25 » Shareholders’ Equity

As at December 31, 2020, the nominal capital of adidas AG amounted to € 200,416,186 divided into 200,416,186 registered no-par-value shares and was fully paid in.

With legal effect as at November 30, 2021, the nominal capital was reduced from € 200,416,186 to € 192,100,000 by cancelation of 8,316,186 treasury shares. The change in the nominal capital due to the cancelation of shares and the capital reduction was registered for declaratory entry in the commercial register. The entry was made on January 27, 2022.

There were no other changes to the nominal capital. Thus, as at the balance sheet date, the nominal capital of adidas AG amounted to a total of € 192,100,000 divided into 192,100,000 registered no-par-value shares and is fully paid in.

Each share grants one vote and is entitled to dividends starting from the commencement of the year in which it was issued. Treasury shares held directly or indirectly are not entitled to dividend payment in accordance with § 71b German Stock Corporation Act (Aktiengesetz – AktG). As at the balance sheet date, adidas AG held 505,145 treasury shares, corresponding to a notional amount of € 505,145 in the nominal capital and consequently to 0.26% of the nominal capital.

AUTHORIZED CAPITAL 2021/I AND 2021/II

The Executive Board of adidas AG did not utilize the existing amount of authorized capital of up to € 70 million in the 2021 financial year.

The authorized capital of adidas AG, which is set out in § 4 sections 2 and 3 of the Articles of Association on the balance sheet date, entitles the Executive Board, subject to Supervisory Board approval, to increase the nominal capital based on the following authorizations:

Based on the authorization granted by resolution of the Annual General Meeting of May 12, 2021 until August 6, 2026:

• by issuing new shares against contributions in cash once or several times by no more than € 50,000,000 and, subject to Supervisory Board approval, to exclude residual amounts from shareholders’ subscription rights (Authorized Capital 2021/I);

Based on the authorization granted by resolution of the Annual General Meeting of May 12, 2021 until August 6, 2026

• by issuing new shares against contributions in kind and/or cash once or several times by no more than € 20,000,000 altogether (Authorized Capital 2021/II), and, subject to Supervisory Board approval, to exclude residual amounts from shareholders’ subscription rights, to wholly or partly exclude shareholders’ subscription rights when issuing shares against contributions in kind and to exclude shareholders’ subscription rights when issuing shares against contributions in cash, if the new shares against contributions in cash are issued at a price not significantly below the stock market price of the company’s shares already quoted on the stock exchange at the point in time when the issue price is ultimately determined, which should be as close as possible to the placement of the shares; this exclusion of subscription rights can also be associated with the listing of the company’s shares on a foreign stock exchange.
  
  The authorization to exclude subscription rights under this authorization, however, may only be used to the extent that the pro-rata amount of the new shares in the nominal capital together with the pro-rata amount in the nominal capital of other shares which have been issued while excluding subscription rights by the Company since May 12, 2021, subject to the exclusion of subscription rights on the basis of an authorized capital or following a repurchase or for which subscription or conversion rights or subscription or conversion obligations have been granted, through the issuance of convertible bonds and/or bonds with warrants, does not exceed 10% of the nominal capital existing on the date of the entry of this authorization with the commercial register or – if this amount is lower – as of the respective date on which the resolution on the utilization of the authorization is adopted. The previous sentence does not apply to the exclusion of subscription rights for residual amounts. The Authorized Capital 2021/II must not be used to issue shares within the scope of compensation or participation programs for Executive Board members or employees or for members of the management bodies or employees of affiliated companies.

CONTINGENT CAPITAL 2018

The following overview of the Contingent Capital is based on § 4 section 4 of the Articles of Association of adidas AG as well as on the underlying resolution of the Annual General Meeting held on May 9, 2018. Additional contingent capital does not exist.

The nominal capital is conditionally increased by up to € 12.5 million divided into no more than 12,500,000 no-par-value shares (Contingent Capital 2018). The contingent capital increase serves the issuance of registered no-par-value shares when exercising option or conversion rights or fulfilling the respective option and/or conversion obligations or when exercising the company’s right to choose to partially or in total deliver registered no-par-value shares of the company instead of paying the due amount to the holders or creditors of bonds issued by the company or a subordinated Group company up to May 8, 2023, on the basis of the authorization resolution adopted by the Annual General Meeting on May 9, 2018. The new shares will be issued at the respective option or conversion price to be established in accordance with the aforementioned authorization resolution. The contingent capital increase will be implemented only to the extent that holders or creditors of option or conversion rights, or the persons obligated to exercise the option or conversion obligations based on bonds issued by the company, or a subordinated Group company, pursuant to the authorization of the Executive Board granted by the resolution adopted by the Annual General Meeting on May 9, 2018 (Agenda Item 8), up to May 8, 2023, and guaranteed by the company, exercise their option or conversion rights or, if they are obligated to exercise the option or conversion obligations, fulfill their obligations to exercise the warrant or convert the bond, or to the extent that the company exercises its rights to choose to deliver adidas AG shares for the total amount or a part amount instead of payment of the amount due and insofar as no cash settlement, treasury shares, or shares of another public listed company are used to service these rights. The new shares will carry dividend rights from the commencement of the financial year in which the shares are issued. The Executive Board is authorized to stipulate any additional details concerning the implementation of the contingent capital increase.

