Treasury

Corporate financing policy

In order to be able to meet the company’s payment commitments at all times, the major goal of our financial policy is to ensure adidas’ solvency, to limit financing risks and to balance financing costs with financial flexibility. The operating activities of our segments and the resulting cash inflows represent the company’s main source of liquidity. Liquidity is planned on a rolling quarterly basis under a multi-year financial and liquidity plan.

Treasury policy and responsibilities

Our Treasury Policy governs all treasury-related issues, including banking policy and approval of bank relationships, financing arrangements and liquidity/asset management, currency, interest, commodity and equity risk management as well as the management of intercompany cash flows. Responsibilities are arranged in a three-tiered approach:

• The Treasury Committee consists of members of the Executive Board and other senior executives who decide on the Treasury Policy and provide strategic guidance for managing treasury-related topics. Major changes to our Treasury Policy are subject to the prior approval of the Treasury Committee.
• The Treasury department is responsible for specific centralized treasury transactions and for the global implementation of our Treasury Policy.
• On a subsidiary level, where applicable and economically reasonable, local managing directors and finance directors are responsible for managing treasury matters in their respective subsidiaries. Controlling functions on a corporate level ensure that the transactions of the individual business units are in compliance with our Treasury Policy.

Centralized treasury function

In accordance with our Treasury Policy, all worldwide credit lines are directly or indirectly managed by the Treasury department. Portions of those lines are allocated to our subsidiaries and sometimes backed by adidas AG guarantees. As a result of this centralized liquidity management, the company is well positioned to allocate resources efficiently throughout the organization. The company’s debt is generally unsecured and may include standard covenants, which are reviewed on a quarterly basis. We maintain good relations with numerous partner banks, thereby avoiding a high dependency on any single financial institution. Banking partners of the company and our subsidiaries are required to have at least a BBB+ long-term investment grade rating by Standard & Poor’s or an equivalent rating by another leading rating agency. We authorize our companies to work with banks with a lower rating only in very exceptional cases. To ensure optimal allocation of the company’s liquid financial resources, subsidiaries transfer excess cash to our headquarters in all instances where it is legally and economically feasible. In this regard, the standardization and consolidation of our global cash management and payment processes, including automated domestic and cross-border cash pools is a key priority for our centrally managed Treasury department. Effective management of our currency exposure and interest rate risks are additional goals and responsibilities of the department. SEE NOTE 02

Standard covenants

In the case of our committed credit facilities, we have entered into various legal covenants. These legal covenants may include limits on the disposal of fixed assets, the amount of debt secured by liens, cross-default provisions and change of control. However, our financial arrangements do not contain any financial covenants. If we fail to meet any covenant and were unable to obtain a waiver, borrowings would become due and payable immediately. As at December 31, 2020, we were in full compliance with all our covenants. We are fully confident we will continue to be compliant with these covenants going forward. We believe that cash generated from operating activities, together with access to internal and external sources of funds, will be sufficient to meet our future operating and capital needs.

New syndicated credit facility

In 2020, adidas has taken several steps to considerably strengthen its financial profile. On November 10, 2020, adidas entered into a new € 1.5 billion syndicated credit facility with 12 of its partner banks. The new syndicated credit facility has a maturity in November 2025 with an extension option after year one and year two, respectively. This new syndicated credit facility replaced the temporary syndicated loan facility under participation of KfW, Germany’s state-owned development bank. In April 2020, the company had received the approval of the German government for the participation of KfW in the syndicated loan amounting to a total of € 3.0 billion to bridge the unprecedented situation caused by the global coronavirus pandemic. 

Bond placements and credit ratings

On September 1, 2020, adidas successfully placed two bonds amounting to € 1 billion in total. The four-year bond of € 500 million matures in September 2024 and has a coupon of 0.00%, while the 15-year bond of € 500 million matures in September 2035 and has a coupon of 0.625%. The bonds have been listed on the Luxemburg Stock Exchange and have denominations of € 100,000 each.

On September 29, 2020, adidas successfully placed its first sustainability bond as the company continued to execute on its ambitious long-term sustainability roadmap while at the same time further optimizing its capital structure and financing costs. The € 500 million bond has a term of eight years and a coupon of 0.00%. It has been listed on the Luxembourg Stock Exchange and has denominations of € 100,000.

