Gross margin grows
adidas-Salomon gross profit declined 1%, or � 11 million, in the first nine months of 2003 to reach � 2.2 billion versus � 2.2 billion in 2002, reflecting the Groups decrease in reported sales. The gross margin, however, improved 0.7 percentage points to 44.1% (2002: 43.4%). Currency effects, which are also captured in the headquarter function as a result of the Group's centralized hedging strategy, positively impacted the Group's gross margin by around 1.0 percentage points.
Operating profit up 9%
Operating expenses, including selling, general and administrative expenses (SG&A) and depreciation and amortization (excluding goodwill), were reduced by 3% from � 1.8 billion in the first nine months of 2002 to � 1.7 billion in 2003. As a percentage of net sales this equates to 35.0%, which is 0.3 percentage points lower than the 2002 level of 35.2%. This reduction is evidence of the Group's focus on cost discipline. As a result, operating profit for the Group increased 9% from � 410 million in 2002 to � 448 million in 2003. The operating margin increased 0.9 percentage points from 8.2% in the first nine months of 2002 to 9.1% in 2003.
Earnings up 17%
Financial expenses declined 36% from � 69 million in the first nine months of 2002 to � 44 million in 2003. The main factor contributing to this development was the financial stabilization of emerging markets such as Argentina, Turkey and Brazil. As a result of operating improvements and the positive development of financial expenses, adidas-Salomon IBT in the first nine months increased 18% from � 341 million in 2002 to � 401 million in 2003. As a percentage of net sales, income before taxes improved by 1.4 percentage points from 6.8% in 2002 to 8.2% in 2003. Minority interests were up 15% to � 13 million (2002: � 11 million), mainly due to higher profits in Turkey. The Group tax rate increased 0.4 percentage points from 38.2% in the first nine months of 2002 to 38.6% in 2003. Net income for the Group increased 17% from � 199 million in the first nine months of 2002 to � 234 million in 2003. EPS was � 5.14 in 2003 versus � 4.40 in 2002.
Strong working capital management and debt reduction continue
Group inventories were reduced by 5% from � 1.2 billion at the end of September 2002 to � 1.1 billion in 2003. On a currency-neutral basis, inventories increased 1%, which is below currency-neutral sales growth expectations for the fourth quarter. Receivables decreased year-over-year by 2% to � 1.5 billion in 2003 versus � 1.5 billion in 2002. On a currency-neutral basis, receivables increased by 4%, which is below the Group's third quarter currency-neutral sales growth. These working capital improvements, together with strong operating results, led to a reduction of net borrowings at September 30, 2003 to � 1.4 billion, down 23% or � 420 million versus � 1.8 billion in the prior year.
Strong results in Q3
In the third quarter of 2003, Group net sales grew 6% on a currency-neutral basis. In reported terms, however, revenues declined 1% or � 16 million from � 1.9 billion in 2002 to � 1.9 billion in 2003. Group gross margin increased 1.2 percentage points from 43.8% in 2002 to 45.0% in 2003. Operating expenses were down 2% from � 576 million in the third quarter of 2002 to � 564 million in 2003. As a percentage of sales, operating expenses were down 0.4 percentage points from 30.8% in 2002 to 30.5% in 2003. As a result, operating profit rose 11% to � 270 million in the third quarter of 2003 (2002: � 243 million). The operating margin was up 1.6 percentage points to 14.6% (2002: 13.0%). These developments in combination with a 29% improvement in financial expenses to � 17 million (2002: � 23 million) led to an increase in the Group's income before taxes by 15% to � 254 million (2002: � 220 million). The tax rate for the third quarter increased 0.7 percentage points to 37.9% (2002: 37.2%). As a result, net income increased 15% from � 131 million in 2002 to � 150 million in 2003. adidas-Salomon EPS was � 3.31 for the third quarter of 2003 versus � 2.89 in 2002.
Full year sales and earnings targets confirmed
As a result of the Group's performance during the first nine months of 2003 and business expectations for the remainder of the year, adidas-Salomon confirms the sales and earnings guidance as provided with the 2002 full year results. Group revenues are expected to increase by at least 5% on a currency-neutral basis. Group gross margin is likely to exceed the target of 42 to 43% and operating margin is expected to improve by approximately 50 basis points. As a result of these developments, Group earnings for the full year are expected to grow between 10 and 15%.
Herbert Hainer stated: #'We've delivered on our promised performances so far in 2003 and are set to make our sales, margin and earnings targets for the full year. Exciting new technologies, which we will showcase at some of the world's biggest sports events, will help us take the positive momentum into 2004.''