Adidas Group

Case study (the good, the bad, the ugly) of performance reporting on
“Adidas Group”

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INTRODUCTION
The aim of this report is to analyse the good, the bad and the ugly of the performance
information in Adida’s Group annual reports. The information used for this report is collected
from the 2013 Adidas annual report, sustainability report, focus report, performance report
and other online resources.
When critiquing the company’s reports, we considered the PWC’s Value Framework which
included External Drivers, Strategy, Resources and Relationships and Performance. Each
Element is evaluated on ratings from 1 to 5.
Mark (Maximum : 5 points) Rate

4-5

Good

3-4
2-3 Bad
0-2 Ugly

We have chosen to critique the Adidas Group, which has its headquarters in Herzogenaurach
in Germany. Adidas Group manufactures sportswear, bags and other casual apparels in more
than eleven countries globally. It employs over 50,728 employees worldwide and its total
revenues amounted to €14.49 billion in the year 2013 while its profits amounted to €787
million. It has a total equity of €5.489 as at the end of the year 2013. Reebok sportswear is
part of its brands of sportswear.

1. External drivers:
   1.1 Competitive environment
   The biggest competitor to Adidas is its sister company Puma while other Sportswear
   company’s is Nike. The major segments are western Europe which accounts for 26% of its
   sales, North America accounts for 23%, European emerging markets accounts for 13%
   Greater china accounts for 12% while Latin American and other Asian markets accounts for
   11 and 15% respectively. Nike controls most of the market in North America as well as in
   Latin America. The total sales to North America were the highest at €1.091 billion, followed
   by other Asian markets at €432 billion and Western Europe with € 314 billion.
   The competitive market is fully covered in the annual report. (Rating is 4/5)

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1.2 Regulatory and geopolitical environment
Adidas group has introduced several policies that promote human rights and safety
measures in all its plants across the world. These reactions were prompted by complainants
that its subcontractors operating sweatshops mostly based in Indonesia were violating the
rights of the workers in their factories. Adidas ensures that the labour standards are fully
enforced and the workers are allowed to join any union that collectively bargains for their
rights. But not all factories have implemented these policies, for example in 2005, 33
workers were fired for taking part in a legal strike in Java, Panarub. The workers in Indonesia
are still being paid as low as ₤10 a week.
Adidas for many years purchased it paper packaging materials from the Asian Pulp and
Paper who were later labelled as the forest criminals for destroying most of the Indonesian
forest. In 2011 however, Adidas terminated its contract with the Asian Pulp and Paper as its
principles of rainforest conservation had been violated.
(Rating 2/5)
1.3 Economic Environment
The global performance of Adidas in the Economic world is very significant. Based on its
premium products, the performance of the Adidas Group has been impressive. The
company has targeted to raise its total sales to €17 billion by the end of the year 2015. The
group sales target to outperform both the GDP and the global sports industries. The major
emerging markets that it’s also targeting are North America, Greater China and Russia.
(Rating 3/5)
1.4 Social Environment

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Adidas group has partnered with sports celebrities like Lionel Messi in promoting its
products universally and also promotes the Nigeria’s super Eagles team to the world cup. It
also continues to provide support for youth activities across the world.

Rating 3/5
1.5 Technical Environment

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Adidas has made big strides in its improvements of its products and the efficiency of its
manufacturing processes by enhancing its products with the latest technical discoveries.
Adidas mentions in the annual report 2013, a few information related to technical
environment it faces. These include technological developments such as digital coding and
tax verification, which assist governments ensure that taxes and duties are paid, and a track
and trace system which means they can monitor the movements of their products through
the supply chain. If product is seized by customs or enquired about by the authorities, they
can trace it backwards and determine the point at which the product may have left the
legitimate supply chain. The successful implementation of this technology means they can
comply with a Cooperation Agreement to fight illicit trade that the group signed with the
European Union in July 2010. (Rating 3/5)

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Total for External drive 3/5

2. Strategy
   2.1 STRATEGY
   The strategy for Adidas long term growth process is to develop its global brands, Adidas and
   Reebok to achieve qualitative and sustainable growth by developing desirable brands that
   meet the consumer’s needs. Focusing on the need of the consumers and creating a desirous
   product is the heart of the Adidas strategy. The company has targeted to raise its total sales
   to €17 billion by the end of the year 2015.
   Rating 4/5

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2.2 BUSINESS MODEL

The Adidas business model is based on its diverse brands and the supporting apparels in
performance sports activities. The apparels include casual wears and other sports
equipments, personal items like watches, perfumes, sunglasses and caps. The company
manufactures footware for field and track events, swimming, tennis, football, hockey,
basketball among other sporting activities.
Ratings 4/5
2.3 GOVERNENCE

The Adidas group strives to make their company as fair and transparent as possible. There
are internal and also external auditors that are contracted to audit the company records and
to report their findings to the management. The board also informs the major shareholders
periodically in advance of the AGM, to hear their views so that they can be communicated

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to the board. Other shareholders are also able to visit the board members on request for
any queries that can be written to the remuneration committee.
The board members provide the necessary leadership to the company to meet its
performance objectives within their framework. The roles of the members vary from:
a) Approving company strategies, policies, major corporate activities and annual
reports.
b) Formulating policies and good governance framework, approving budgets and
reviewing board succession plans.
c) Reviewing and analysing risk management, computer systems and internal control
measures
d) Declaring dividends.
Under the main board the company is run by the management board, which is led by the
Chief Executive. The management board is responsible for overseeing the implementation
of the policies & strategy and to regulate successful day to day operation of the company.
Some of the management board responsibilities range from:
This section is fully covered in the annual report.
Rating: 4/5
2.4 RISK
The risks that may affect the Adidas group are clearly outlined in the annual report.

