Adidas 2003 Annual Report Download - page 97

STRICT COST CONTROL ONLY PARTIALLY OFFSETS GROSS
MARGIN DECLINE /// Operating expenses at TaylorMade-
adidas Golf decreased by 18% to € 222 million in 2003 from
€ 271 million in 2002. As a percentage of sales, this repre-
sents a reduction of 3.4 percentage points to 34.9% in 2003
from 38.3% in 2002. This strong reduction was achieved as a
result of continued strict cost control in particular with
respect to administrative overheads. As a result, operating
profit for TaylorMade-adidas Golf decreased 9% to € 67 mil-
lion in 2003 from € 74 million in 2002. Operating margin
grew 0.1 percentage points to 10.6% of sales in 2003 from
10.5% in 2002.
PROVISION OF BACKLOG INFORMATION ON TAYLORMADE-
adidas GOLF NOT MEANINGFUL /// Because backlogs are
measured differently in golf than in other parts of our busi-
ness, we do not provide order information for TaylorMade-
adidas Golf.
ALL MAJOR P&L ITEMS TO IMPROVE AT TAYLORMADE-
adidas GOLF IN 2004 /// For 2004, we expect currency-neutral
sales at TaylorMade-adidas Golf to grow at mid-single-digit
rates. This development will be driven primarily by the
strength of our metalwood category, where the introduction
of a new metalwood is likely to further extend our leading
position in golf’s largest category (see Brand Strategies and
Group Management Report/Outlook). In addition, we expect
our growing market share in the iron category to continue
and anticipate ongoing above-average growth for adidas Golf
products in 2004. Gross margin in the segment is also ex-
pected to improve, reflecting continued product mix improve-
ments. Likewise, operating profit should increase as a result
of these developments coupled with further operating effi-
ciency gains.
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HIGHEST SALES INCREASES IN ASIA /// On a regional basis,
the largest currency-neutral revenue growth in 2003 came
from Asia, where sales increased 9%. All markets except
Japan contributed to this development. Currency-neutral
sales also increased in North America, up 3%, despite the
non-renewal of a licensing and distribution arrangement
with Slazenger Golf for products which are primarily marketed
in the USA. Currency-neutral sales in Europe declined 5%
as a result of pricing pressure in the UK. Negative currency
effects impacted TaylorMade-adidas Golf sales performance
in all regions. As a result, Asian revenues in euro terms
declined 3% to € 207 million in 2003 versus € 214 million in
2002. In North America, sales in euros declined 13% to
€331 million from € 382 million in the prior year. And in
Europe, sales were down 14% in euros to € 96 million in
2003 from € 111 million in 2002.
GROSS MARGIN IMPACTED BY HIGHER CLEARANCE SALES
IN ADVANCE OF PRODUCT LAUNCHES /// In 2003, Taylor-
Made-adidas Golf’s gross margin declined 3.3 percentage
points to 45.5% from 48.8% in 2002. This decrease was mainly
a result of lower metalwood margins in Asia as a conse-
quence of higher clearance sales in preparation for new
product launches in 2004. Lower golf ball margins due to
higher costs associated with increased tour standards also
contributed to the margin decline. These effects more than
offset increases resulting from strong improvements in the
iron category attributable to a higher proportion of the high-
margin RAC products. As a result of the gross margin decline
and lower revenues in euro terms, TaylorMade-adidas Golf
gross profit decreased 16% to € 290 million in 2003 from
€ 345 million in 2002.
TAYLORMADE-adidas GOLF NET SALES BY PRODUCT
1)Includes golf bags, gloves and other accessories
Putters 3%
Accessories1) 7%
Golf balls 7%
Footwear 7%
Apparel 9%
Metalwoods 46%
Irons 21%
TAYLORMADE-adidas GOLF NET SALES BY REGION
Latin America <1%
Europe 15%
Asia 33%
North America 52%