28 » Financial Instruments

Carrying amounts of financial instruments and their fair values including hierarchy according to IFRS 13 € in millions

 

 

Category

 

December 31, 2021

 

December 31, 2020

 

 

 

 

Carrying amount

 

Fair value

 

Level 1

 

Level 2

 

Level 3

 

Carrying amount

 

Fair value

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

Amortized cost

 

2,449

 

 

 

 

 

 

1,762

 

 

 

 

 

Cash equivalents

 

Fair value through
profit or loss

 

1,379

 

1,379

 

 

1,379

 

 

2,232

 

2,232

 

 

2,232

 

Accounts receivable

 

Amortized cost

 

2,175

 

 

 

 

 

 

1,952

 

 

 

 

 

Other current financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used in hedge accounting

 

n.a.

 

237

 

237

 

 

237

 

 

163

 

163

 

 

163

 

Derivatives not used in hedge accounting

 

Fair value through
profit or loss

 

36

 

36

 

 

36

 

 

32

 

32

 

 

32

 

Promissory notes

 

Fair value through
profit or loss

 

12

 

12

 

 

 

12

 

6

 

6

 

 

 

6

Other investments

 

Amortized cost

 

71

 

 

 

 

 

55

 

 

 

 

Other financial assets

 

Amortized cost

 

389

 

 

 

 

 

 

446

 

 

 

 

 

Long-term financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other equity investments

 

Fair value through
profit or loss

 

89

 

89

 

 

 

89

 

89

 

89

 

 

 

89

Other equity investments

 

Fair value through
profit or loss

 

80

 

80

 

 

 

80

 

80

 

80

 

 

 

80

Other investments

 

Fair value through
profit or loss

 

30

 

30

 

 

30

 

 

35

 

37

 

 

37

 

Other investments

 

Amortized cost

 

91

 

 

 

 

 

149

 

 

 

 

Loans

 

Amortized cost

 

0

 

 

 

 

 

 

0

 

 

 

 

 

Other non-current financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used in hedge accounting

 

n.a.

 

11

 

11

 

 

11

 

 

14

 

14

 

 

14

 

Derivatives not used in hedge accounting

 

Fair value through
profit or loss

 

42

 

42

 

 

42

 

 

99

 

99

 

 

99

 

Promissory notes

 

Fair value through
profit or loss

 

 

 

 

 

 

166

 

166

 

 

 

166

Earn-out components

 

Fair value through
profit or loss

 

 

 

 

 

 

12

 

12

 

 

 

12

Other financial assets

 

Amortized cost

 

108

 

 

 

 

 

 

114

 

 

 

 

 

Financial assets per level

 

 

 

 

 

 

 

 

1,735

 

181

 

 

 

 

 

 

2,577

 

352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank borrowings

 

Amortized cost

 

29

 

 

 

 

 

 

87

 

 

 

 

 

Eurobond

 

Amortized cost

 

 

 

 

 

 

599

 

605

 

605

 

 

Accounts payable

 

Amortized cost

 

2,294

 

 

 

 

 

 

2,390

 

 

 

 

 

Current accrued liabilities

 

Amortized cost

 

1,006

 

 

 

 

 

 

939

 

 

 

 

 

Current accrued liabilities for customer discounts

 

Amortized cost

 

878

 

 

 

 

 

 

743

 

 

 

 

 

Other current financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used in hedge accounting

 

n.a.

 

129

 

129

 

 

129

 

 

258

 

258

 

 

258

 

Derivatives not used in hedge accounting

 

Fair value through
profit or loss

 

54

 

54

 

 

54

 

 

24

 

24

 

 

24

 

Other financial liabilities

 

Amortized cost

 

180

 

 

 

 

 

 

164

 

 

 

 

 

Lease liabilities

 

n.a.

 

573

 

 

 

 

 

 

563

 

 

 

 

 

Long-term borrowings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank borrowings

 

Amortized cost

 

82

 

 

 

 

 

 

103

 

 

 

 

 

Eurobond

 

Amortized cost

 

1,890

 

1,929

 

1,929

 

 

 

1,888

 

1,987

 

1,987

 

 

Convertible bond

 

Amortized cost

 

494

 

572

 

572

 

 

 

491

 

631

 

631

 

 

Non-current accrued liabilities

 

Amortized cost

 

2

 

 

 

 

 

 

2

 

 

 

 

 

Other non-current financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used in hedge accounting

 

n.a.

 

20

 

20

 

 

20

 

 

26

 

26

 

 

26

 

Derivatives not used in hedge accounting

 

Fair value through
profit or loss

 

31

 

31

 

 

31

 

 

85

 

85

 

 

85

 

Other financial liabilities

 

Amortized cost

 

 

 

 

 

 

 

4

 

 

 

 

 

Lease liabilities

 

n.a.

