Supervisory Board Report

DEAR SHAREHOLDERS,

Last year, the company’s success story from the foundation in 1949 up until today was highlighted in an impressive manner by a successful 70th anniversary celebration and the completion of the extension of the headquarters in Herzogenaurach, Germany. From a financial point of view, too, we look back on 2019 as another successful year. Thanks to a sharp focus on our consumers’ needs as part of the stringent execution of our strategic business plan ‘Creating the New’, the company was once again able to increase sales and achieve strong bottom-line growth in the 2019 financial year. While double-digit growth in the key e-commerce sales channel as well as in our focus market Greater China merit special mention, the company’s growth as a whole was broad-based, with top-line increases in all regions, including our home market Europe. Supply chain shortages which slowed the company’s growth, mainly in North America in the first half of the year, were quickly and permanently mitigated. In light of this sales momentum as well as the continuing high investments into our brands and the scalability of the business, the company is in an excellent position to successfully conclude the strategy cycle 2015 – 2020 in the current financial year. We continue to ensure that we share the positive development of the company with our shareholders, as underscored by the total cash return from the dividend payout and share buyback of € 1.5 billion in 2019.

Supervision and advice in dialogue with the Executive Board

In the year under review, we performed all of our tasks laid down by law, the Articles of Association, the German Corporate Governance Code (‘Code’) and the Rules of Procedure carefully and conscientiously, as in previous years. We regularly advised the Executive Board on the management of the company and diligently and continuously supervised its management activities, assuring ourselves of the legality, expediency and regularity thereof. The Executive Board involved us directly and in a timely and comprehensive manner in all of the company’s fundamental decisions.

The Executive Board informed us extensively and regularly through written and oral reports. This information covered all relevant aspects of the company’s business strategy, business planning (including finance, investment and personnel planning), the course of business and the company’s financial position and profitability. We were also kept up to date on matters relating to accounting processes, the risk situation and the effectiveness of the internal control and risk management systems and compliance as well as all major decisions and business transactions. The Executive Board always explained immediately and in a detailed manner any deviations in business performance from the established plans, and we discussed these matters in depth.

The Executive Board regularly provided us with comprehensive written reports for the preparation of our meetings. We thus always had the opportunity to critically analyze the Executive Board’s reports and resolution proposals within the committees and within the Supervisory Board as a whole and to put forward suggestions before passing resolutions after in-depth examination and extensive consultation. At the Supervisory Board meetings, the Executive Board was available to discuss and answer our questions. In the periods between our meetings, the Executive Board also provided us with extensive, timely monthly reports on the current business situation. We critically examined and specifically challenged the information provided to us by the Executive Board.

In the past financial year, the Supervisory Board primarily exercised its duties in plenary sessions. We held eight regular meetings of the entire Supervisory Board, one of which was a constituent meeting and one which took place outside Germany. Moreover, one resolution was passed by way of a circular resolution.

As in previous years, we were able to record a constantly high participation rate in our consultations despite a high number of meetings in the year under review. The overall attendance rate of the members at the meetings of the Supervisory Board and its committees was around 96% in the year under review. Members who were unable to participate in the meetings took part in the resolutions by submitting their vote in writing.

The external auditor, KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, (KPMG) attended all regular meetings of the Supervisory Board, with the exception of the meeting which took place outside Germany, insofar as no Executive Board matters or internal matters of the Supervisory Board were dealt with. KPMG also attended all meetings of the Audit Committee.

In the periods between meetings, the Supervisory Board Chairman and the Audit Committee Chairman maintained regular contact with the Chief Executive Officer and the Chief Financial Officer, conferring on matters such as corporate strategy, business planning and development, the risk situation and risk management as well as compliance. In addition, the Supervisory Board Chairman was informed about events of fundamental importance for the management and for evaluating the situation and development of the company, when necessary also at short notice.

The Supervisory Board also regularly conferred on, in particular, Supervisory Board matters and personnel matters of the Executive Board without the Executive Board.

Topics for the entire Supervisory Board

Our consultations and examinations focused on the following topics:

Situation and business development

The development of sales and earnings, the employment situation as well as the financial position of the company and the business development of the company’s individual business areas and markets were presented to us in detail by the Executive Board at every Supervisory Board meeting and were discussed regularly. Moreover, we discussed the company’s business strategy and the annual and multi-year business planning of the Executive Board. In this context, we were particularly informed on a regular basis about the progress made in mitigating the supply chain shortages in North America. Further topics which were always discussed were the possible impact of global economic developments as well as the development of the individual brands and markets.