The Executive Board is also authorized, subject to Supervisory Board approval, to exclude shareholders’ subscription rights for residual amounts and to exclude shareholders’ subscription rights insofar as this is necessary for granting subscription rights to which holders or creditors of previously issued bonds are entitled. Finally, the Executive Board is authorized, subject to Supervisory Board approval, to also exclude shareholders’ subscription rights if the issue price of the bonds is not significantly below the hypothetical market value of these bonds and the number of shares to be issued does not exceed 10% of the nominal capital. Treasury shares which are or will be sold with the exclusion of subscription rights in accordance with § 71 section 1 no. 8 in conjunction with § 186 section 3 sentence 4 AktG between the starting date of the term of this authorization and the issuance of the respective bonds shall be attributed to the aforementioned limit of 10%. Shares which are or will be issued, subject to the exclusion of subscription rights pursuant to § 186 section 3 sentence 4 AktG or pursuant to § 203 section 1 in conjunction with § 186 section 3 sentence 4 AktG between the starting date of the term of this authorization and the issuance of the respective bonds in the context of a cash capital increase shall also be attributed to the aforementioned limit of 10%. Finally, shares for which there are option or conversion rights or obligations or a right to delivery of shares of the company in favor of the company due to bonds with warrants or convertible bonds issued by the company or its subordinated Group companies, subject to the exclusion of subscription rights in accordance with § 221 section 4 sentence 2 in conjunction with § 186 section 3 sentence 4 AktG during the term of this authorization based on other authorizations shall be attributed to the aforementioned limit of 10%.

In the period up until the balance sheet date, the Executive Board of adidas AG did not issue any bonds based on the authorization granted on May 9, 2018, and consequently did not issue any shares from the Contingent Capital 2018.

REPURCHASE AND USE OF TREASURY SHARES

The Annual General Meeting on May 12, 2021, granted the Executive Board an authorization to repurchase adidas AG shares up to an amount totaling 10% of the nominal capital until May 11, 2026. The authorization may be used by adidas AG but also by its subordinated Group companies or by third parties on account of adidas AG or its subordinated Group companies or third parties assigned by adidas AG or one of its subordinated Group companies.

Based on the above-mentioned authorization, the Executive Board of adidas AG commenced share buyback programs on July 1, 2021, and October 18, 2021, respectively. Under the authorization granted, adidas AG repurchased a total of 1,851,522 shares for a total price of € 549,999,787.55 (excluding incidental purchasing costs), i. e., for an average price of € 297.05 per share, between July 1, 2021, and September 30, 2021, inclusive (Share Buyback Program 2021/I). This corresponded to an amount of € 1,851,522 in the nominal capital and consequently to an approximate notional amount of 0.96% of the nominal capital. Furthermore, adidas AG repurchased a total of 1,619,683 shares for a total price of € 499,999,974.77 (excluding incidental purchasing costs), i.e., for an average price of € 277.83 per share, between October 18, 2021, and November 25, 2021, inclusive (Share Buyback Program 2021/II). This corresponded to an amount of € 1,619,683 in the nominal capital and consequently to an approximate notional amount of 0.84% of the nominal capital. In the year under review, adidas AG thus repurchased a total of 3,471,205 shares for a total price of € 999,999,762.32 (excluding incidental purchasing costs), i.e., for an average price of € 288.08 per share. This corresponded to an amount of € 3,471,205 in the nominal capital and consequently to an approximate notional amount of 1.81% of the nominal capital. Further information on the adidas AG shares repurchased in the 2021 financial year can be taken from the table ‘Repurchase of adidas AG shares in the 2021 financial year.’

The company may use the repurchased shares for all purposes admissible under the authorization granted on May 12, 2021. adidas AG, however, plans to cancel the majority of the repurchased shares. Accordingly, 8,316,186 treasury shares were canceled in the 2021 financial year within the framework of a simplified capital reduction conducted pursuant to § 237 section 3 no. 2 AktG. Taking into account the company held 5,350,126 treasury shares as at December 31, 2020, and the 3,471,205 shares repurchased in the 2021 financial year, this results in 505,145 treasury shares held as at the balance sheet date. SEE DISCLOSURES PURSUANT TO § 315A SECTION 1 AND § 289A SECTION 1 OF THE GERMAN COMMERCIAL CODE AND EXPLANATORY REPORT

EMPLOYEE STOCK PURCHASE PLAN

In the 2016 financial year, adidas AG introduced an employee stock purchase plan in favor of employees of adidas AG and its affiliated companies.

