Adidas 2003 Annual Report Download - page 74

LICENSEE REVENUES DECREASE /// For some product
segments or markets, adidas-Salomon has licensing agree-
ments with independent companies, which manage the
design, development, manufacture and distribution of specific
product lines. Currently, adidas has 18 licensees that source
products from 154 suppliers in 24 different countries. In 2003,
net licensee sales decreased by 6% to € 542 million from
€ 577 million in 2002. This decline was mainly a result of
currency fluctuations. The expiration of adidas licensee
agreements in North America, Latin America and Africa also
contributed to this development. On a like-for-like basis,
licensee sales would have increased by 7% in 2003 due to
continued solid performance of our licensee for toiletries and
perfume.
LOWER COST OF SALES IN 2003 /// As the vast majority of
our products are manufactured by independent contractors
and our own production activity is very limited, our Group
defines cost of sales as the amount we pay to third parties for
expenses associated with producing and delivering our prod-
ucts. Similar own-production expenses, although only a small
proportion of the Group’s cost of sales, are also recorded at
Salomon and TaylorMade. In 2003, cost of sales was
€ 3.453 billion, representing a decrease of 7% from the
€ 3.704 billion level of 2002. This decrease was stronger than
the decline of the Group’s sales in euros and reflects favor-
able currency effects on purchase prices. This is a result of
the fact that 70 to 80% of the sourcing volume was incurred
in US dollars, while the percentage of sales revenues in
US dollars and other non-euro currencies was significantly
lower, with about half of the Group’s sales denominated in
European currencies. Changes in exchange rates, especially
the relation between the US dollar and the euro, therefore
have the potential to markedly affect cost of sales. Production
and material efficiencies also contributed to this reduction.
70 REPORTING GROUP MANAGEMENT REPORT /// GROUP BUSINESS PERFORMANCE
FOOTWEAR NET SALES € in millions
1999 2,222
2000 2,515
2001 2,650
2002 2,851
2003 2,767
APPAREL NET SALES € in millions
1999 2,190
2000 2,175
2001 2,212
2002 2,288
2003 2,222
HARDWARE NET SALES € in millions
1999 924
2000 1,144
2001 1,250
2002 1,385
2003 1,278
CURRENCY-NEUTRAL FOOTWEAR SALES UP 6% /// Currency-
neutral sales of footwear within the adidas-Salomon Group
increased 6%. In euro terms, sales declined 3% to € 2.767 bil-
lion (2002: € 2.851 billion). Currency-neutral growth was
mainly driven by the adidas Sport Performance running,
training and football categories. Strong growth, however,
also came from Salomon outdoor footwear and adidas Golf
footwear. Declines in footwear sales were recorded in the
basketball and tennis categories as well as in the adidas
Sport Heritage division. Footwear comprised 44% of total
Group net sales, reaffirming its position as adidas-Salomon’s
most important product category.
CURRENCY-NEUTRAL APPAREL SALES IMPROVE 5% /// In
2003, apparel sales grew 5% on a currency-neutral basis. In
euros, apparel sales were down 3% to € 2.222 billion from
€2.288 billion in 2002. This represents 35% of total Group
sales. Drivers of the positive currency-neutral development
were Sport Performance apparel, especially the training
category, as well as Sport Heritage apparel. This was partly
offset by lower revenues of the adidas Sport Performance
basketball and football categories.
HARDWARE SALES UP 1% CURRENCY-NEUTRAL DESPITE
NON-RENEWAL OF SLAZENGER GOLF LICENSE /// Hardware
sales primarily come from the TaylorMade and Salomon
brands. In 2003, hardware sales increased 1% on a currency-
neutral basis. In euros, hardware sales were down 8% to
€1.278 billion from € 1.385 billion in 2002. The primary
drivers of currency-neutral growth were higher TaylorMade
iron and Mavic wheel sales, which more than offset lower golf
ball revenues, that were impacted by the non-renewal of a
licensing and distribution agreement with Slazenger Golf.