adidas-Salomon Sees Q2 Profit Up a Third on 10% Currency-Neutral Growth

adidas-Salomon reported that second quarter net sales increased 10% on a currency-neutral basis with double-digit improvements coming from all brands and regions except Europe where sales declined 1%. This represents revenue growth of 8.2% in euro terms for the Group to €1.52 billion ($1.91 bn) in 2005 from €1.40 billion($1.77 bn) in the second quarter of 2004. The gross margin remained unchanged at 49.0% of sales. Second quarter operating profit increased 25% to €153 million ($193 mm) from €123 million ($148 mm) in 2004. The Group’s net income from continuing operations was up 33% in the second quarter, reaching €94 million ($119 mm) versus €70 million ($84 mm) in 2004 Basic earnings per share increased 34% to € 2.02 (2004: € 1.51 per share). Diluted earnings per share grew 27% to € 1.91 in the second quarter of 2005 from € 1.51 in 2004.

Income from discontinued operations, net of tax, which reflects the performance of the Salomon business segment that is planned to be divested at the end of the third quarter, declined 6% to negative € 27 million in the second quarter of 2005 (2004: negative € 25 million). Net income attributable to shareholders from continuing and discontinued operations increased 52% to € 66 million in the second quarter of 2005 versus last year’s level of € 44 million. This equates to basic earnings per share from continuing and discontinued operations of € 1.44, which represents growth of 50% compared to the prior year (2004: € 0.96 per share). Accordingly, diluted earnings per share from continuing and discontinued operations were up 44% to € 1.37 from € 0.96.

The adoption of new and revised International Financial Reporting Standards (IFRS) concerning the inclusion of royalty and commission income and goodwill amortization into operating profit as well as the discontinuation of scheduled goodwill amortization positively impacted the Group’s financial performance in 2005. On a comparable basis (The figures stated on a comparable basis are adjusted to eliminate the goodwill amortization incurred in 2004. Furthermore, operating profit reflects the inclusion of royalty and commission income in the operating profit for 2004 and 2005), the Group’s operating profit, net income from continuing operations and net income attributable to shareholders from continuing and discontinued operations would have increased 20%, 18% and 20% respectively in the second quarter.

Currency-neutral sales grow 11% in the first half year

During the first six months of 2005, the Group’s currency-neutral revenues increased 11%. In euro terms, sales grew 10% to € 3.189 billion from € 2.906 billion in 2004.

“The first half of 2005 was an important six months for adidas-Salomon,” commented adidas-Salomon Chairman and CEO Herbert Hainer. “We have strengthened the core of our business, made it more efficient, and more focused on areas where we have proven skills. And we were able to deliver an outstanding set of financial results – exceeding both market and our own expectations.”

adidas drives top-line growth in the first half

Sales growth in the adidas segment set the pace for Group performance during the first half of 2005. Currency-neutral adidas revenues increased 10% during the first six months. Drivers of this growth were strong double-digit growth in the Sport Heritage division as well as significant increases in most Sport Performance categories. Currency-neutral revenues in the TaylorMade-adidas Golf segment increased 19%, driven by double-digit growth in all categories except putters. Currency effects negatively impacted sales at adidas and TaylorMade-adidas Golf in euro terms. adidas sales in euro terms were up 9% to € 2.816 billion in the first half of 2005 from € 2.584 billion in 2004. TaylorMade-adidas Golf sales in euro terms grew 16% to € 351 million in 2005 from € 302 million in 2004.

Positive regional sales development

From a regional perspective, first half year Group sales in Europe grew 1% on a currency-neutral basis, driven by strong performance at TaylorMade-adidas Golf where currency-neutral sales increased 16% as a result of broad-based improvements throughout the region. In North America, Group sales during the first half increased 18% on a currency-neutral basis, due to double-digit growth in the adidas Sport Performance and Sport Heritage divisions as well as at TaylorMade-adidas Golf. In Asia, currency-neutral sales increased 30% in the first half of 2005, driven by strong growth in China, where sales more than doubled during the first six months of 2005, as well as strong growth in Japan, India and many other countries in the region. In Latin America, currency-neutral sales increased 36% in the first half, renewing its position as the fastest growing region within the Group. This development was driven by double-digit sales increases in Brazil, Mexico and Argentina. In euro terms, currency translation effects negatively impacted sales in the first half of 2005. Sales in Europe increased slightly in euro terms to € 1.569 billion in the first six months of 2005 from € 1.563 billion in the prior year. In North America, first half year sales in euros increased 13% to € 757 million in 2005 from € 667 million in 2004. In euro terms, sales in Asia improved 28% to € 708 million in the first half of 2005 from € 551 million in 2004. In Latin America, sales in euros grew 38% to € 135 million in 2005 from € 98 million in 2004.

adidas-Salomon sales by
region in 2005, “Total continuing operations” includes HQ/Consolidation

* Pro-forma figures reflect continuing operations as a result of the planned divestiture of the Salomon  business segment in accordance with the Sale & Purchase Agreement (SPA) with Amer Sports Corporation, subject to amendments agreed upon prior to transaction closing.

Pro-forma figures reflect continuing operations as a result of the planned divestiture of the Salomon business segment in accordance with the Sale & Purchase Agreement (SPA) with Amer Sports Corporation, subject to amendments agreed upon prior to transaction closing.

adidas-Salomon gross margin grew 0.5 percentage points to 48.5% of sales in the first half of 2005 (