The Executive Board outlined the company’s situation and retail strategy at the February meeting. We also discussed important potential and pending legal disputes. The Executive Board reported on the financial figures for the 2018 financial year at the balance sheet meeting in March. After in-depth examination of the financial statements, the Supervisory Board approved the annual financial statements and consolidated financial statements as well as the combined Management Report, including the non-financial statement for adidas AG and the Group as at December 31, 2018. The annual financial statements were thus adopted. Prior to the passing of the resolution, the auditor reported on the material results of the audit, including the results of the examination of the content of the non-financial statement commissioned by the Supervisory Board in accordance with § 111 section 2 sentence 4 German Stock Corporation Act (Aktiengesetz – AktG). Furthermore, the Supervisory Board Report to the Annual General Meeting for the 2018 financial year was approved. Finally, we discussed, inter alia, the business development of Reebok and innovation at adidas. At the May meeting, we primarily dealt with the results for the first quarter of the year under review. Particular topics of the August meeting were the financial results for the second quarter and the first half year. We also discussed the business development in Emerging Markets and dealt in detail with the main sustainability initiatives. At our annual strategy meeting in October, we discussed the details presented by the Executive Board regarding the strategic business plan ‘Creating the New’. Another focal point of the October meeting was the development of business in Asia-Pacific. Finally, topics of our December meeting were the 2020 Budget and Investment Plan as well as the marketing and sponsorship agreements concluded in the year under review.

Transactions requiring Supervisory Board approval

In accordance with statutory regulations or the Rules of Procedure of the Supervisory Board, certain transactions and measures require the prior approval of the Supervisory Board. We approved the following measures in the period under review:

In March, we approved the resolutions proposed to the Annual General Meeting on May 9, 2019 (‘2019 Annual General Meeting’), including the proposal regarding the appropriation of retained earnings for the 2018 financial year. At the May meeting, we approved the adjusted resolution proposal of the Executive Board on the appropriation of retained earnings. The adjustment was necessary as the number of dividend-entitled shares had decreased since the publication of the invitation to the Annual General Meeting, due to the ongoing share buyback program. Furthermore, we approved Eric Liedtke taking over a supervisory board mandate at Fashion for Good B.V. At our December meeting, after comprehensive consultation, we approved the 2020 Budget and Investment Plan of the Executive Board.

Composition of the Executive Board

In the year under review, we dealt extensively with personnel matters of the Executive Board.

We appointed Martin Shankland as a new member of the Executive Board, responsible for Global Operations, with effect from March 2019. Martin Shankland succeeded Gil Steyaert. As successor to Eric Liedtke, we appointed Brian Grevy as a member of the Executive Board, responsible for Global Brands, with effect from February 1, 2020. Moreover, we extended the Executive Board mandates of Karen Parkin, responsible for Global Human Resources, and Harm Ohlmeyer, responsible for Finance, for another five years until 2025, respectively.

In this respect and after in-depth examination, we approved the newly concluded Executive Board service contracts with Martin Shankland and Brian Grevy as well as the amended Executive Board contracts of Karen Parkin and Harm Ohlmeyer as part of the extension of their mandates. We also discussed the long-term succession planning for the Executive Board based on the General Committee’s preparations.

Executive Board compensation

Another focal point of our work was Executive Board compensation. After an in-depth review of the individual performance of the Executive Board members and the achievement of the targets set for the 2018 Performance Bonus and the 2018 tranche for the Long-Term Incentive Plan 2018/2020 (‘LTIP 2018/2020’), we resolved upon the performance-related compensation to be paid to the Executive Board members for the 2018 Performance Bonus and the 2018 LTIP tranche at our meetings in February. The Supervisory Board also determined the appropriateness of the Executive Board compensation. Furthermore, after comprehensive consultation, we set the criteria and targets decisive for the 2019 Performance Bonus and the 2019 tranche for the LTIP 2018/2020 along with the individual bonus target amounts for each Executive Board member at our meetings in February and March.

Further detailed information on the Executive Board compensation can be found in the Compensation Report. SEE COMPENSATION REPORT

Corporate Governance

The Supervisory Board regularly monitors the application and further development of the corporate governance regulations within the company, in particular the implementation of the recommendations of the Code. The General Committee and the entire Supervisory Board proactively discussed in depth the changed requirements of the German Stock Corporation Act and the Code in regard to corporate governance at their meetings in October and December. Further detailed information on corporate governance within the company can be found in the Declaration on Corporate Governance and Corporate Governance Report. SEE DECLARATION ON CORPORATE GOVERNANCE AND CORPORATE GOVERNANCE REPORT

Following an in-depth discussion, the current Declaration of Compliance pursuant to § 161 AktG was resolved upon by the Executive Board and Supervisory Board of adidas AG in December 2019 and was made permanently available on our website.

