TAKING CONTROL OF DISTRIBUTION RIGHTS
Our brands do
business in virtually all countries around the world. The majority
of our business is done through fully-owned subsidiaries or
sales organizations. 
see Group Strategy Nevertheless, in
some markets, we work with distributors or joint venture
partners, in particular at brand Reebok. In doing so, we capitalize
on third party expertise in terms of how to best service
retailers
in those countries. While this strategy can be appropriate
in a market’s early development, we strongly believe
in
having full control over distribution and brand management
in more mature
markets. Therefore, it is our Group’s strategy
to buy back distribution rights for our brands when possible
and economically sensible. Over the last several years, we
have been very successful in this respect. After having
bought
back distribution rights for the adidas brand in Japan, Italy and
Turkey, we grew significantly in these markets. At Reebok, we
have identified the buyback of distribution rights as the single
most important revenue synergy potential. see Outlook In 2007, we realized incremental sales in all countries where
Reebok bought back distribution rights. Going forward, we will
evaluate potential buyback opportunities on a case-by-case
basis, considering opportunities as well as inherent risks from
litigation.
COST OPTIMIZATION DRIVES PROFITABILITY IMPROVEMENTS
Continued optimization of key business processes and strict
cost control are vital to achieving high profitability and return
on invested capital. As a result of the Reebok acquisition, we
generate cost synergies that support adidas and Reebok profitability
development. see Outlook Nonetheless, our profit
margins continue to be below those of our main competitors.
We do, however, see numerous levers for streamlining our
cost base going forward. We can further simplify processes
across brands and functions to reduce
operational inefficiencies
owed to the increased
complexity of our Group. In
North America, we believe
we will be able to realize medium-term
economies of scale as we continue to integrate adidas
and Reebok back-office functions. In addition, we strive to
further
increase efficiency in our supply chain and make it
truly demand-
driven. By implementing end-to-end planning
processes and improving our replenishment capabilities, we
see opportunities to not only better
serve our customers but
also to further reduce our operating working capital needs. see Global Operations
FINANCIAL OPPORTUNITIES
FAVORABLE FINANCIAL MARKET CHANGES
Favorable
exchange
and interest rate developments can potentially have
a positive impact on the Group’s financial results. Our Group
Treasury department closely monitors the financial markets to
identify opportunities.
MANAGEMENT ASSESSMENT OF OVERALL RISK AND OPPORTUNITIES
Central risk management aggregates all risks reported by brand, regional and headquarter functions. Based on the compilation of risks – taking into account the occurrence likelihood and potential financial impact and the current business outlook explained within this report – adidas Group Management does not foresee any individual or aggregate risks which could materially jeopardize the ongoing business health and viability of the Group. In comparison to the prior year, some External and Industry Risks as well as some Strategic and Operational Risks have increased. All Financial Risks have decreased. As a result, Management regards the overall risk likelihood as having increased moderately versus 2007. The potential financial impact from the Group’s overall risk exposure is largely unchanged, due to increased risk-compensating and transfer factors now in place.
This assessment is also supported by the continued positive
responses to our financing demands. see Treasury The
adidas
Group therefore has not sought an official rating by any
of the leading rating
agencies.
Management remains confident that the Group’s earning power forms a solid basis for our future business development and provides the necessary resource to pursue the opportunities available to the Group.