 

2,263

 

 

 

 

 

 

2,159

 

 

 

 

 

Financial liabilities per level

 

 

 

 

 

 

 

2,501

 

234

 

 

 

 

 

 

3,223

 

393

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thereof: aggregated by category according to IFRS 9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss (FVTPL)

 

 

 

1,588

 

 

 

 

 

 

 

 

 

2,670

 

 

 

 

 

 

 

 

Thereof: held for trading (FAHfT)

 

 

 

87

 

 

 

 

 

 

 

 

 

87

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income (FVOCI)

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

Thereof: equity investments (without recycling to profit and loss)

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

Financial assets at amortized cost (AC)

 

 

 

5,283

 

 

 

 

 

 

 

 

 

4,489

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss (FVTPL)

 

 

 

85

 

 

 

 

 

 

 

 

 

108

 

 

 

 

 

 

 

 

Financial liabilities at amortized cost (AC)

 

 

 

6,855

 

 

 

 

 

 

 

 

 

7,409

 

 

 

 

 

 

 

 

Level 1 is based on quoted prices in active markets for identical assets or liabilities.

Level 2 is based on inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

Level 3 is based on inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

Reconciliation of fair value hierarchy Level 3 in 2021 € in millions

 

 

 

 

 

 

 

 

Realized

 

Unrealized

 

 

 

 

 

 

Fair value Jan. 1, 2021

 

Additions

 

Disposals

 

Gains

 

Losses

 

Gains

 

Losses

 

Currency translation

 

Fair value Dec. 31, 2021

Investments in other equity instruments
held for trading (FAHfT)

 

87

 

 

 

 

 

 

 

 

87

Investments in other equity instruments (FVTPL)

 

2

 

 

 

 

 

 

 

 

2

Investments in other equity instruments (FVOCI)

 

79

 

10

 

(10)

 

 

 

1

 

 

 

80

Promissory notes (FVTPL)

 

171

 

 

(158)

 

 

 

 

(8)

 

7

 

12

Earn-out components – assets (FVTPL)

 

12

 

 

(21)

 

9

 

 

 

 

 

Reconciliation of fair value hierarchy Level 3 in 2020 € in millions

 

 

 

 

 

 

 

 

Realized

 

Unrealized

 

 

 

 

 

 

Fair value Jan. 1, 2020

 

Additions

 

Disposals

 

Gains

 

Losses

 

Gains

 

Losses

 

Currency translation

 

Fair value Dec. 31, 2020

Investments in other equity instruments
held for trading (FAHfT)

 

84

 

 

 

 

 

2

 

 

 

87

Investments in other equity instruments (FVTPL)

 

2

 

 

 

 

 

 

 

 

2

Investments in other equity instruments (FVOCI)

 

78

 

3

 

 

 

 

 

(2)

 

 

79

Promissory notes (FVTPL)

 

182

 

 

(1)

 

 

(3)

 

9

 

 

(15)

 

171

Earn-out components – assets (FVTPL)

 

45

 

 

(41)

 

 

 

12

 

 

(4)

 

12

Due to the short-term maturities of cash and cash equivalents, short-term financial assets, and accounts receivable and payable, as well as other current financial receivables and payables, their respective fair values equal their carrying amount.

The fair values of non-current financial assets and liabilities are estimated by discounting expected future cash flows using current interest rates for debt of similar terms and remaining maturities and adjusted by a company-specific credit risk premium.

Fair values of long-term financial assets are based on quoted market prices in an active market or are calculated as present values of expected future cash flows.

adidas designated certain investments as equity securities at fair value through other comprehensive income (equity), because the company intends to hold those investments for the long term in order to gain insights into innovative production technologies and trends. The designation of certain equity instruments at fair value through other comprehensive income (equity) is based on a strategic Management decision.

In accordance with IFRS 13, the following tables show the valuation methods used in measuring Level 1, Level 2, and Level 3 fair values, as well as the significant unobservable inputs used.

During the course of 2021, significant unobservable inputs did not significantly change and there were no reclassifications between levels.

Financial instruments Level 1 measured at fair value

Type

 

Valuation method

 

Significant unobservable inputs

 

Category

Convertible bond

 

The fair value is based on the market price of the convertible bond as at December 31, 2021.

 

Not applicable

 

Amortized cost

Eurobond

 

The fair value is based on the market price of the eurobond as at December 31, 2021.

 

Not applicable

 

Amortized cost

Financial instruments Level 2 measured at fair value

Type

 

Valuation method

 

Significant unobservable inputs

 

Category

Cash equivalents and short-term financial assets
(money market funds)

 

The discounted cash flow method is applied, which considers the present value of expected payments, discounted using a risk-adjusted discount rate. Due to their short-term maturities, it is assumed that their respective fair value is equal to
the notional amount.

 

Not applicable

 

Fair value through
profit or loss

Long-term financial assets (investment securities)

 

The fair value is based on the market price of the assets as at December 31, 2021.

 

Not applicable

 

Fair value through
profit or loss

Forward exchange contracts

 

In 2021, adidas applied the par method (forward NPV) for all currency pairs to calculate the fair value, implying actively traded forward curves.

