Adidas 2005 Annual Report Download - page 117

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113
Outlook
2006 is set to be another exciting year for adidas. The
Reebok integration and the 2006 FIFA World Cup™ in our
home market Germany will be our main focus. Supported
by our strong product pipeline and marketing initiatives,
we are confident that we will again be able to deliver
strong top- and bottom-line performance this year. Both
the global economy and the sporting goods industry
are forecasted to continue their solid growth shown in
2005, although prospects differ regionally. The first-time
consolidation of Reebok International Ltd. will lead to a
strong double-digit sales increase in 2006. However, for
the adidas Group excluding Reebok we also expect a high-
single-digit currency-neutral sales increase. The Group’s
gross margin is expected to be in a range of between
44 and 46% (between 47 and 48% excluding Reebok). The
Group’s operating margin is expected to be around 9%
(between 10 and 10.5% excluding Reebok). Net earnings
are expected to grow by double-digit rates.
Global Economy Stays on Track
With a projected GDP growth rate of around 4% for 2006, the
global economy is expected to continue to grow at a similar
level to 2005. Regional discrepancies will remain however.
While Europe is forecasted to develop somewhat more
strongly than in 2005, economic growth in North America will
slow slightly in line with weaker consumer demand. The out-
look for Asia and Latin America remains strong.
Growing Momentum in Europe
In Europe, GDP is expected to increase by around 2%. Western
Europe is projected to continue to benefit from momentum
gained at the end of 2005 from higher export levels. Improving
investment activity, increasing industrial production and
lower unemployment rates, which support private consump-
tion, should sustain moderate economic expansion. In Ger-
many, economic growth is expected to accelerate versus 2005.
Compared to previous years, domestic demand is forecasted
to improve due to increased consumer confidence and will
contribute about half of the projected growth of around 1.5%.
The region’s emerging markets will continue to develop more
strongly than the Western European economies, although
growth rates will decrease modestly from 2005 levels of
around 5%.
Consumer Demand in the USA Forecasted to Slow
In the USA, economic growth is projected to reach approxi-
mately 3%, which represents a slowdown versus the 2005
level. Consumer demand, which was the major driver of the
economic expansion in the recent past, is expected to grow
less strongly due to an end of housing price inflation. This
slowdown is likely to more than compensate for positive
effects from another strong increase of disposable income
due to low unemployment rates and higher wages. The record
deficit in the region’s trade balance will, however, continue to
be a considerable risk both for the American and the global
economy.
Strong Economic Prospects in Asia
In Asia, economic prospects remain strong. Backed by the
solid global economy, exports are expected to continue to
grow strongly. The Japanese economy is likely to continue to
grow at a similar level to 2005. A high propensity to consume
and a further increase in investments are expected to spur
domestic demand. Exports are projected to grow solidly in
2006. As a result, the national economy is forecasted to grow
approximately 2%. With an expected GDP growth of approxi-
mately 8%, Asia excluding Japan is projected to grow at simi-
lar levels as in 2005. In China, steps taken by the government
to cool investment growth will show some effect. However,
with a growth rate of more than 8%, the Chinese market will
develop somewhat slower than in 2005, but will continue to
give important impulses for the global economy as imports
increase in line with growing private consumption.
Private Consumption and Exports Drive Growth in
Latin America
In Latin America, the economy will continue to grow at
around 4%. As in previous years, private consumption as well
as buoyant exports will drive economic growth. A number
of elections across the region, however, increase political
uncertainty and could potentially influence the economic
development.
Industry Opportunities
Strategic Opportunities
Opportunities
Outlook