of 2011 and prior year figures?
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As we announced last April, we discovered commercial
irregularities at our Reebok business in India, bringing to light a high
level of criminal energy and collusion between former employees
and external business partners. As promised, we have followed up
vigorously and swiftly on the matter through a thorough internal and
external investigation, also with police involvement. Key findings from
our internal investigations include inappropriate recognition of sales, a
failure to book sales returns and a failure to correctly post credit notes to
accounts receivable. This resulted in a significant overstatement of net
sales, accounts receivable as well as materially incorrect accounting for
inventories and provisions. During the investigation process, the new
management also discovered four previously undisclosed warehouses
not declared in the official accounting records. The findings of the
investigations suggest that the practice of inflating sales and profits had
been going on for several years.
As a result of the findings, we have restated our accounts
in accordance with IAS 8, which has led to a reduction of net income
attributable to shareholders of € 58 million for 2011, compared to what
we previously reported. In addition, shareholders’ equity in the opening
balance sheet for 2011 was negatively impacted by € 153 million
to account for prior year periods. For further information, we have
outlined the changes in detail in Note 3 of our 2012 Annual Report. As
unpleasant as the identified irregularities at Reebok India Company are,
I am satisfied we have diligently completed our efforts to uncover all the
wrongdoings, while simultaneously laying the foundation for a healthy
and profitable business for Reebok in India in the future. In addition, we
have also taken the opportunity to comprehensively review our internal
control processes and procedures of governance and compliance, with
the necessary external expertise, at all of our locations around the world.
Let me reiterate, non-compliance with our policies has never been and
will never be tolerated within our organisation.