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The company has complied with all the risk control procedures and has also instituted the
internal control procedures to deal minimize the risks that may occur as a result of financial
crisis, bankruptcy and other unforseen risks.
Rating 4/5
2.5 REMUNERATION
The total remuneration of the company supervisory staff amounted to €920,000 in years
ending 2013 and also 2012. The total amount paid to the executive staff amounted to €
5.558 million in 2013 while in 2012 it amounted to € 6.141 million. These reflected a
reduction of 9.5% reduction in 2013.

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Rating 4/5
Overall rating for the whole strategy section is 4/5

3. Resources and relationships
   3.1 Financial assets

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The total assets reduced by 0.6% in the year 2013 while the inventories increased by 5.9%.
The working capital decreased by 15.1% while the net cash received also reduced by 34.3%.
Rating 4/5
3.2 Physical assets.
The total assets reduced by 0.6% in the year 2013 while the inventories increased by 5.9%.
The working capital decreased by 15.1% while the net cash received also reduced by 34.3%.
Rating 4/5

3.3 Customers

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The biggest customers of Adidas are from western Europe which accounts for 26% of its
sales, North America accounts for 23%, European emerging markets accounts for 13%
Greater china accounts for 12% while Latin American and other Asian markets accounts for
11 and 15% respectively.
Rating: 4/5
3.4 People
The key people behind Adidas brand are Igor Landau who is the chairman and the CEO, Mr.
Herbert Hainer. The company was founded in 1924 by Gebruder Dassler and registered in
1949.
Rating: 4/5
3.5 Organisation Culture
It is included in the company’s reports that corporate culture is a great strength of the
business and one of the reasons for company’s success. The company targets consumer
needs, winning with innovative high quality products. The company shares a culture to listen
and genuinely consider other perspectives and changing social expectation. The company
promotes a culture of personal ownership and value employee’s talent. The company
behold a strong communication system within the internal system. During the year ended
31 December 2013 the company took an extensive programme of communication with its
key shareholders on changes in its remuneration policy.
Ratings: 4.5/5
3.6 Innovation
However the company reflects speed to market and speed of innovations is slower than its
competitors as its principal cause in the annual report. The company views erosion of brand
values through inability to launch innovations, differentiate products, build brand equity
and leverage price. These were included in the annual report but it was not easy to access.
But with relevant information provided, the reporting is good.
Rating 4/5

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3.7 Brands and Intellectual assets

The company plans in investing further in brands and capabilities, in new and existing sport
ware and also casual wares. The major brands are Adidas and Reebok. Other brands are
reviewed from time to time to assess performance and increasing focus for investment.
Rating: 4/5
3.8 Internal Process and Supply chain
Adidas works for positive social, environmental and economic impacts in the Group’s supply
chain. The company has subcontracted most of the supply chain responsibly, including the
sourcing of leather and other materials, and work with suppliers to create a long- term

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shared understanding of our social, environmental and economic impacts. The company
sells most of its products from factory outlets in Germany, Japan and the US.
Rating: 3/5
Overall rating of Resources and Relationships: 3.9/5

4. Performance
   4.1 Operational

The basic earnings per share for Adidas group increased from 0.0378 Euros per share to
0.401 in 2013. Cash generated from operations however decreased from 4.5 Euros in 2012 to
3.03 in 2013. The shareholders equity per share increased from 25.35 in 2012 to 26.24 in

2013. In 2013, Adidas Net sales reduced by 2.6% from a total net income of 14, 883 in the
      year 2012 to 14462 in 2013. The gross margin in 2013 in 2013 was 49.3% while in 2012 it
      was 47.7%. The operating margin increased by 0.7% from 8% in 2012 to 8.7 in 2013. The
      ROE increased by 4.4% from 9.9% in 2012 to 14.3% in 2013. The equity ratio also increased
      by 1.8% from 45.5 % in 2012 to 47.3% in 2013.

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Rating 5/5
4.2 Economic
The company has targeted to raise its total sales to €17 billion by the end of the year 2015.
The group sales target to outperform both the GDP and the global sports industries. The
major emerging markets that it’s also targeting are North America, Greater China and
Russia.
Rating 3/5
4.3 Social
The company participates in social events mostly related to sporting activities like football,
golf, tennis and swimming. Adidas has also partnered with international celebrities and sports
stars to promote its corporate social image and also improve its corporate social
responsibility. Lionel Messi has represented Adidas in most of his international matches.
Rating 3/5
4.4 Environment

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The reporting on the environment has been scanty. The information is not available on the
Annual reports.
Rating 1/5
4.5 Segmental
The sale by segment has also improved for Adidas. The biggest customers of Adidas are
from western Europe which accounts for 26% of its sales, North America accounts for 23%,
European emerging markets accounts for 13% Greater china accounts for 12% while Latin
American and other Asian markets accounts for 11 and 15% respectively.
Rating 4/5
Rating for Performance 3.2/5
Average Rating for the whole Report 3.53/5