Financial Statements and Management Report of adidas AG

adidas AG is the parent company of the adidas Group. It includes operating business functions, primarily for the German market, as well as corporate headquarter functions such as Marketing, IT, Treasury, Taxes, Legal and Finance. adidas AG also administers the company’s shareholdings.

Operating activities and capital structure of adidas AG

The majority of the operating business of adidas AG consists of the sale of merchandise to wholesale partners and own-retail activities.

In addition to its own trading activities, the results of adidas AG are significantly influenced by its holding function for the company as a whole. This is reflected primarily in currency effects, transfer of costs for services provided, interest result and income from investments in related companies.

The opportunities and risks as well as the future development of adidas AG largely reflect those of the company as a whole. see Outlook see Risk and Opportunity Report

The asset and capital structure of adidas AG is significantly impacted by its holding and financing function for the company. For example, 44% of total assets as at December 31, 2019 related to financial assets (2018: 46%), which primarily consist of shares in affiliated companies. Intercompany accounts, through which transactions between affiliated companies are settled, represent another 32% of total assets (2018: 26%) and 42% of total equity and liabilities as at December 31, 2019 (2018: 45%).

PREPARATION OF ACCOUNTS

Unlike the consolidated financial statements, which are in conformity with the International Financial Reporting Standards (IFRS), as adopted by the European Union as at December 31, 2019, the following financial statements of adidas AG have been prepared in accordance with the rules set out in the German Commercial Code (Handelsgesetzbuch – HGB).

INCOME STATEMENT

Net sales increase 8%

Sales of adidas AG comprise external revenues generated by adidas Germany with products of the adidas and Reebok brands as well as revenues from foreign subsidiaries. Revenues of adidas AG also include royalty and commission income, mainly from affiliated companies, revenues from central distribution, and other revenues. In 2019, adidas AG net sales grew 8% to € 4.444 billion compared to € 4.128 billion in the prior year. This growth was mainly due to higher royalty and commission income and an increase in revenues from adidas Germany.

Other operating income up 14%

In 2019, other operating income of adidas AG increased 14% to € 590 million (2018: € 516 million). This development was primarily due to positive currency effects.

Other operating expenses increase 2%

In 2019, other operating expenses for adidas AG rose 2% to € 2.337 billion (2018: € 2.282 billion). This was largely attributable to higher currency losses as well as an increase in IT and maintenance costs, partly offset by a decrease in expenses for advertising and promotion and allowances for doubtful accounts.

Depreciation and amortization UP 22%

Depreciation and amortization for adidas AG rose 22% to € 120 million in 2019 (2018: € 98 million), mainly as a result of an increase in depreciation and amortization of software and buildings.

Operating result Increases

In 2019, adidas AG generated an operating profit of € 170 million due to higher sales (2018: operating loss of € 5 million).

Financial result improves

The financial result of adidas AG improved 26% to € 1.938 billion in 2019 (2018: € 1.542 billion). The increase was attributable to higher income from dividends, partly offset by lower profit transfers from affiliated companies under profit and loss transfer agreements.

Net income increases significantly

Net income, after taxes of € 161 million (2018: € 113 million), amounted to € 1.947 billion in 2019 and was thus 37% above the prior year level (2018: € 1.424 billion).

BALANCE SHEET

Total assets above prior year

At the end of December 2019, total assets grew 6% to € 10.070 billion compared to € 9.496 billion in the prior year. This development was mainly a result of increases in receivables and other assets as well as financial assets, partly offset by the decline in cash and cash equivalents as well as securities.

Shareholders’ equity up 18%

Shareholders’ equity rose 18% to € 3.107 billion at the end of 2019 (2018: € 2.634 billion).The equity ratio increased to 30.9% (2018: 27.7%).

Provisions increase 4%

Provisions were up 4% to € 728 million at the end of 2019 (2018: € 699 million).The increase primarily resulted from higher provisions for personnel.

Liabilities and other items up 1%

At the end of December 2019, liabilities and other items remained virtually unchanged at € 6.235 billion, up 1% compared to the prior year (2018: € 6.163 billion).

CASH INFLOW FROM OPERATING ACTIVITIES REFLECTS CHANGE IN CASH AND CASH EQUIVALENTS

adidas AG generated a positive cash flow from operating activities of € 1.473 billion (2018: € 1.696 billion). The change versus the prior year was a result of the increase in net income, partly offset by higher receivables from affiliated companies. Net cash outflow from investment activities was € 233 million (2018: € 270 million). This was primarily attributable to capital expenditure for tangible fixed assets in an amount of € 167 million and capital expenditure for financial assets in an amount of € 66 million. Financing activities resulted in a net cash outflow of € 1.478 billion (2018: € 889 million). The net cash outflow from financing activities mainly relates to the repurchase of adidas AG shares in the amount of € 815 million (for which € 410 million was utilized from 2019 net income) and the dividend payment in an amount of € 664 million. As a result of all these developments, cash and cash equivalents of adidas AG decreased to € 636 million at the end of December 2019 compared to € 874 million at the end of the prior year.

adidas AG has bilateral credit lines of € 1.3 billion. In addition, the company has a multi-currency commercial paper program in an amount of € 2.0 billion. see Treasury

adidas AG is able to meet its financial commitments at all times.