26 » Shareholders’ Equity

As at December 31, 2021, the nominal capital of adidas AG amounted to € 192,100,000 divided into 192,100,000 registered no-par-value shares and was fully paid in.

With legal effect as of November 28, 2022, the nominal capital was reduced from € 192,100,000 to € 180,000,000 by cancelation of 12,100,000 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 February 16, 2023.

There were no other changes to the nominal capital. Thus, as at the balance sheet date, the nominal capital of adidas AG amounted to € 180,000,000 divided into 180,000,000 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 1,462,802 treasury shares, corresponding to a notional amount of € 1,462,802 in the nominal capital and consequently to 0.81% 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 2022 financial year.

The authorized capital of adidas AG, which is set out in § 4 sections 2 and 3 of the Articles of Association as at 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 altogether 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 that have been issued 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 while excluding subscription rights, 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 – on 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 2022

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 12, 2022.

The nominal capital is conditionally increased by up to € 12.5 million divided into not more than 12,500,000 no-par-value shares (Contingent Capital 2022). The contingent capital increase serves the issuance of 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 11, 2027, on the basis of the authorization resolution adopted by the Annual General Meeting on May 12, 2022. 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 if bonds are issued in accordance with the authorization resolution adopted by the Annual General Meeting on May 12, 2022, (Agenda Item 7) and only to the extent that option or conversion rights are exercised or the holders or creditors of bonds obligated to exercise the option or conversion obligation 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 no-par-value shares in the company for the total amount or a partial 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 carry dividend rights from the commencement of the financial year in which the shares are issued. In the event that, at the time of issuance of the new shares, no resolution on the appropriation of retained earnings for the financial year directly preceding the year in which the shares are issued has been passed, the Executive Board is authorized, to the extent legally permissible, to determine that the new shares will carry dividend rights from the commencement of the financial year directly preceding the year in which the shares are issued. Furthermore, the Executive Board is authorized to stipulate additional details concerning the implementation of the contingent capital increase.

The Executive Board is authorized, subject to Supervisory Board approval, to exclude shareholders’ subscription rights to the bonds insofar as this is necessary for residual amounts and also insofar as and to the extent that this is necessary for granting subscription rights to holders or creditors of bonds already issued before, which they would be entitled to as shareholders upon exercising their option or conversion rights or upon fulfilling their option and/or conversion obligations or upon exercising a right to delivery of shares referring to shares of the company. Finally, the Executive Board is authorized, subject to Supervisory Board approval, to also exclude shareholders’ subscription rights insofar as the bonds are issued against contributions in cash and after the Executive Board has concluded, following an examination in accordance with its legal duties, that the issue price of the bonds is not significantly below the hypothetical market value computed using recognized, in particular, financial calculation methods and the number of shares issued does not exceed 10% of the nominal capital, neither at the point of becoming effective nor – in case this amount is lower – at the point of exercising the aforementioned authorization. Shares which are issued or sold in accordance with § 186 section 3 sentence 4 AktG during the term of this authorization until its utilization shall be attributed to the aforementioned limit of 10%. Furthermore, shares that are to be issued or granted during the term of this authorization on the basis of a bond issued with the exclusion of subscription rights in accordance with this provision utilizing another authorization shall be attributed to the aforementioned limit of 10%. The total number of shares that are issued under bonds based on this authorization with the exclusion of subscription rights and shares that are issued from an authorized capital with the exclusion of subscription rights during the term of the authorization may not exceed 10% of the nominal capital on the date of the entry of this authorization with the Commercial Register.

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 12, 2022, and consequently did not issue any shares from the Contingent Capital 2022.

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 January 10, 2022, and March 14, 2022, respectively. adidas AG repurchased 4,156,558 shares between January 10, 2022, and February 22, 2022, including, in the first tranche of a multi-year share buyback program (‘Share Buyback Program 2022–2025/I’) and 8,978,138 shares between March 14, 2022 and October 10, 2022, including (‘Additional Share Buyback Program 2022’). In the year under review, adidas AG repurchased a total of 13,134,696 adidas AG shares for a total price of € 2,499,999,677.77 (excluding incidental purchasing costs) and at an average price of € 190.34 per share. This corresponded to an amount of € 13,134,696 in the nominal capital and consequently to an approximate notional amount of 7.30% of the nominal capital. Further information on the adidas AG shares repurchased in the 2022 financial year can be taken from the table ‘Repurchase of adidas AG shares in the 2022 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. Consequently, in the 2022 financial year, 12,100,000 treasury shares were canceled as part of a simplified capital reduction pursuant to § 237 section 3 no. 2 AktG.

