Adidas 2005 Annual Report Download - page 123
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119
Medium-Term Investment Level Between € 300 Million and
€ 350 Million
In 2006, investments in tangible and intangible assets of
between € 200 million and € 250 million within the adidas
Group excluding Reebok will be used primarily for own-
retail expansion for brand adidas as well as the increased
deployment of SAP and other IT systems in major subsidiaries
within the Group. The most important factors in determining
the exact level and timing of this investment will be the rate
at which we are able to successfully secure retail locations
and integrate new SAP systems within existing applications.
Additional capital expenditure will be related to the further
expansion of the adidas Headquarters in Herzogenaurach,
Germany, including the Adi Dassler Brand Center. Capital
expenditure related to Reebok, which is expected to be around
€ 100 million excluding extraordinary items, will also have
an impact on the investment level in 2006. In addition, as a
result of the planned buyback of Reebok’s major properties,
we expect additional expenditure of between € 150 million
and € 200 million in 2006. In coming years, we expect an on-
going investment level for the adidas Group including Reebok
of between € 300 million and € 350 million.
Outlook
Sales growth mid- to high-single-digit
Gross margin 46 to 48%
Operating margin approx. 11%
Net income growth double-digit
Group Medium-Term Targets Strong Medium-Term Outlook
We expect sales for the combined Group to increase at mid-
to high-single-digit rates on an annual basis through to 2008
due to continued strength at adidas and TaylorMade as well as
a revitalization of the Reebok business segment. The Group’s
gross margin is expected to increase annually to a corridor
of between 46 and 48% in 2008, reflecting positive effects
from cost synergies related to the integration of Reebok, as
well as strongly increasing business activities of Reebok in
Asia and Europe, which carry high gross margins. The posi-
tive gross margin development will be driven by increases at
all brands, mainly at Reebok. In the medium term, we expect
the Group’s operating margin to exceed the Group’s 2005 level
of 10.7%, reaching a new record level of approximately 11%,
driven by all brands. Efficiency gains related to the integration
of the Reebok business segment will play a major role in this
development. Net income is expected to increase by double-
digit rates in each of the next three years as a result of our
continuing growth expectations, further profitability improve-
ments at all brands and efficiency gains resulting from the
integration of the Reebok business segment.