 

Not applicable

 

n.a./fair value through
profit or loss

Currency options

 

adidas applies the Garman-Kohlhagen model, which is an extended version of the Black-Scholes model.

 

Not applicable

 

n.a./fair value through
profit or loss

Share option (cash settled)

 

adidas applies the Black-Scholes model.

 

Not applicable

 

Fair value through
profit or loss

Total return swap
(for own shares)

 

The fair value is based on the market price of the adidas AG share as at December 31, 2021, minus accrued interest.

 

Not applicable

 

n.a./fair value through
profit or loss

Financial instruments Level 3 measured at fair value

Type

 

Valuation method

 

Significant unobservable inputs

 

Inter-relationship between significant unobservable inputs and fair value measurement

 

Category

Investment in FC Bayern München AG

 

This equity security does not have a quoted market price in an active market. Existing contractual arrangements (based on the externally observable dividend policy of FC Bayern München AG) are used in order to calculate the fair value as at December 31, 2021. These dividends are recognized in other financial income.

 

See column ‘Valuation method’

 

 

 

Fair value through
profit or loss

Earn-out components (assets)

 

The valuation follows an option price model based on the Monte Carlo method to simulate future EBITDA values. The derived earn-out payments are discounted using a risk-adjusted discount rate. The fair value adjustment is recognized in discontinued operations.

 

Risk-adjusted maturity-specific discount rate (0.2% –0.6%), EBITDA values, confidence level

 

The estimated fair value would increase (decrease) if EBITDA values were higher (lower) or the risk-adjusted discount rate was lower (higher).

 

Fair value through
profit or loss

Promissory notes

 

The discounted cash flow method is applied, which considers the present value of expected payments discounted using a risk-adjusted discount rate. Fair value adjustments regarding TaylorMade and CCM promissory notes are recognized in discontinued operations. Fair value adjustments regarding the Mitchell & Ness promissory note are recognized in financial result.

 

Risk-adjusted maturity-specific discount rate (0.6% –4.4%)

 

The estimated fair value would increase (decrease) if the risk-adjusted discount rate was lower (higher).

 

Fair value through
profit or loss

Investments in other equity instruments (fair value through profit or loss)

 

The significant inputs (financing rounds) used to measure fair value include one or more events where objective evidence of any changes was identified, considering expectations regarding future business development. The fair value adjustment is recognized in other financial result.

 

See column ‘Valuation method’

 

 

 

Fair value through
profit or loss

Investments in other equity instruments (fair value through other comprehensive income)

 

The option to measure equity instruments at fair value through other comprehensive income upon implementation of IFRS 9 has been exercised. The significant inputs (financing rounds) used to measure fair value include one or more events where objective evidence of any changes was identified, considering expectations regarding future business development. The fair value adjustment is recognized in other reserves.

 

See column ‘Valuation method’

 

 

 

Fair value through other comprehensive income

Net gains/(losses) on financial instruments recognized in the consolidated income statement € in millions

 

 

Year ending
Dec. 31, 2021

 

Year ending
Dec. 31, 2020

Financial assets classified at amortized cost (AC)

 

(6)

 

(111)

Financial assets at fair value through profit or loss (FVTPL)

 

(1)

 

18

Thereof: designated as such upon initial recognition

 

 

Thereof: classified as held for trading

 

 

2

Equity instruments at fair value through profit or loss (FVTPL)

 

 

Equity instruments at fair value through other comprehensive income (FVOCI)

 

 

Financial liabilities at amortized cost (AC)

 

8

 

38

Financial liabilities at fair value through profit or loss (FVTPL)

 

 

Thereof: designated as such upon initial recognition

 

 

Thereof: classified as held for trading

 

 

Net gains or losses on financial assets measured at amortized cost comprise mainly impairment losses and reversals.

Net gains or losses on financial assets or financial liabilities classified as fair value through profit or loss include the effects from fair value measurements of the derivatives that are not part of a hedging relationship, and changes in the fair value of other financial instruments as well as interest expenses.

Net gains or losses on equity instruments at fair value through profit or loss mainly include fair value adjustments based on the respective valuation method. SEE TABLE ‘FINANCIAL INSTRUMENTS LEVEL 3 MEASURED AT FAIR VALUE’

During 2021, no dividends regarding equity instruments at fair value through other comprehensive income were recognized. Net gains or losses on financial liabilities measured at amortized cost include effects from early settlement and reversals of accrued liabilities and refund liabilities.

Net gains or losses on financial liabilities measured at amortized cost include effects from early settlement and reversals of accrued liabilities and refund liabilities.