In the 2022 financial year, a total of 41,763 treasury shares were used as consideration for, inter alia, the transfer or licensing of industrial property rights and intangible property rights due to contractual obligations. Using treasury shares while excluding subscription rights enabled adidas AG to acquire industrial property rights and intangible property rights (or licenses) from the respective owners at attractive conditions while preserving the company’s liquidity. Based on the share price at the time, the 41,763 treasury shares transferred had a value of altogether approx. € 11 million, corresponding to a notional amount of € 41,763 in the nominal capital and consequently to approx. 0.02% of the nominal capital.

Moreover, adidas AG used 35,276 treasury shares in the context of the employee stock purchase plan while excluding subscription rights. Based on the share price at the time, the 35,276 treasury shares transferred had a value of altogether € 7,943,033, corresponding to a notional amount of € 35,276 in the nominal capital and consequently to approx. 0.02% of the nominal capital.

Therefore, taking into account the 505,145 shares held by adidas AG as at December 31, 2021, the shares purchased within the share buyback programs and the shares used and canceled during the financial year, this results in 1,462,802 treasury shares held as at the balance sheet date. SEE DISCLOSURES PURSUANT TO § 315A AND § 289A OF THE GERMAN COMMERCIAL CODE AND EXPLANATORY REPORT

Changes in the percentage of voting rights

Pursuant to § 160 section 1 no. 8 AktG, information must be provided on the existence of shareholdings that have been notified to adidas AG in accordance with § 33 section 1 or section 2 German Securities Trading Act (Wertpapierhandelsgesetz – WpHG).

The table ‘Notified reportable shareholdings’ reflects reportable shareholdings in adidas AG as at the balance sheet date that 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/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 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 initial outlook for both ratings was ‘stable’ as both rating agencies recognized the company’s strong credit metrics, robust liquidity profile, and conservative financial policies. In November 2022, both Standard & Poor’s and Moody’s revised their outlook for adidas to ‘negative’ due to a deterioration in credit metrics amid pressure on the company’s operating performance from economic as well as company specific challenges. In February 2023, Standard & Poor’s lowered its rating on adidas to ‘A-‘, while Moody’s downgraded the company to ‘A3’, both with a ‘negative’ outlook. These downgrades reflected a further downward revision of credit metrics following the release of the company’s financial guidance for 2023. Overall, adidas' investment grade credit ratings continue to ensure an efficient access to capital markets.

Financial leverage amounts to 121.2% (2021: 39.4%) and is defined as the ratio between adjusted net borrowings in an amount of € 6.047 billion (2021: € 2.082 billion) and shareholders’ equity in an amount of € 4.991 billion (2021: € 7.519 billion). EBITDA amounted to € 1.874 billion for the financial year ending December 31, 2022 (2021: € 3.066 billion). The ratio between adjusted net borrowings and EBITDA amounted to 3.2 for the 2022 financial year (2021: 0.7).

In 2020, the definition of the net borrowings was adjusted to the criteria of the company's internal financial guidelines and is therefore reported as adjusted net borrowings. It mainly complements the net borrowings reported up to that point by the present value of future payment obligations from leasing and pension commitments. The method of calculating adjusted net borrowings was revised in 2022 to align it with general market practice and the approach of the rating agencies. The main change is the elimination of the income tax adjustment from net borrowings.

The composition of the adjusted net borrowings is presented below:

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 that 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 (2021: € 4 million). Furthermore, other reserves include additional restricted capital in an amount of € 98 million (2021: € 115 million). The reclassification as of January 1, 2021 presented in the consolidated statement of changes in equity was made in order to consistently present the effects from the repurchase of treasury shares in previous years.

Distributable profits and dividends

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

Based on the resolution of the 2022 Annual General Meeting, the dividend for 2021 was € 3.30 per share (total amount: approx. € 610 million).

The Executive Board of adidas AG will propose to use retained earnings of adidas AG in an amount of € 723 million as reported in the 2022 financial statements of adidas AG for a dividend payment of € 0.70 per share and to carry forward the subsequent remaining amount.

As at February 21, 2023, 178,537,198 dividend-entitled shares exist. This would result in a dividend payment of € 125 million.