MISSIONThe adidas Group strives to be the global leader in the sporting goods industry with sports brands built on a passion for sports and a sporting lifestyle.

 

We are dedicated

to consistently delivering outstanding financial results.

We are innovation and design leaders

who seek to help athletes of all skill levels achieve peak performance with every product we bring to market. 

We are consumer focused

and therefore we continuously improve the quality, look, feel and image of our products and our organisational structures to match and exceed consumer expectations and to provide them with the highest value.

We are a global organisation

that is socially and environmentally responsible, creative and financially rewarding for our employees and shareholders.

We are committed

to continuously strengthening our brands and products to improve our competitive position.

Core competencesSince the restructuring and acquisition of Reebok the company strategy has changed. The new adi-das will once again focus on their core strengths in the athletic footwear and apparel business. The combined companies will offer the spectrum of their product mix grabbing a greater combined mar-ket share. The “brand adidas will continue to have a clear focus on sport performance and will high-light team sports, while brand Reebok will be positioned as a fitness oriented, sports-lifestyle brand with the focus on individual performance. The positioning will also be reflected in the distinct brand communication to reach different consumers”

Sport Performance (80% of adidas sales)

The guiding principle of the adidas Sport Performance Division is to equip all athletes to achieve their “impossible”. adidas Sport Performance brings its passion for great products to athletes in all sports and mainly focuses on four key categories globally: football, running, training and basketball. 

Sport Style (20% of adidas sales)

The Sport Style Division is the home of Originals, defined as authentic sportswear, the Fash-ion Group, which is the future of sportswear, and Style Essentials, the fresh sport-inspired la-bel made accessible for style-adopting youth. Together they offer consumers products from street fashion to high fashion, all uniquely inspired and linked to sport.  

Organization chart

Executive board

Glenn Bennett , Robin J. Stalker, Herbert Hainer (ceo), Erich Stam-minger

Supervisory Board

Dr. Hans Friderichs

Chairman

Fritz Kammerer

Deputy Chairman

Igor Landau

Deputy Chairman

Sabine Bauer

Senior Manager Quality Analysis & Reporting, Global Operations, adidas AG

Dr. iur. Manfred Gentz

Chairman of the Administrative Board, Zurich Financial Services

Dr. Stefan Jentzsch

Member of the Executive Board, Dresdner Bank AG, Frankfurt am Main, Germany3)

Roland Nosko

Trade Union Official, IG BCE Trade Union, Headquarter Nurem-berg, Nuremberg, Germany

Hans Ruprecht

Sales Director Customer Service, Area Central West, adidas AG

Willi Schwerdtle

General Manager, Procter & Gamble GmbH, Schwalbach am Taunus, Germany

Heidi Thaler-Veh1)

Member of the Central Works Council, adidas AG

Christian Tourres

Former Member of the Executive Board of adidas AG

— Member of the Board of Directors, Beleta Worldwide Ltd., Guernsey,

     Channel Islands

Klaus Weiß

Trade Union Official, IG BCE Trade Union, Headquarter Hanover, Hanover, Germany

Standing Committees

Steering Committee Dr. Hans Friderichs (Chairman), Fritz Kammerer, Igor Landau

General Committee Dr. Hans Friderichs (Chairman), Fritz Kammerer, Igor Landau, Klaus Weiß

Audit Committee Dr. iur. Manfred Gentz (Chairman), Dr. Hans Friderichs, Hans Ruprecht, Klaus Weiß

Mediation Committee Dr. Hans Friderichs, Fritz Kammerer, Igor Landau, Roland Nosko

Nomination Committee Dr. Hans Friderichs (Chairman), Igor Landau, Christian Tourres

Other Committees

“Strategic Equity Investment Committee” Dr. Hans Friderichs (Chairman), Igor Landau, Sabine Bauer, Roland Nosko

Supervisory Board Report

Dear Shareholders, 2008 was another very important year for the adidas Group. Major sports events such as the European Football Championship and the Olympic Games again drove the adidas brand to excellent levels of performance. TaylorMade-adidas Golf was again able to increase its revenues in a difficult golf market. At Reebok, key measures were initiated to re-vitalise the brand. But 2008 was also a year of major challenges, particularly in light of the global economic and financial crisis. The adidas Group delivered very good results in this difficult environment, confirming the successful implementation of the Group’s strategic plan.