Notional amounts of all outstanding currenry hedging instruments € in millions

 

 

Dec. 31, 2021

 

Dec. 31, 2020

Forward exchange contracts

 

11,282

 

13,142

Currency options

 

391

 

386

Total

 

11,673

 

13,528

Fair values € in millions

 

 

Dec. 31, 2021

 

Dec. 31, 2020

 

 

Positive fair value

 

Negative fair value

 

Positive fair value

 

Negative fair value

Forward exchange contracts

 

246

 

(189)

 

119

 

(300)

Currency options

 

19

 

(0)

 

10

 

Total

 

265

 

(189)

 

129

 

(300)

Notional amounts of outstanding US dollar hedging instruments € in millions

 

 

Dec. 31, 2021

 

Dec. 31, 2020

Forward exchange contracts

 

5,017

 

4,968

Currency options

 

318

 

261

Total

 

5,334

 

5,229

FINANCIAL RISKS

CURRENCY RISKS

Currency risks for adidas are a direct result of multi-currency cash flows within the company. The vast majority of the transactional risk arises from product sourcing in US dollars, while sales are typically denominated in the functional currency of the respective companies. The currencies in which these transactions are mainly denominated are the US dollar, British pound, Japanese yen, and Chinese renminbi.

As governed by the company’s Treasury Policy, adidas has 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.

adidas uses a combination of different hedging instruments, such as forward exchange contracts, currency options, and swaps, to protect itself against unfavorable currency movements. These contracts are generally designated as cash flow hedges.

Furthermore, translation impacts from the conversion of non-euro-denominated results into the company’s functional currency, the euro, might lead to a material negative impact on the company’s financial performance.

Further information about the accounting and hedge accounting treatment is included in these Notes. See Note 02

Exposures are presented in the following table:

Exposure to foreign exchange risk based on notional amounts € in millions

 

 

USD

 

GBP

 

JPY

 

CNY

 

 

 

 

 

 

 

 

 

As at December 31, 2021

 

 

 

 

 

 

 

 

Exposure from firm commitments and forecast transactions

 

(6,127)

 

1,345

 

602

 

1,092

Balance sheet exposure including intercompany exposure

 

(158)

 

11

 

(36)

 

208

Total gross exposure

 

(6,285)

 

1,356

 

566

 

1,300

Hedged with currency options

 

318

 

(33)

 

(40)

 

Hedged with forward contracts

 

4,439

 

(1,198)

 

(372)

 

(1,130)

Net exposure

 

(1,528)

 

125

 

154

 

170

 

 

 

 

 

 

 

 

 

As at December 31, 2020

 

 

 

 

 

 

 

 

Exposure from firm commitments and forecast transactions

 

(5,897)

 

926

 

731

 

1,913

Balance sheet exposure including intercompany exposure

 

(233)

 

41

 

(37)

 

388

Total gross exposure

 

(6,130)

 

967

 

694

 

2,301

Hedged with currency options

 

261

 

(59)

 

(66)

 

Hedged with forward contracts

 

4,808

 

(805)

 

(542)

 

(1,645)

Net exposure

 

(1,061)

 

103

 

86

 

656

The exposure from firm commitments and forecast transactions was calculated on a one-year basis.

In line with IFRS 7 requirements, the company has calculated the impact on net income and shareholders’ equity based on changes in the most important currency exchange rates. The calculated impacts mainly result from changes in the fair value of the hedging instruments. The analysis does not include effects that arise from the translation of the company’s foreign entities’ financial statements into the company’s reporting currency, the euro. The sensitivity analysis is based on the net balance sheet exposure, including intercompany balances from monetary assets and liabilities denominated in foreign currencies. Moreover, all outstanding currency derivatives were re-evaluated using hypothetical foreign exchange rates to determine the effects on net income and equity. The analysis was performed on the same basis for both 2021 and 2020.

Based on this analysis, a 10% increase in the euro versus the US dollar at December 31, 2021, would have led to a €6 million increase in net income.

Sensitivity analysis of foreign exchange rate changes € in millions

 

 

USD

 

GBP

 

JPY

 

CNY

 

 

 

 

 

 

 

 

 

As at December 31, 2021

 

 

 

 

 

 

 

 

 

 

EUR +10%

 

EUR +10%

 

EUR +10%

 

EUR +10%

Equity

 

(351)

 

110

 

37

 

81

Net income

 

6

 

(1)

 

3

 

1

 

 

EUR -10%

 

EUR -10%

 

EUR -10%

 

EUR -10%

Equity

 

440

 

(135)

 

(45)

 

(99)

Net income

 

(5)

 

1

 

(4)

 

(1)

 

 

 

 

 

 

 

 

 

As at December 31, 2020

 

 

 

 

 

 

 

 

 

 

EUR +10%

 

EUR +10%

 

EUR +10%

 

EUR +10%

Equity

 

(379)

 

77

 

55

 

105

Net income

 

6

 

(41)

 

3

 

(2)

 

 

EUR -10%

 

EUR -10%

 

EUR -10%

 

EUR -10%

Equity

 

478

 

(91)

 

(66)

 

(128)

Net income

 

(11)

 

5

 

(4)

 

7

The more negative market values of the US dollar hedges would have decreased shareholders’ equity by € 351 million. A 10% weaker euro at December 31, 2021, would have led to a € 5 million decrease in net income. Shareholders’ equity would have increased by € 440 million. The impacts of fluctuations of the euro against the British pound, the Japanese yen and the Chinese renminbi on net income and shareholders’ equity are also included in accordance with IFRS requirements.