During our consultations regarding the Declaration of Compliance, we particularly discussed the independence of the members of the Supervisory Board as per the respective independence criteria. In the Supervisory Board’s assessment, all Supervisory Board members representing the shareholders were independent within the meaning of section 5.4.2 of the Code in the year under review.

In the year under review, no conflicts of interest arose in regard to the Executive Board members. There were also no conflicts of interest within the Supervisory Board. It must be pointed out that the company concluded a contract with a company in which one Supervisory Board member in office until the end of the 2019 Annual General meeting is involved. The Supervisory Board had already approved this contract and the business volume stipulated in this contract in December 2018. In the view of the Supervisory Board, there was no conflict of interest. Nevertheless, as in previous years, the Supervisory Board member concerned did not participate in the voting on the respective resolution.

Both the Supervisory Board and the Audit Committee reviewed the efficiency of their work in the 2018 financial year. The members of the Supervisory Board assessed the work in the entire Supervisory Board and in the Audit Committee as efficient in both cases and resolved upon individual improvements regarding the organization of the Supervisory Board’s work. These improvements were implemented in the year under review. The next efficiency examination of the Supervisory Board and Audit Committee is scheduled for the 2020 financial year in light of, inter alia, the changed composition of the Supervisory Board as a result of the new election of the shareholder and employee representatives in 2019.

The members of the Supervisory Board are individually responsible for undertaking any necessary training and further education measures required for their tasks. In the year under review, the company offered the newly elected members of the Supervisory Board an onboarding program relating to the work of the Supervisory Board at adidas AG in order to facilitate the exercise of their mandates. Furthermore, in the context of the Supervisory Board meeting outside Germany, the company enabled members of the Supervisory Board to visit key suppliers in Vietnam.

Efficient committee work

In order to perform our tasks in an efficient manner, we have established a total of five standing Supervisory Board committees. SEE SUPERVISORY BOARD The newly elected Supervisory Board resolved at its constituent meeting in May to no longer constitute the Finance and Investment Committee.

The committees prepare resolutions and topics for the meetings of the entire Supervisory Board. Within the legally permissible framework and in appropriate cases, we have furthermore delegated the Supervisory Board’s authority to pass certain resolutions to individual committees. With the exception of the Audit Committee, the Supervisory Board Chairman also chairs all the standing committees. Herbert Kauffmann is the Chairman of the Audit Committee. The respective committee chairmen report to the Supervisory Board on the content and results of the committee meetings on a regular and comprehensive basis.