Corporate Governance Report

Our actions have always been determined by the principles of responsible management and company control. Good and transparent corporate governance provides for responsible, value-oriented performance and supervisory functions of the company. It is an important con-dition in order to maintain and strengthen the confidence placed in adidas AG by our share-holders, financial markets, business partners, employees as well as the public. Key paramet-ers of our corporate governance activities in 2008 were the further development of the good relationship with our shareholders, efficient cooperation between the Executive Board and the Supervisory Board as well as the responsible handling of risks and opportunities and statutory and Group-internal regulations. We consider corporate governance as a continuing process and will also continue to follow future developments attentively.

Targets vs. Results Targets 2008 Results 2008 Outlook 2009

High-single-digit currency-neutral sales growth

Net sales reach € 10.8 billion;

Group currency-neutral sales grow 9%

Low- to mid-single-digit cur-rency-neutral sales decline

Bring major new concepts, technology evolutions and re-volutions to market

Major 2008 product launches:

· adidas F50 TUNIT ™ football boot, new technologies in adiS-TAR® and adiZero™ running shoe families, men’s TECHFIT Power WEB, miCoach training system

· Reebok Premier Ver-ona KFS running shoe, Premier SmoothFit™ Cushion, Freestyle Cit-ies collection

· Rockport Rockport Signature Series

· TaylorMade-adidas Golf Tour Burner® TP driver, r7® CGB MAX Limited driver, my TP ball, TOUR 360 LTD shoe

Bring major new concepts, technology evolutions and re-volutions to market

Currency-neutral sales to grow at all brands and in all regions except North America

Currency-neutral sales in-crease

14% at adidas, grow 7% at

TaylorMade-adidas Golf but decrease 2% at Reebok; cur-rency-neutral sales grow in all regions except North America

On a currency-neutral basis:

· low- to mid-single-di-git sales decline for adidas segment

· at least stable sales for Reebok segment

· low-single-digit sales increase at Taylor-Made-adidas Golf

Increase gross margin to a level between 47.5 and 48.0%

Gross margin: 48.7% Gross margin decline

Operating margin to be at least 9.5%

Operating margin: 9.9% Operating margin decline

Further reduce operating work-ing capital as a percentage of sales

Operating working capital as a

percentage of sales further re-duced

to 24.5%

Reduce operating working capital as a percentage of sales

Capital expenditure range

€ 300 million – € 400 million

Capital expendit-ure: € 380 million

Capital expenditure range

€ 300 million – € 400 million

Maintain or further reduce net borrowings despite share buy-back

Net borrowings increased to € 2.189 billion; year-end financial leverage: 64.6%

Reduce net borrowings

Net income to grow at least 15%

Highest ever net income attrib-utable to shareholders at € 642 million (+16%)

Net income decline

Further increase shareholder value

Share buyback programme in an amount of € 409 million completed in October; un-changed dividend of € 0.50 per share; adidas AG share price declines 47% 

Further increase shareholder value

Supply chainThe total numbers of supplier and licensee factories and supplier factories by country of man-ufacture are consistent with those numbers reported in 2007. However, beneath what appears to be relatively static numbers is a significant change in the make-up of the supply chain with approximately 25% supplier turnover during the year. Several reasons caused this but were not easily visible in the current FFC system reporting parameters.

Factory turnover during 2008

1. The supply chain disclosure by business entities increased.

2. The number of licensees and business entities within the Group contracted and expan-ded, resulting in a moving supplier and factory count.

3. Factories were counted only once, regardless of the number of relationships they have with adidas Group business entities.