These transactions followed after adidas had received strong first-time investment-grade ratings by both S&P and Moody’s in August. While Standard & Poor’s rated adidas ‘A+,’ Moody’s granted the company an ‘A2’ rating. The outlook for both ratings is ‘stable.’ The company’s strong credit metrics, robust liquidity profile and conservative financial policies are recognized by both agencies. The ratings make adidas one of the highest-rated companies both in Germany and in the global sporting goods industry.

Maturity profile of borrowings

Outstanding bonds

On top of the above-mentioned placements in 2020, the company has two outstanding bonds, both issued in 2014, and one outstanding equity-neutral convertible bond, which was issued in 2018. The seven-year bond of € 600 million matures on October 8, 2021 and has a coupon of 1.25%. The twelve-year bond of € 400 million matures on October 8, 2026 and has a coupon of 2.25%. The equity-neutral convertible bond of € 500 million was issued on September 5, 2018, with a coupon of 0.05% and is due on September 12, 2023. See Our Share See Note 18

Additional credit lines

In addition to the new syndicated credit facility and improved access to bond markets following the strong investment-grade ratings, the company’s financial flexibility is ensured by the availability of further credit facilities. At the end of 2020, committed and uncommitted credit lines, including the syndicated loan facility, amounted to € 4.274 billion (2019: € 2.105 billion), of which € 4.085 billion was unutilized (2019: € 1.940 billion). Committed and uncommitted credit lines represent approximately 38% and 62% of total credit lines, respectively (2019: 46% and 54%, respectively). In addition, we have an unused multi-currency commercial paper program in the amount of € 2.0 billion available (2019: € 2.0 billion). We monitor the ongoing need for available credit lines based on the current level of debt as well as future financing requirements.

Gross borrowings increase

The company’s gross borrowings, the vast majority of which are denominated in euro, are composed of bank borrowings as well as the outstanding bonds and the equity-neutral convertible bond. Gross borrowings increased 93% to € 3.168 billion at the end of 2020 from € 1.638 billion in the prior year. The total amount of bonds outstanding at the end of 2020 was € 2.978 billion (2019: € 1.473 billion). Bank borrowings amounted to € 189 million compared to € 165 million in the prior year. 

Extended debt maturity profile

Over the course of 2020, the company’s financing maturity profile has been extended by new bond maturities until 2035 and the new syndicated credit facility maturing in 2025. In 2021, assuming unchanged maturities, debt instruments of € 686 million will mature. This compares to € 43 million which matured during the course of 2019.

Remaining time to maturity of gross borrowings € in millions

Adjusted net borrowings of € 3.148 billion

Adjusted net borrowings on December 31, 2020 amounted to € 3.148 billion, compared € 4.173 billion in 2019. In 2020, the definition of net borrowings was changed to adjusted net borrowings to reflect changes in the company’s Financial Policy. The most significant difference between the previous net debt definition and the new adjusted net borrowing definition is the inclusion of the present value of future lease and pension liabilities.

(Adjusted net borrowings)/net cash^{1, 2} € in millions

Interest rate decreases

The weighted average interest rate on the company’s gross borrowings decreased to 1.0% in 2020 (2019: 1.5%). This development was mainly due to the issuance of the € 1.5 billion bonds in 2020. Fixed-rate financing represented 98% of total gross borrowings at the end of 2020 (2019: 99%). Variable-rate financing accounted for 2% of total gross borrowings at the end of the year (2019: 1%).

Interest rate development¹ in %

Effective foreign exchange management a key priority

As a globally operating company, adidas is exposed to currency risks. Therefore, effective currency management is a key focus of our Treasury department, with the aim of reducing the impact of currency fluctuations on non-euro-denominated net future cash flows. In this regard, hedging US dollars is a central part of our program. This is a direct result of our Asian-dominated sourcing, which is largely denominated in US dollars. In 2020, our Treasury department managed a net deficit of around US $ 6.1 billion related to operational activities (2019: US $ 7.1 billion). Thereof, around US $ 4.8 billion was against the euro (2019: US $ 4.7 billion). As governed by our Treasury Policy, we have established a hedging system on a rolling basis up to 24 months in advance, under which the vast majority of the anticipated seasonal hedging volume is secured approximately six months prior to the start of a season. In rare instances, hedges are contracted beyond the 24-month horizon. We had largely covered our anticipated hedging needs for 2021 as of the end of 2020. At the same time, we have already started hedging our exposure for 2022. The use or combination of different hedging instruments, such as forward exchange contracts, currency options and swaps, protects us against unfavorable currency movements. See Global Operations See Risk and Opportunity Report See Note 30