Statement of Financial Position and Statement of Cash Flows

ASSETS

At the end of December 2019, total assets were up 32% to € 20.680 billion versus € 15.612 billion in the prior year, mainly driven by an increase in non-current assets due to the first-time application of IFRS 16.

Total current assets increased 11% to € 10.934 billion at the end of December 2019 compared to € 9.813 billion in 2018. Cash and cash equivalents were down 16% to € 2.220 billion at the end of December 2019 from € 2.629 billion in the prior year, as net cash generated from operating activities was more than offset by net cash used in investing and financing activities. Currency effects had a negative impact on cash and cash equivalents in an amount of € 30 million. Inventories increased 19% to € 4.085 billion at the end of December 2019 from € 3.445 billion in 2018. See note 09

Inventories € in millions

On a currency-neutral basis, inventories increased 18%, reflecting lower inventories in the prior year and the timing of inbound and outbound product deliveries. Accounts receivable increased 9% to € 2.625 billion at the end of December 2019 (2018: € 2.418 billion). See note 07, On a currency-neutral basis, receivables were up 8%. Other current financial assets remained virtually unchanged at € 544 million (2018: € 542 million). See note 08 Other current assets were up 48% to € 1.076 billion at the end of December 2019 (2018: € 725 million), mainly due to an increase in tax receivables other than income taxes. see Note 36

Accounts receivable € in millions

Total non-current assets increased 68% to € 9.746 billion at the end of December 2019 from € 5.799 billion in 2018, mainly related to the first-time application of IFRS 16. Fixed assets increased 69% to € 8.100 billion at the end of December 2019 versus € 4.798 billion in 2018. The application of IFRS 16 led to the recognition of right-of-use assets in the amount of € 2.931 billion at the end of December 2019 (including already existing IAS 17 leases from the prior year in the amount of € 82 million). Furthermore, additions of € 711 million, primarily related to own-retail activities were only partly offset by depreciation and amortization, impairment losses/reversal of impairment losses of € 522 million. Other non-current financial assets increased 76% to € 450 million from € 256 million at the end of 2018. See­ note 16 This development was mainly due to an increase in derivatives used to fully hedge the economic exposure related to the equity-neutral convertible bond. Deferred tax assets were up 68% to € 1.093 billion from € 651 million in 2018, due to an increase in the tax base of non-current assets during 2019.

LIABILITIES AND EQUITY

Total current liabilities increased 28% to € 8.754 billion at the end of December 2019 from € 6.834 billion in 2018. Short-term borrowings declined 35% to € 43 million at the end of December 2019 (2018: € 66 million), mainly reflecting a decrease in bank loans. Accounts payable were up 18% to € 2.703 billion at the end of December 2019 versus € 2.300 billion in 2018, mainly reflecting improved payment terms with the company’s vendors. On a currency-neutral basis, accounts payable increased 17%. Current lease liabilities amounted to € 733 million at the end of December 2019, due to the first-time application of IFRS 16. Other current financial liabilities were up 26% to € 235 million from € 186 million in 2018, mainly as a result of an increase in the fair value of financial instruments. See note 08Other current provisions increased 17% to € 1.446 billion at the end of December 2019 versus € 1.232 billion in 2018, mainly due to an increase in the provision for returns. Current accrued liabilities grew 6% to € 2.437 billion at the end of December 2019 from € 2.305 billion in 2018, mainly as a result of an increase in accruals for customer discounts as well as accruals for invoices not yet received. Other current liabilities were up 13% to € 538 million at the end of December 2019 from € 477 million in 2018. See note 23

Accounts payable € in millions

Total non-current liabilities increased 102% to € 4.868 billion at the end of December 2019 from € 2.414 billion in the prior year, mainly related to the first-time application of IFRS 16. Long-term borrowings were down 1% to € 1.595 billion at the end of December 2019 from € 1.609 billion in the prior year. See note 18 Non-current lease liabilities amounted to € 2.399 billion at the end of December 2019, due to the first-time application of IFRS 16. Other non-current financial liabilities were down 10% to € 92 million at the end of December 2019 from € 103 million in the prior year (2018: thereof € 81 million for liabilities relating to finance leases). Other non-current provisions increased 100% to € 257 million at the end of December 2019 from € 128 million in the prior year, mainly as a result of an increase in provisions for personnel. Non-current accrued liabilities decreased 54% to € 9 million from € 19 million in 2018. See note 22

Shareholders’ equity increased 7% to € 6.796 billion at the end of December 2019 versus € 6.377 billion in 2018, mainly driven by the net income generated during the year. This development was partly offset by the repurchase of adidas AG shares for a consideration of € 815 million, the dividend of € 664 million paid to shareholders for the 2018 financial year, and a decrease in hedging reserves of € 147 million. The equity ratio decreased to 32.9% compared to 40.8% in the prior year, as the increase in shareholders’ equity was more than offset by the balance sheet extension due to the first-time application of IFRS 16. see Note 27

Equity ratio^1,2 in %

OPERATING WORKING CAPITAL

Operating working capital increased 12% to € 4.007 billion at the end of December 2019 compared to € 3.563 billion in 2018. On a currency-neutral basis, operating working capital was up 11%. Average operating working capital as a percentage of sales decreased 0.9 percentage points to 18.1% (2018: 19.0%). This development mainly reflects an increase in payables, which is a direct result of improved payment terms with our vendors.