However, many other financial and operational variables that could potentially reduce the effect of currency fluctuations are excluded from the analysis. For instance:

  • Interest rates, commodity prices, and all other exchange rates are assumed constant.
  • Exchange rates are assumed at a year-end value instead of the more relevant sales-weighted average figure, which the company utilizes internally to better reflect both the seasonality of its business and intra-year currency fluctuations.
  • The underlying forecast cash flow exposure (which the hedge instrument mainly relates to) is not required to be revalued in this analysis.
  • Operational issues, such as potential discounts for key accounts, which have high transparency regarding the impacts of currency on our sourcing activities (due to their own private label sourcing efforts), are also excluded from this analysis.
  • The credit risk is not considered as part of this analysis.

The company also largely hedges balance sheet risks. Due to its strong global position, adidas is able to partly minimize the currency risk by utilizing natural hedges. The company’s gross US dollar cash flow exposure calculated for 2022 was around € 7.3 billion at year-end 2021, which was hedged using forward exchange contracts, currency options and currency swaps.

CREDIT RISKS

A credit risk arises if a customer or other counterparty to a financial instrument fails to meet its contractual obligations. adidas is exposed to credit risks from its operating activities and from certain financing activities. Credit risks arise principally from accounts receivable and, to a lesser extent, from other third-party contractual financial obligations such as other financial assets, short-term bank deposits, and derivative financial instruments. Without taking into account any collateral or other credit enhancements, the carrying amount of financial assets and accounts receivable represents the maximum exposure to credit risk.

At the end of 2021, there was no relevant concentration of credit risk by type of customer or geography. The company’s credit risk exposure is mainly influenced by individual customer characteristics. Under the company’s credit policy, new customers are analyzed for creditworthiness before standard payment and delivery terms and conditions are offered. Tolerance limits for accounts receivable are also established for each customer. Both creditworthiness and accounts receivable limits are monitored on an ongoing basis. Customers that fail to meet the company’s minimum creditworthiness are, in general, allowed to purchase products only on a prepayment basis.

Other activities to mitigate credit risks include retention of title clauses as well as, on a selective basis, credit insurance, the sale of accounts receivable without recourse, and bank guarantees. Further quantitative information on the extent to which credit enhancements mitigate the credit risk of accounts receivable is included in these Notes. See Note 05

At the end of 2021, no customer accounted for more than 10% of accounts receivable.

The Treasury department arranges currency, commodity interest rate, and equity hedges, and invests cash with major banks of a high credit standing throughout the world. adidas subsidiaries are authorized to work with banks rated BBB+ or higher. Only in exceptional cases are subsidiaries authorized to work with banks rated lower than BBB+. To limit risk in these cases, restrictions are clearly stipulated, such as maximum cash deposit levels. In addition, the credit default swap premiums of the company’s partner banks are monitored on a monthly basis. In the event that the defined threshold is exceeded, credit balances are shifted to banks compliant with the limit. See Treasury

adidas furthermore believes that the risk concentration is limited due to the broad distribution of the investment business of the company with a high number of globally operating banks. At December 31, 2021, no bank accounted for more than 10% of the investments of adidas. Including subsidiaries’ short-term deposits in local banks, the average concentration was 2%. This leads to a maximum exposure of € 144 million in the event of default of any single bank. The investment exposure was further diversified by investing into AAA-rated money market funds.

In addition, in 2021, adidas held derivatives of foreign exchange with a positive fair market value in the amount of € 265 million. The maximum exposure to any single bank resulting from these assets amounted to € 79 million and the average concentration was 8%.

In accordance with IFRS 7, the following table includes further information about set-off possibilities of derivative financial assets and liabilities. The majority of agreements between financial institutions and adidas include a mutual right to set off. However, these agreements do not meet the criteria for offsetting in the statement of financial position, because the right to set off is enforceable only in the event of counterparty defaults.

The carrying amounts of recognized derivative financial instruments, which are subject to the agreements mentioned here, are also presented in the following table:

Set-off possibilities of derivative financial assets and liabilities € in millions

 

 

2021

 

2020

 

 

 

 

 

Assets

 

 

 

 

Gross amounts of recognized financial assets

 

326

 

309

Financial instruments which qualify for set-off in the statement of financial position

 

 

Net amounts of financial assets presented in the statement of financial position

 

326

 

309

Set-off possible due to master agreements

 

(176)

 

(212)

Total net amount of financial assets

 

150

 

97

 

 

 

 

 

Liabilities

 

 

 

 

Gross amounts of recognized financial liabilities

 

(234)

 

(393)

Financial instruments which qualify for set-off in the statement of financial position

 

 

Net amounts of financial liabilities presented in the statement of financial position

 

(234)

 

(393)

Set-off possible due to master agreements

 

176

 

212

Total net amount of financial liabilities

 

(58)

 

(181)

INTEREST RATE RISKS

Changes in global market interest rates affect future interest payments for variable-interest liabilities. As adidas does not have material variable-interest liabilities, even a significant increase in interest rates should have only slight adverse effects on the company’s profitability, liquidity, and financial position.