In connection with this employee stock purchase plan, adidas shares were purchased by a service provider on behalf of the participating employees in the 2021 financial year. For part of such shares, adidas AG financed a discount of 15% and for the remaining shares (matching shares) adidas financed the full purchase price. More details on the purchase of adidas AG shares in connection with the employee stock purchase plan in the 2021 financial year are set out in the tables ‘Purchase of adidas AG shares in the context of the employee stock purchase plan 2021’ and ‘Purchase of adidas AG shares in the context of the employee stock purchase plan 2021/Matching shares.’ SEE DISCLOSURES PURSUANT TO § 315A SECTION 1 AND § 289A SECTION 1 OF THE GERMAN COMMERCIAL CODE AND EXPLANATORY REPORT See Note 02

CHANGES IN THE PERCENTAGE OF VOTING RIGHTS

Pursuant to § 160 section 1 no. 8 AktG, existing shareholdings which have been notified to adidas AG in accordance with § 33 section 1 or section 2 German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) need to be disclosed.

The table ‘Notified reportable shareholdings’ reflects reportable shareholdings in adidas AG as at the balance sheet date which have each been notified to adidas AG. In each case, the details relate to the most recent voting rights notification received by adidas AG from the parties obligated to notify. All voting rights notifications disclosed by adidas AG in the year under review are available on the corporate website. ADIDAS-GROUP.COM/S/VOTING-RIGHTS-NOTIFICATIONS

The details on the percentage of shareholdings and voting rights may no longer be up to date.

CAPITAL MANAGEMENT

The company’s policy is to maintain a strong capital base so as to uphold investor, creditor, and market confidence and to sustain future development of the business.

adidas seeks to maintain a balance between a higher return on equity that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The company further aims to maintain adjusted net borrowings below two times EBITDA (Earnings before interests, taxes, depreciation and amortization and impairment losses and reversals) over the long term. adidas intends to maintain a continuous rating in the middle of the upper rating class (S&P: A and Moody’s: A2). In August 2020, adidas was rated ‘A +' by Standard & Poor’s and ‘A2’ by Moody’s for the first time. The outlook for both ratings is stable. The respective rating was confirmed by Standard & Poor’s in August 2021 and by Moody’s in July 2021.

Financial leverage amounts to 39.4% (2020: 48.8%) and is defined as the ratio between adjusted net borrowings in an amount of € 2.963 billion (2020: € 3.148 billion) and shareholders’ equity in an amount of € 7.519 billion (2020: € 6.454 billion). EBITDA amounted t o€ 3.066 billion for the financial year ending December 31, 2021 (2020: € 1.967 billion). The ratio between adjusted net borrowings and EBITDA amounted to 1.0 for the 2021 financial year (2020: 1.6).

In 2020, the definition of the ratio net borrowings over EBITDA was changed to adjusted net borrowings over EBITDA to reflect changes in the company’s Financial Policy. The most significant difference between the previous net borrowings definition and the new adjusted net borrowings definition is the inclusion of the present value of future lease and pension liabilities.

RESERVES

Reserves within shareholders’ equity are as follows:

• Capital reserve: primarily comprises the paid premium for the issuance of share capital as well as the equity component of the issued convertible bond.
• Cumulative currency translation differences: comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
• Hedging reserve: comprises the effective portion of the cumulative net change in the fair value of cash flow hedges (intrinsic value for options and spot component for forward contracts) related to hedged transactions that have not yet occurred, hedges of net investments in foreign subsidiaries and the effective portion of the cumulative net change in the fair value of the total return swap.
• Cost of hedging reserve – options: comprises the effective portion of the cumulative net change in the fair value of cash flow hedges reflecting cost of hedging of options (time value and premium).
• Cost of hedging reserve – forward contracts: comprises the effective portion of the cumulative net change in the fair value of cash flow hedges reflecting cost of hedging of forward contracts (forward component).
• Other reserves: comprises the remeasurements of defined benefit plans consisting of the cumulative net change of actuarial gains or losses relating to the defined benefit obligations, the return on plan assets (excluding interest income) and the asset ceiling effect, the remeasurement of the fair value of the equity investments measured at fair value through other comprehensive income, expenses recognized for share option plans, and effects from the acquisition of non-controlling interests, as well as reserves required by law.
• Retained earnings: comprises both amounts which are required by the Articles of Association and voluntary amounts that have been set aside by adidas. The reserve includes the unappropriated accumulated profits less dividends paid, and consideration paid for the repurchase of adidas AG shares exceeding the nominal value. In addition, the item includes the effects of the employee stock purchase plan and the transition effects of the implementation of new IFRSs.

The capital reserve includes restricted capital in an amount of € 4 million (2020: € 4 million). Furthermore, other reserves include additional restricted capital in an amount of € 115 million (2020: € 91 million).

DISTRIBUTABLE PROFITS AND DIVIDENDS

Profits distributable to shareholders are determined by reference to the retained earnings of adidas AG and are calculated under German Commercial Law.

Based on the resolution of the 2021 Annual General Meeting, the dividend for 2020 was € 3.00 per share (total amount: approx. € 585 million).

The Executive Board of adidas AG will propose to use retained earnings of adidas AG in an amount of € 1.334 billion as reported in the 2021 financial statements of adidas AG for a dividend payment of € 3.30 per share and to carry forward the subsequent remaining amount.

As at February 21, 2022, 188,458,569 dividend-entitled shares exist. This would result in a dividend payment of € 622 million.