Adidas 2005 Annual Report Download - page 101

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97
Royalty and Commission Income Grows 7%
In 2005, royalty and commission income at brand adidas grew
by 7% to € 59 million from € 56 million in 2004. This increase
was driven by both an increased number of units and higher
average royalty rates in our most important categories for
royalty and commission income, namely cosmetics, eyewear
and watches.
Operating Expenses Increase as a Percentage of Sales
adidas operating expenses grew 15% to € 2.020 billion in 2005
from € 1.761 billion in 2004. Operating expenses as a percent-
age of sales increased 0.4 percentage points to 34.5% in 2005
(2004: 34.0%). This increase mainly reflects higher marketing
expenditures from fourth quarter product launches related to
the 2006 FIFA World Cup™ as well as higher operating over-
head costs as a percentage of sales related to increased own-
retail activities.
Latin America 6%
adidas Net Sales by Region
Europe 52%
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Asia 22%
Q1 2004
Q1 2005
Q2 2004
Q2 2005
Q3 2004
Q3 2005
Q4 2004
Q4 2005
adidas Operating Profit by Quarter1) € in millions
192
258
93
92
269
324
10
20
1) 2004 quarterly figures have been adjusted to reflect the changes in IFRS.
North America 20%
adidas Business Performance
No Goodwill Amortization Incurred in 2005
In accordance with the new and revised International Finan-
cial Reporting Standards, scheduled goodwill is no longer
allowed. No goodwill impairment was incurred at brand
adidas in 2005. This compares to scheduled goodwill amorti-
zation of € 14 million in the prior year (see Notes/note 2).
Operating Profit and Margin Increase Considerably
In 2005, the operating margin for the adidas segment
increased by 0.9 percentage points to 11.8% in 2005 (2004:
10.9%). This improvement was a result of strong sales and
gross margin increases. adidas operating profit grew by 23%
to € 693 million versus € 564 million in the prior year. On a
comparable basis excluding goodwill amortization incurred in
2004 and including royalty and commission income for both
years, operating profit and margin for brand adidas would
have increased by 20% or 0.7 percentage points respectively
in 2005.
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