While the data trend for the supply chain reflects a stable sourcing and supplier footprint, there was a notable movement of factories. The data we are reporting here is a snapshot in time, a static point capturing the situation at the end of 12 months of these movements.

Audits and trainingThe numbers reported for audits, training and ratings were difficult to compare with 2007 fig-ures. This is because the programmatic enhancements in 2008 reflect an increased scope of activities. They challenged the boundaries of data definitions we use for reporting. For in-stance, the number of external monitors decreased overall but they carried out a higher per-centage of factory audits than in the past. There was also an increased number of monitoring activities with factories that had multiple relationships with adidas Group business entities.

Audit numbers

The reporting designation for ‘audit’ reflects components that were not specifically reported in previous years. Most importantly this includes ‘visits’ which tracked activities outside the parameters of formal auditing. The increased number of initial assessments was directly im-pacted by disclosure and data-cleansing activities in the FFC.

Independent FLA audits

We continue to be an active member and supporter of the Fair Labor Association (FLA). The number of conventional independent monitoring visits conducted by FLA accredited monit-ors has gone down for two reasons. The first is that the number of audits due to be carried out is calculated as a percentage of the number of suppliers disclosed to the FLA. This number decreased in the past years.

The second reason is that, because of the adidas Group’s accreditation to the FLA pro-gramme, we have been able to redirect some audits to more value-added FLA projects.

KPI assessment

For the KPI assessment and C-Rating, our reporting calculates an average cumulative score. Comparisons with 2007 performance units of measure reflect a considerable lower average score in management commitment and responsiveness, but this is due to the 2008 implement-ation of a more stringent rating of that measurement. We have strengthened the integrity of our scoring through three upgrades to the KPI tool during the last five years.

Summary

The numbers reported for the 2008 programme activities remain difficult to compare and measure with past years due to the emergence of new and more detailed data which is the res-ult of:

· Changes in the method and depth of measurement

· Improvements in programmatic tools and processes

· Increased relationship management with adidas Group business entities.

EnforcementRejection rate

Our initial assessments are uncovering threshold or zero tolerance issues in 19% of potential new suppliers, resulting in rejections. This shows that non-compliances with our Workplace Standards are still common in our potential supply chain.

Rejection rate of factories after initial assessments in 2008

Warning Letters

Warning letters are an essential part of our enforcement efforts and are triggered when we find ongoing serious non-compliance issues that need to be addressed by our suppliers. In 2008 we issued a total of 37 warning letters across twelve countries. The general trend for the past two years has been a reduced number of warning letters, both in total and by category.

The largest number of warning letters continued to be issued in Asia, where we have the greatest concentration of adidas Group suppliers. But there was a significant decline (62%) in numbers of first and second warning letters being issued in China and Indonesia in 2008, compared to the previous year.

Following the 2006 launch of the new adidas Group Workplace Standards and our supplier approval guidelines – that more clearly defined zero tolerance and threshold issues – we stepped up our efforts to achieve greater compliance among suppliers. This resulted in a lar-ger number of warning letters being issued in 2007. Since then factory conditions have im-proved, with significant non-compliances remedied by those factories which had received the earlier warnings. As a consequence there was a reduced number of warning letters issued in 2008.

EnvironmentCoverage

The adidas Group operates more than 150 facilities around the world. Some are owned, many of them are leased. Since most of the production has been outsourced to external suppliers, these facilities are mainly administration and distribution sites or sales offices. Among them there are four major administration sites – Group and brand headquarters located in Germany (one) and USA (three) employing around 4,500 people.

Our production sites are located in Germany (one), Sweden (one), Finland (one), USA (four), Canada (four), China (one) and Japan (one). These facilities produce garments, athletic foot-

wear, ice hockey sticks, helmets and blades and carry out screen-printing, embroidering and assembling of golf clubs. A full overview of the sites is given in the data section.

Environmental data has been recorded from these sites to track their overall environmental impact. Due to further production consolidation and a range of organisational changes at these sites during 2008, specific trends compared to the previous years are difficult to identify and report on.