• The Steering Committee did not meet in the year under review.
• The General Committee held six meetings in the year under review.
  The main focus was the preparation of the resolutions of the entire Supervisory Board regarding personnel matters of the Executive Board and Executive Board compensation. The General Committee particularly discussed the resignation of Gil Steyaert and Eric Liedtke, the appointment of Martin Shankland and Brian Grevy as well as the extension of the mandates of Karen Parkin and Harm Ohlmeyer. With reference to the Executive Board compensation, the primary focus was on preparation of the resolutions relating to target achievement for the 2018 Performance Bonus and the 2018 LTIP tranche and the targets for the 2019 Performance Bonus and the 2019 LTIP tranche, as well as on the establishment of the appropriateness of the Executive Board compensation. Furthermore, the General Committee dealt intensively with long-term succession planning for the Executive Board as well as with the changed requirements of the German Stock Corporation Act and the Code in regard to corporate governance.
• The Audit Committee held five meetings in the year under review. One resolution was passed by way of a circular resolution. The Chief Financial Officer and the auditor were present at all meetings and reported to the committee members in detail.
  In addition to the supervision of the accounting process, the committee’s work also focused on the examination of the annual financial statements and the consolidated financial statements for 2018, including the combined Management Report and the non-financial statement of adidas AG and the Group, as well as the Executive Board’s proposal regarding the appropriation of retained earnings. Following an in-depth review of the audit reports on the annual financial statements and consolidated financial statements with the auditor, the committee decided to recommend that the Supervisory Board approve the 2018 annual financial statements and consolidated financial statements. Furthermore, the audit of the non-financial statement, including the selection and commissioning of the external auditor by the Supervisory Board, was prepared. In addition, the Audit Committee resolved to recommend that the Supervisory Board commission KPMG with the examination of the content of the non-financial statement with limited assurance pursuant to § 111 section 2 sentence 4 AktG. Following in-depth discussions, the Audit Committee also made a recommendation to the Supervisory Board regarding the proposal to the Annual General Meeting 2019 for the appointment of the auditor. The Audit Committee declared to the Supervisory Board that the recommendation is free from undue influence by a third party and that no clause of the kind referred to in Article 16 section 6 of the EU Regulation No. 537/2014 of the European Parliament and of the Council of April 16, 2014 on specific requirements regarding the statutory audit of public-interest entities has been imposed upon it. A further subject of in-depth discussions was the assignment of the audit mandate to the auditor for the 2019 financial year, the determination of the focus points of the audit, the supervision of the independence and qualification of the auditor as well as the quality of the audit of annual accounts, the determination of the audit fees and ultimately the discussion of the quarterly financial figures and the half year report. The Audit Committee dealt intensively with the monitoring of the effectiveness of the Risk Management System, the Internal Control System and Audit System as well as with the Compliance Management System. Moreover, the committee addressed the findings of Internal Audit and the audit plan. Potential and pending important legal disputes were also discussed. In addition, at every meeting of the Audit Committee, the Chief Compliance Officer gave regular reports on the Compliance Management System and the main compliance cases in the year under review.
  In the year under review, the Audit Committee also discussed in depth the financing of the existing pension plans for the Executive Board and employees. Finally, the Audit Committee discussed the regulations for related party transactions which were recently added to the German Stock Corporation Act. According to these regulations, if the value of the transaction exceeds a defined threshold, listed stock corporations may only engage in related party transactions with the approval of the Supervisory Board. The Audit Committee recommended that the Supervisory Board delegate the authorization to approve related party transactions to the Audit Committee. The Supervisory Board approved the respective resolution proposal at its October meeting.
• The Nomination Committee held two meetings in the year under review. It particularly prepared the recommendations of the Supervisory Board regarding the shareholder representative election to the 2019 and 2020 Annual General Meeting. In this respect, taking the statutory requirements into account, the suitability and independence of the candidates were discussed. Furthermore, taking into consideration the competency profile for the members of the Supervisory Board defined by the Supervisory Board, a qualification profile was developed. Based on this, the Nomination Committee dealt with suitable candidates for the mandates to be filled within the Supervisory Board.
• The Mediation Committee to be established in accordance with the German Co-Determination Act (Mitbestimmungsgesetz — MitbestG) did not have to be convened in the year under review.

Election and composition of the new Supervisory Board

The terms of office of all members of the Supervisory Board ended upon conclusion of the 2019 Annual General Meeting.

The shareholder representatives on the Supervisory Board were newly elected at the 2019 Annual General Meeting. In light of the expiry of the one-year term of office of Igor Landau, a new Supervisory Board member will be elected in the context of the 2020 Annual General Meeting. For every new election taking place, the Supervisory Board submits its proposals to the Annual General Meeting. Prior to submitting an election proposal, there is a diligent selection process for suitable candidates. The selection criteria for the candidates are based on a pre-defined qualification profile. These selection criteria are based on the objectives of the Supervisory Board regarding its composition, as defined by the Supervisory Board, and take into account the competency profile as well as statutory provisions and the applicable recommendations of the Code.

With the exception of Igor Landau and Herbert Kauffmann, the Supervisory Board proposed that the new Supervisory Board members be appointed for the period from the end of the 2019 Annual General Meeting to the end of the 2024 Annual General Meeting. The Supervisory Board proposed that Igor Landau be appointed until the end of the 2020 Annual General Meeting. The reappointment of Igor Landau for a term of office of only one year serves the purpose of ensuring a smooth handover of the chairmanship of the Supervisory Board. The Supervisory Board proposed that Herbert Kauffmann be appointed until the end of the 2021 Annual General Meeting. The proposal to appoint Herbert Kauffmann for a term of office of only two years is based on the fact that he will then have served as a Supervisory Board member of adidas AG for twelve years. While the Supervisory Board has no doubts about Herbert Kauffmann’s independence, the Supervisory Board is already following the recommendations of the new version of the Code as amended on December 16, 2019. According to the Code, as a rule, a member is no longer considered independent after a twelve-year term of office on the Supervisory Board. As set forth in the new version of the Code, the Audit Committee shall always be chaired by an independent member.