To reduce interest rate risks and maintain financial flexibility, a core tenet of the company’s financial strategy is to continue to use surplus cash flow from operations to reduce short-term gross borrowings. Beyond that, adidas may consider adequate hedging strategies through interest rate derivatives in order to mitigate interest rate risks. See Treasury

SHARE PRICE RISKS

Share price risks arise due to the Long-Term Incentive Plan (LTIP), which is a share-based remuneration scheme with cash settlement, and the equity-neutral convertible bond with cash settlement. In order to mitigate share price risks, it is company strategy to use swaps and options to hedge against share price fluctuations. Swaps are used to hedge the Long-Term Incentive Plan and are classified as cash flow hedges. The embedded cash option in the convertible bond is fully offset with a call option to mitigate the cash settlement.

In line with IFRS 7 requirements, adidas has calculated the impact on net income based on changes in the company’s share price. A 10% increase in the adidas AG share price versus the closing share price at December 31, 2021, would have led to a € 13 million increase in net income and a € 3 million increase in shareholders’ equity, whereas a 10% decrease in the adidas AG share price versus the closing share price at December 31, 2021, would have led to a € 13 million decrease in net income and would have decreased shareholders’ equity by € 3 million.

FINANCING AND LIQUIDITY RISKS

Liquidity risks arise from not having the necessary resources available to meet maturing liabilities with regard to timing, volume and currency structure. In addition, the company faces the risk of having to accept unfavorable financing terms due to liquidity restraints. The Treasury department uses an efficient cash management system in order to make best use of the operating cash flow. A twelve month rolling cash flow forecast on a monthly basis is established to manage liquidity risk. In line with the Financial Policy, adidas aims to maintain a target leverage ratio and a target twelve months liquidity coverage. Committed and uncommitted credit lines ensure further financial flexibility. The strong external credit rating allows adidas to access capital markets for further financing possibilities at all times.

At December 31, 2021, cash and cash equivalents together with marketable securities amounted to € 3.828 billion (2020: € 3.994 billion). Moreover, the company maintains € 4.169 billion (2020: € 4.274 billion) in bilateral credit lines, which are designed to ensure sufficient liquidity at all times. Since, November 6, 2020 there has been a € 1.5 billion syndicated credit facility in place with our core partner banks. See Treasury

Future cash outflows arising from financial liabilities that are recognized in the consolidated statement of financial position are presented in the table.

This includes payments to settle obligations from borrowings as well as cash outflows from cash-settled derivatives with negative market values. Financial liabilities that may be settled in advance without penalty are included on the basis of the earliest date of potential repayment. Cash flows for variable-interest liabilities are determined with reference to the conditions at the balance sheet date.

Future cash outflows € in millions

 

 

Up to
1 year

 

Up to 2 years

 

Up to 3 years

 

Up to 4 years

 

Up to 5 years

 

More than 5 years

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank borrowings

 

29

 

19

 

19

 

18

 

19

 

7

 

111

Eurobond1

 

12

 

12

 

512

 

12

 

412

 

1,029

 

1,989

Equity-neutral convertible bond

 

 

494

 

 

 

 

 

494

Accounts payable

 

2,294

 

 

 

 

 

 

2,294

Other financial liabilities

 

180

 

 

 

 

 

 

180

Accrued liabilities2

 

1,006

 

2

 

 

 

 

 

1,008

Derivative financial liabilities

 

4,175

 

846

 

4

 

4

 

4

 

13

 

4,947

Total

 

7,696

 

1,373

 

535

 

34

 

435

 

1,049

 

11,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank borrowings

 

87

 

18

 

19

 

19

 

19

 

27

 

189

Eurobond1

 

620

 

12

 

12

 

512

 

12

 

1,441

 

2,609

Equity-neutral convertible bond

 

 

 

491

 

 

 

 

491

Accounts payable

 

2,390

 

 

 

 

 

 

2,390

Other financial liabilities

 

164

 

4

 

 

 

 

 

168

Accrued liabilities2

 

939

 

 

 

 

 

1

 

940

Derivative financial liabilities

 

6,878

 

983

 

503

 

3

 

3

 

11

 

8,381

Total

 

11,078

 

1,017

 

1,025

 

534

 

34

 

1,480

 

15,168

1

Including interest payments.

2

Accrued interest excluded.

adidas ended the year 2021 with an adjusted net borrowings of € 2.963 billion (2020: € 3.148 billion).