In 2009, a revised environmental accounting framework is going to be established for all ma-jor sites and locations of the adidas Group that profiles their environmental impact and man-agement performance in more detail. These profiles will be the basis for setting specific tar-gets and local improvement programmes.

Global travel

As a global business, with many locations worldwide and a global supplier base, air travel is widely used by adidas Group employees. To obtain a better understanding of the environ-mental footprint caused by air travelling, the air travel managed through our in-house travel agency has been regularly recorded since 2006. In 2008 the total amount of business travel by adidas Group employees caused around 20,200 metric tonnes of carbon dioxide. The absolute amount of air travelling was stable, despite the growth of the business and the workforce. In relative terms therefore, the ratio of carbon dioxide emissions per employee has declined by more than 20% since 2006.

Supply Chain

Environmental Management Systems

We have limited control over the direct environmental impacts of the manufacturing process and how our suppliers act. The best way to influence the environmental impacts at our suppli-ers’ factories is to encourage the introduction of environmental management systems, and we have made implementing such a system mandatory for all our core suppliers. Achieving certi-fication to a management system requires factory managers to plan, manage and review their own environmental performance.

In 2008, 20 athletic footwear suppliers were certified in accordance with the international en-vironmental management standard ISO 14001 and the workplace health and safety manage-ment standard OHSAS 18001. These suppliers produced around 73% of the adidas Group’s global athletic footwear sourcing volume.

Sourcing volume of athletic footwear suppliers certified in accordance with ISO 14001 and OHSAS 18001

Transport and logistics data

The fuel used to transport goods to markets creates carbon dioxide emissions, a major con-tributor to climate change. The adidas Group works each year to reduce the environmental impact of transporting its products around the world. Our policy is to minimise the impacts from transport, by working with carriers who operate sound environmental management sys-tems and in particular minimising air freight shipments. To reduce the environmental impact of our transport operations, we typically ship most of our cargo by sea.

Compared to 2007, we saw an increase in sea freight shipment and a reduction in air freight across all major product categories as a result of further enhancements in production and lo-gistics planning with factories.

Corporate responsibility strategyAs a leading company within the international sporting goods market, the adidas Group is ex-posed to various business challenges and interests of stakeholders. Aligning those interests requires strong commitment, strategic direction, efficient and careful execution, and regular reflection of the achievements made.

Corporate responsibility (CR) has become a widely accepted concept in striking the balance between business needs and societal and environmental demands. This is what it is to be a 'sustainable business'.

There is no 'one size fits all' solution to achieve this stage. Every company - depending on the nature of its business - needs to develop its own approach for responding to changes in the economy, society and the environment. So it is for the adidas Group too.

Our commitment in managing our business in a responsible way is rooted in the Group's val-ues and principles. Our understanding of becoming a sustainable company is outlined in the adidas Group Sustainability Statement:

These are the adidas Group values.

They help us to create brands that our customers believe in and they commit us to playing by the rules that society expects of a responsible company.

Unlike sport, society's rules are not always written down. We discover them by engaging with the people that our business touches, learning above all that companies are expected to be accountable for their actions. So we are committed to reporting publicly on the steps we take to have a more positive impact on society and the planet.

For the adidas Group, this means designing products that are environmentally sound, and re-ducing the environmental impacts of our day-to-day operations and in our supply chain.

It is about setting workplace standards for our suppliers to meet and helping them to ensure fair, safe and healthy conditions in their factories.

Importantly, it also means looking after the wellbeing and careers of our employees - the company's biggest asset - and making a positive contribution to the communities where we operate. Adhering to all applicable laws, directives and guidelines is a business imperative. But that is not enough. We are continuously striving to improve our performance and our standing in society. We set ourselves targets that stretch us, regularly review our progress and set ourselves new goals. That is what the world's leading athletes do, and it is what we must do as a global leader in the sporting goods industry.