The 2019 Annual General meeting approved all election proposals with a large majority.

The employee representatives on the Supervisory Board were newly elected in March 2019. For the first time, the employee representatives were elected by delegates. In this regard, all adidas AG employees eligible to vote elected delegates, who subsequently elected the Supervisory Board members at the assembly of delegates. The candidates thereby elected, together with the trade union representatives, form the employee representation on the Supervisory Board since the end of the 2019 Annual General Meeting.

The Chairman and his two Deputies as well as the committee members were elected at the constituent meeting of the Supervisory Board. With regard to the representation of women and men, the Supervisory Board complies with the statutory minimum quota pursuant to § 96 section 2 sentence 1 AktG. Prior to the resolution on the election proposals in accordance with § 96 section 2 sentence 3 AktG, both the shareholder representatives and the employee representatives resolved that the minimum quota of 30% women and 30% men on the Supervisory Board shall be fulfilled separately for the shareholder representatives and the employee representatives.

Examination of the 2019 Annual Financial Statements and Consolidated Financial Statements

KPMG audited the 2019 consolidated financial statements prepared by the Executive Board in accordance with § 315e German Commercial Code (Handelsgesetzbuch – HGB) in compliance with the International Financial Reporting Standards (IFRS), as they are to be applied in the EU, and issued an unqualified opinion thereon. The auditor also approved without qualification the 2019 annual financial statements of adidas AG, prepared in accordance with the requirements of the German Commercial Code, and the combined Management Report of adidas AG and the adidas Group. Furthermore, at the request of the Supervisory Board, KPMG audited the non-financial statement. KPMG has been acting as auditor and Group auditor for adidas AG since the 1995 financial year. On the basis of the transitional periods of Article 41 Regulation (EU) No 537/2014, KPMG must not be reappointed after June 17, 2023 and it is mandatory to carry out an external rotation. As the responsible audit partners, auditor Haiko Schmidt has been signing the financial statements since the 2017 financial year and auditor Prof. Dr. Kai Andrejewski since the 2019 financial year. The 2019 Annual General Meeting elected KPMG as auditor and Group auditor upon proposal of the Supervisory Board, corresponding with a recommendation of the Audit Committee. Prior to this, KPMG had confirmed to both the Supervisory Board and Audit Committee that there are no circumstances which could prejudice their independence as auditor or which could cast doubt on KPMG’s independence. In this respect, KPMG also declared to which extent non-audit services were rendered for the company in the previous financial year or are contractually agreed upon for the following year. The financial statements, the proposal put forward by the Executive Board regarding the appropriation of retained earnings and the auditor’s reports were distributed by the Executive Board to all Supervisory Board members in a timely manner.

We examined the documents in depth, with a particular focus on legality and regularity, in the presence of the auditor at the Audit Committee meeting held on March 9, 2020 and at the Supervisory Board’s March 10, 2020 financial statements meeting, during which the Executive Board explained the financial statements in detail. At both meetings, the auditor reported on the material results of the audit, inter alia with regard to the priority topics agreed and the key audit matters and was available for questions and the provision of additional information. The auditor did not report any significant weaknesses with respect to the internal control and risk management system relating to the accounting process. We also discussed in depth the Executive Board’s proposal concerning the appropriation of retained earnings, which provides for a dividend of € 3.85 per dividend-entitled share, and adopted this increase in the dividend to € 3.85 compared with the previous year, also taking into consideration the good financial situation and business development in the 2019 financial year as well as the company’s positive future prospects.

Based on our own examinations of the annual and consolidated financial statements (including the non-financial statement), we came to the conclusion that there are no objections to be raised. At our financial statements meeting, therefore, following the recommendation of the Audit Committee, we approved the audit results and the financial statements including the non-financial statement prepared by the Executive Board. The 2019 annual financial statements of adidas AG were thus approved.

Expression of Thanks

On behalf of the entire Supervisory Board, I would like to thank the members of the Supervisory Board who left in the year under review for their commitment for the benefit of the company. Furthermore, I wish to thank the current Executive Board, the departing Executive Board members Gil Steyaert and Eric Liedtke as well as all employees around the world for their great personal dedication and their ongoing commitment. I would also like to express my thanks for the trusting cooperation between the employee and shareholder representatives on the Supervisory Board.

For the Supervisory Board

IGOR LANDAU

Chairman of the Supervisory Board

March 2020