FINANCIAL INSTRUMENTS FOR THE HEDGING OF FOREIGN EXCHANGE RISK

As at December 31, 2021, adidas held the following instruments to hedge exposure to changes in foreign currency:

Average hedge rates

 

 

Maturity

As at December 31, 2021

 

short-term

 

long-term

 

 

 

 

 

Foreign currency risk

 

 

 

 

Net exposure (€ in millions)

 

1,206

 

233

Forward exchange contracts

 

 

 

 

Average EUR/USD forward rate

 

1.197

 

1.170

Average EUR/GBP forward rate

 

0.868

 

0.856

Average EUR/JPY forward rate

 

129.346

 

128.729

Average EUR/CNY forward rate

 

8.033

 

7.765

Option exchange contracts

 

 

 

 

Average EUR/USD forward rate

 

1.212

 

1.150

Average EUR/GBP forward rate

 

0.894

 

Average EUR/JPY forward rate

 

132.372

 

Average USD/CNY forward rate

 

 

 

 

 

 

 

Equity risk

 

 

 

 

Net exposure (€ in millions)

 

71

 

91

Total return swap

 

 

 

 

Average hedge rate

 

206.392

 

301.402

Average hedge rates

 

 

Maturity

As at December 31, 2020

 

short-term

 

long-term

 

 

 

 

 

Foreign currency risk

 

 

 

 

Net exposure (€ in millions)

 

768

 

614

Forward exchange contracts

 

 

 

 

Average EUR/USD forward rate

 

1.165

 

1.216

Average EUR/GBP forward rate

 

0.887

 

0.906

Average EUR/JPY forward rate

 

120.630

 

126.640

Average USD/CNY forward rate

 

8.085

 

8.328

Option exchange contracts

 

 

 

 

Average EUR/USD forward rate

 

1.200

 

1.229

Average EUR/GBP forward rate

 

0.872

 

0.924

Average EUR/JPY forward rate

 

122.460

 

Average USD/CNY forward rate

 

 

 

 

 

 

 

Equity risk

 

 

 

 

Net exposure (€ in millions)

 

122

 

82

Total return swap

 

 

 

 

Average hedge rate

 

190.630

 

298.745

The amounts at the reporting date relating to items designated as hedged items were as follows:

Designated hedged items as at December 31, 2021 € in millions

 

 

Change in value used for calculating hedge ineffectiveness

 

Hedging reserve

 

Cost of hedging reserve

 

Balances remaining in the cash flow hedging reserve from hedge relationships for which hedge accounting is no longer applied

 

 

 

 

 

 

 

 

 

Foreign currency risk

 

 

 

 

 

 

 

 

Sales

 

(138)

 

(83)

 

(19)

 

Inventory purchases

 

(119)

 

191

 

7

 

Net foreign investment risk

 

52

 

(215)

 

 

 

 

 

 

 

 

 

 

 

Equity risk

 

 

 

 

 

 

 

 

Long-Term Incentive Plans

 

32

 

(5)

 

 

Designated hedged items as at December 31, 2020 € in millions

 

 

Change in value used for calculating hedge ineffectiveness

 

Hedging reserve

 

Cost of hedging reserve

 

Balances remaining in the cash flow hedging reserve from hedge relationships for which hedge accounting is no longer applied

 

 

 

 

 

 

 

 

 

Foreign currency risk

 

 

 

 

 

 

 

 

Sales

 

(87)

 

89

 

(48)

 

Inventory purchases

 

290

 

(256)

 

28

 

Net foreign investment risk

 

(19)

 

(163)

 

 

 

 

 

 

 

 

 

 

 

Equity risk

 

 

 

 

 

 

 

 

Long-Term Incentive Plans

 

127

 

10

 

 

The hedging reserves of € 215 million for net foreign investment risk contains hedges of € 182 million related to the Chinese renminbi for which by the end of 2021 no outstanding hedging instruments were in place anymore.

The amounts relating to items designated as hedging instruments and hedged ineffectiveness were as follows:

Designated hedge instruments € in millions

 

 

2021

 

 

 

 

 

 

 

 

 

During the period 2021

 

 

 

 

Carrying amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nominal amount

 

Assets

 

Liabilities

 

Line item in statement of financial position where the hedging instrument is included

 

Changes in the value of the hedging instrument recognized in hedging reserve

 

Changes in the value of the hedging instrument recognized in cost of hedging reserve

 

Hedge ineffec­ tiveness recognized in profit or loss

 

Line item in income statement which includes hedge ineffec­tiveness

 

Amount from hedging reserve transferred to inventory

 

Amount from cost of hedging reserve transferred to inventory

 

Amount reclassified from hedging reserve to profit or loss

 

Amount reclassified from cost of hedging reserve to profit or loss

 

Line item in income statement affected by the reclassi­ fication

Foreign exchange contracts – sales

 

4,028

 

24

 

(107)

 

Other financial assets/liabilities

 

138

 

(134)

 

 

Cost of sales

 

 

 

(122)

 

72

 