Average operating working capital^1,2 in % of net sales

INVESTMENT ANALYSIS

Capital expenditure is defined as the total cash expenditure for the purchase of tangible and intangible assets (excluding acquisitions and right-of-use assets according to IFRS 16). Capital expenditure decreased 11% to € 711 million (2018: € 794 million). Capital expenditure for property, plant and equipment was down 14% to € 599 million compared to € 699 million in the prior year. The company invested € 112 million in intangible assets, representing a 17% increase compared to the prior year (2018: € 96 million). Depreciation and amortization excluding impairment losses/reversal of impairment losses of tangible and intangible assets increased 9% to € 511 million in 2019 (2018: € 470 million).

Controlled space initiatives, which comprise investments in new or remodeled own-retail and franchise stores as well as in shop-in-shop presentations of our brands and products in our customers’ stores, accounted for 47% of total capital expenditure (2018: 32%). Expenditure for IT and logistics represented 13% and 6%, respectively (2018: 13% and 12%, respectively). In addition, expenditure for administration accounted for 7% (2018: 7%). Other investments mainly reflected the further development of our major corporate facilities in Herzogenaurach, Portland and Shanghai. These represented 26% of total capital expenditure (2018: 36%). From a segmental perspective, the majority of the capital expenditure was recorded centrally at headquarter level, which accounted for 44% (2018: 60%). In addition, capital expenditure in Asia-Pacific accounted for 24% (2018: 20%) of the total capital expenditure, followed by Europe with 12% (2018: 9%), North America with 9% (2018: 7%), Latin America and Emerging Markets with 5% and 3%, respectively (2018: 2% each) as well as Russia/CIS with 2% (2018: 1%).

Capital expenditure by type in % of total CAPEX

Capital expenditure by segments in % of total CAPEX

LIQUIDITY ANALYSIS

In 2019, net cash generated from operating activities increased to € 2.819 billion (2018: € 2.686 billion). see Table ‘Financial Highlights’ Net cash generated from continuing operating activities rose to € 2.828 billion (2018: € 2.706 billion). This increase was driven by higher income before taxes and lower income taxes paid, and the different treatment of operating leases related to the first-time application of IFRS 16, partly offset by higher operating working capital requirements.

There was a change in the presentation of interest paid in the consolidated statement of cash flows in the financial year. Due to the first-time application of IFRS 16, adidas has applied the option to show the interest paid within the net cash used in financing activities instead of the net cash generated from operating activities and, to enhance comparability, figures for the prior year were also adjusted.

Net cash used in investing activities and net cash used in continuing investing activities increased to € 925 million each (2018: € 636 million). The majority of continuing investing activities in 2019 was related to expenditure for property, plant and equipment, such as investments in controlled space initiatives, and IT systems as well as the further development of our major corporate facilities in Herzogenaurach, Portland and Shanghai. Net cash used in financing activities and net cash used in continuing financing activities grew to € 2.273 billion each (2018: € 991 million each). This development was mainly due to the repurchase of adidas AG shares, the dividend paid to shareholders as well as repayments of lease liabilities and interest payments for lease liabilities related to the first-time application of IFRS 16.

Under IFRS 16, payments for operating leases formerly disclosed under IAS 17 are no longer recognized on a straight-line basis and also not reported as cash flow from operating activities. Instead, repayments and interest payments for the lease liabilities are recognized in the cash flow from financing activities. This resulted in a decline in cash flows from financing activities in the amount of € 692 million and an improvement in cash flows from operating activities in the amount of € 684 million. See note 39

Exchange rate effects negatively impacted the company’s cash position by € 30 million (2018: € 29 million). As a result of all these developments, cash and cash equivalents decreased by € 410 million to € 2.220 billion at the end of December 2019 compared to € 2.629 billion at the end of December 2018.

Change in cash and cash equivalents € in millions

Net cash at December 31, 2019 amounted to € 873 million, compared to net cash of € 959 million in 2018, representing a decline of € 86 million compared to the prior year. The increase in cash generated from operating activities was more than offset by the utilization of cash for the purchase of fixed assets, the repurchase of adidas AG shares as well as the dividend paid to shareholders. see TREASURY The company’s ratio of net borrowings over EBITDA amounted to –0.2 at the end of December 2019 (2018: –0.3).

Net borrowings/EBITDA^1,2 € in millions

OFF-BALANCE-SHEET ITEMS

The company’s most significant off-balance-sheet items are commitments for promotion and advertising as well as other contracts. These contracts are related to short-term leases as well as leases for offices and warehouses, which are not yet considered according to IFRS 16. Minimum future payments for other contracts were € 318 million at December 31, 2019, compared to € 2.984 billion at the end of December 2018, representing a decrease of 89%. This development is due to the first-time application of IFRS 16. See note 21 At the end of December 2019, financial commitments for promotion and advertising increased 17% to € 6.808 billion in 2019 (2018: € 5.828 billion). See note 40