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 monthly 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 and commodity risk management, and 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 centralized 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. 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, 2021, 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.

SYNDICATED CREDIT FACILITY

In 2020, adidas took several steps to considerably strengthen its financial profile. On November 10, 2020, adidas entered into a new € 1.5 billion syndicated credit facility with twelve of its partner banks. This credit facility agreement was subsequently amended on October 8, 2021. The amended and restated credit facility of € 1.5 billion with eleven partner banks will run until November 2026 and includes an extension option of one year exercisable in 2022.

BONDS 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. At the time of the issuance, the € 500 million bond had 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. adidas plans to use the proceeds of the sustainability bond to finance and refinance, in whole or in part, eligible sustainable projects, as defined in the sustainability bond framework. As of December 31, 2021, the total amount allocated to eligible sustainable projects was € 225.5 million.

These transactions followed after adidas had received strong first-time investment-grade ratings by both Standard & Poor’s and Moody’s in August 2020. Standard & Poor’s gave adidas an ‘A+’ rating, and 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.

OUTSTANDING BONDS

On top of the above-mentioned placements, the company has further outstanding bonds, issued in 2014, and one outstanding equity-neutral convertible bond, which was issued in 2018. The 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. On July 8, 2021, adidas exercised the early redemption option and fully repaid a € 600 million bond with a coupon of 1.25% originally maturing in October 2021. See Our Share See Note 16

Maturity profile of borrowings including coupons¹

ADDITIONAL CREDIT LINES

In addition to the syndicated credit facility and improved access to bond markets following the strong investment-grade ratings of Standard & Poor’s and Moody’s, the company’s financial flexibility is ensured by the availability of further credit facilities. At the end of 2021, committed and uncommitted credit lines, including the syndicated loan facility, amounted to € 4.169 billion (2020: € 4.274 billion), of which € 4.058 billion was unutilized (2020: € 4.085 billion). Committed and uncommitted credit lines represent approximately 38% and 62% of total credit lines, respectively (2020: 38% and 62%, respectively). In addition, we have an unused multi-currency commercial paper program in the amount of € 2.0 billion available (2020: € 2.0 billion). We monitor the ongoing need for available credit lines based on the current level of debt and future financing requirements.

GROSS BORROWINGS DECREASED

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 decreased 21% to € 2.495 billion at the end of 2021 from € 3.168 billion in the prior year. The total amount of bonds outstanding at the end of 2021 was € 2.384 billion (2020: € 2.978 billion). Bank borrowings amounted to € 111 million at the end of 2021 compared to € 189 million in the prior year.

DEBT MATURITY PROFILE

In 2022, assuming unchanged maturities, debt instruments of € 29 million will mature. This compares to € 686 million that matured during the course of 2021.

Remaining time to maturity of gross borrowings € in millions

ADJUSTED NET BORROWINGS OF € 2.963 BILLION

Adjusted net borrowings on December 31, 2021, amounted to € 2.963 billion, compared with € 3.148 billion in 2020.

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 0.7% in 2021 (2020: 1.0%). This development was mainly due to the repayment of the € 600 million bond with a coupon of 1.25% and a lower financing need. Fixed-rate financing represented 100% of total gross borrowings at the end of 2021 (2020: 98%). There were no variable-rate borrowings at the end of the year 2021 (2020: 2%).

Interest rate development¹ in %

EFFECTIVE FOREIGN EXCHANGE MANAGEMENT IS 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 hedging program. This is a direct result of our Asian-dominated sourcing, which is largely denominated in US dollars. In 2021, our Treasury department managed a net deficit of around US $ 7.3 billion related to business activities (2020: US $ 6.1 billion). Thereof, around US $ 6.0 billion was against the euro (2020: US $ 4.8 billion). As governed by our Treasury Policy, we have established a hedging program 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 2022 as of the end of 2021. At the same time, we have already started hedging our exposure for 2023. The use or combination of different hedging instruments, such as foreign exchange contracts, currency options, and swaps, protects us against unfavorable currency movements. See Global Operations See Risk and Opportunity Report See Note 28