Cost of sales

Foreign exchange contracts – inventory purchases

 

4,685

 

195

 

(4)

 

Other financial assets/liabilities

 

119

 

(30)

 

 

Cost of sales

 

(145)

 

60

 

 

 

Cost of sales

Foreign exchange contracts – net foreign investments

 

112

 

 

 

Other financial assets/liabilities

 

(52)

 

 

 

Financial result

 

 

 

 

 

Financial result

Total return swap – Long-Term Incentive Plans

 

162

 

16

 

(15)

 

Other financial assets/liabilities

 

(32)

 

 

 

Financial result

 

 

 

17

 

 

Other operating expenses

Designated hedge instruments € in millions

 

 

2020

 

 

 

 

 

 

 

 

 

During the period 2020

 

 

 

 

Carrying amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nominal amount

 

Assets

 

Liabilities

 

Line item in statement of financial position where the hedging instrument is included

 

Changes in the value of the hedging instrument recognized in hedging reserve

 

Changes in the value of the hedging instrument recognized in cost of hedging reserve

 

Hedge ineffec­ tiveness recognized in profit or loss

 

Line item in income statement which includes hedge ineffec­tiveness

 

Amount from hedging reserve transferred to inventory

 

Amount from cost of hedging reserve transferred to inventory

 

Amount reclassified from hedging reserve to profit or loss

 

Amount reclassified from cost of hedging reserve to profit or loss

 

Line item in income statement affected by the reclassi­ fication

Foreign exchange contracts – sales

 

4,436

 

112

 

(23)

 

Other financial assets/liabilities

 

87

 

(134)

 

 

Cost of sales

 

 

 

(41)

 

43

 

Cost of sales

Foreign exchange contracts – inventory purchases

 

5,001

 

9

 

(265)

 

Other financial assets/liabilities

 

(290)

 

29

 

 

Cost of sales

 

31

 

107

 

 

 

Cost of sales

Foreign exchange contracts – net foreign investments

 

473

 

6

 

 

Other financial assets/liabilities

 

19

 

 

 

Financial result

 

 

 

 

 

Financial result

Total return swap – Long-Term Incentive Plans

 

205

 

77

 

(9)

 

Other financial assets/liabilities

 

(127)

 

 

 

Financial result

 

 

 

112

 

 

Other operating expenses

Some of initial planned exposure for purchases and sales in foreign currencies ceased to exist, which led to certain overhedge positions. In accordance with IFRS 9, hedge accounting was immediately discontinued for hedging instruments that were no longer covered by a purchase or sales transaction, and, at the time the over-hedged status was determined, the fair value was transferred from the hedging reserve to the income statement. In 2021, a loss of € 5 million was reclassified into the income statement.

In addition, hedging instruments not designated as hedge accounting in accordance with IFRS 9 were canceled to minimize the economic risk.

The following table provides a reconciliation by risk category of components of equity and analysis of OCI items, net of tax, resulting from cash flow hedge accounting:

Changes of reserves by risk category € in millions

 

 

Hedging reserve

 

Cost of hedging reserve

Balance at January 1, 2021

 

(317)

 

(31)

Cash flow hedges

 

 

 

 

Changes in fair value:

 

 

 

 

Foreign currency risk – sales

 

(304)

 

99

Foreign currency risk – inventory purchases

 

290

 

28

Foreign currency risk – net foreign investment

 

(52)

 

Amount no longer recognized in OCI:

 

 

 

 

Foreign currency risk

 

267

 

(132)

Contracts during the year

 

22

 

15

Amount included in the cost of non-financial items:

 

 

 

 

Foreign currency risk – inventory purchases

 

 

Tax on movements of reserves during the year

 

45

 

Equity hedges

 

 

 

 

Changes in fair value:

 

(32)

 

Amount reclassified to profit or loss

 

17

 

Balance at December 31, 2021

 

(64)

 

(21)

Changes of reserves by risk category € in millions

 

 

Hedging reserve

 

Cost of hedging reserve

Balance at January 1, 2020

 

(195)

 

(6)

Cash flow hedges

 

 

 

 

Changes in fair value:

 

 

 

 

Foreign currency risk – sales

 

90

 

40

Foreign currency risk – inventory purchases

 

(209)

 

39

Foreign currency risk – net foreign investment

 

19

 

Amount reclassified to profit or loss:

 

 

 

 

Foreign currency risk

 

10

 

(150)

Contracts during the year

 

(17)

 

48

Amount no longer recognized in OCI:

 

 

 

 

Foreign currency risk – inventory purchases

 

 

Tax on movements on reserves during the year

 

67

 

5

Equity hedges

 

 

 

 

Changes in fair value:

 

(127)

 

Amount reclassified to profit or loss

 

112

 

Balance at December 31, 2020

 

(250)

 

(26)

In order to determine the fair values of derivatives that are not publicly traded, adidas uses generally accepted quantitative financial models based on market conditions prevailing at the balance sheet date.