Q2 2012 adidas AG Earnings Conference Call

ADS.DE - adidas AG
Q2 2012 adidas AG Earnings Conference Call
Aug 02, 2012 / 09:30AM GMT 

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Corporate Participants
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   *  John-Paul O'Meara
      adidas AG - Head of Group IR
   *  Herbert Hainer
      adidas AG - CEO
   *  Robin Stalker
      adidas AG - CFO

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Conference Call Participants
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   *  Matthias Eifert
      - Analyst
   *  Andreas Inderst
      Exane BNP Paribas - Analyst
   *  Jurgen Kolb
      Cheuvreux - Analyst
   *  Will Hutchings
      Goldman Sachs - Analyst
   *  Julian Easthope
      Barclays - Analyst
   *  Louise Singlehurst
      Morgan Stanley - Analyst
   *  Chris Walker
      Nomura - Analyst
   *  Rod Lache
      Deutsche Bank - Analyst
   *  Mark Xavier
      Content Frankfurt - Analyst

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Presentation
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Operator   [1]
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 Good day and welcome to the adidas Group conference call for the half-year 2012 results.

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 John-Paul O'Meara,  adidas AG - Head of Group IR   [2]
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 (Multiple speakers) -- to our first half-year 2012 financial results presentation and conference call live here from the adidas Olympic Media Lounge in London. I'm J.P. O'Meara, Head of the Group IR activities.

 Our presenters today are Herbert Hainer, adidas Group CEO, and Robin Stalker, Group CFO. They will be covering our excellent first half performance and will give you some insight into the various initiatives we've planned for the second half of the year.

 So let's get started, but before Herbert takes the stage, let's have a look at some others who are taking the stage right as we speak.

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 Herbert Hainer,  adidas AG - CEO   [3]
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 Yes, great pictures. Good morning, ladies and gentlemen and thank you for joining us here at this marvelous setting overlooking the Olympic Park. We invited you here today not only to share our first half-year results, but also to give you a taste of the important role the adidas Group plays in global sport.

 Our (inaudible) with major sporting events sets us apart from all the competition and I will explain exactly how we are leveraging these Olympics and how it is benefiting our Group a little later in my presentation today.

 But first let's dive into the results. I think this is the most important thing to you. Despite all that that is going on, on a macroeconomic and competitive perspective, our strong business model and excellence in execution has once again delivered a winning performance. Revenue increased 11% on a currency-neutral basis as we added over EUR1 billion of sales taking us to above EUR7.3 billion for the first six months.

 Even more pleasing is our operating margin improvement of 0.7 percentage points. Given negative pressures of almost 5 percentage points from the input cost, this is a significant result, especially in view of the fact that most of our major competitors have seen declines in this important metric in the same period.

 This improvement drove a 30% increase in net income attributable to shareholders to a new record level of EUR455 million and to our highest ever cash flow generation in the second quarter. We have seen a reduction in net borrowings by 63% to EUR318 million compared to EUR863 million a year ago.

 These are great results and a great inspiration as we continue to deliver on our promises. During the period, the global reach and relevance of our brand to our diverse consumer audience was again very evident. We grew in every region of the world led by strong growth across our entire spectrum of performance categories which is fitting in this high-profile sporting event here.

 And in particular our three key attack markets, which you know, China, Russia, America continued to meet our high expectations, each delivering double-digit growth in the first half and the second quarter. Looking at Greater China, sales grew 19% currency-neutral in the first half driven by 22% growth in Sport Performance as new products like the ClimaCool Seduction running shoes sold in abundance.

 And this is a confirmation that adidas is clearly the brand in the market with the greatest momentum and you may rest assured that this will continue in the second half given double-digit growth in order books and our healthy inventory situation relative to our competitors.

 In North America, sales grew 11% on a currency-neutral basis with the adidas brand up 12% and TaylorMade-adidas Golf increasing 32%. adidas Originals once again was a major highlight for the region as revenues increased over 60% in the first half.

 But also in basketball we are enjoying fantastic momentum with footwear sales growing 36% and our market share now in double-digit territory again, about 11%. Therefore half-way through the year I'm fully confident that we will achieve the targeted hat trick of years of double-digit growth with the adidas brand in North America.

 In Russia/CIS, both adidas and Reebok grew at a double-digit rate in the first half and in the second quarter. In the first half, currency-neutral Group sales were up by an impressive 15% and this is not just a confirmation, but even a strengthening of our dominance in the market.

 And finally it goes without saying that I'm again very pleased with our strong performance in Western Europe with sales up 6% for the half-year and 5% in the quarter. First-half growth was driven by an exceptionally strong performance in the UK where sales were up 21% currency-neutral.

 We also enjoyed mid to high single-digit growth in Germany and in Spain. Our brand perspective, the adidas brand continues to be the powerhouse of the industry. Revenues increased 14% currency-neutral in the first six months with a strong 11% increase in the second quarter.

 Football, the heart of the adidas brand took center stage so far this year, and there is no doubt that we have hit the mark again in 2012, be it through brand visibility, product sales, or simply confirmation of our status as the most innovative brand in this sport.

 Sales for the first-half increased 25% currency-neutral which prompted us to lift our forecast for the category to new record of over EUR1.6 billion for the year, in June. And even before the first whistle was blown at the UEFA EURO 2012, we were already champions of Europe crowned by the all-adidas UEFA Champions League final between Bayern Munich and Chelsea FC.

 At the UEFA EURO 2012 we won all battles on and off the field, typified by Spain's master-class victory in the finals as they achieved the impossible triple. Even at the time of economic recession in Europe we sold more jerseys and more footballs at the European Championship than ever before.

 We sold over 1 million German jerseys and almost 1 million Spanish jerseys and in addition the Tango 12 is our most successful ever European Champion tournament football selling more than 7 million units. We also sponsored more players than any other brand which gave us unprecedented visibility for our industry-leading adizero F50 and the recently launched Predator Lethal Zone.

 And in several consumer and social media tracking service adidas was the most recognized and talked-about sponsor of the event. And our strong first-half growth in adidas was not just all about football. The strength of our product pipeline led to robust sales growth rates in all of our key performance categories, be it running, be it basketball, and outdoor, lifting total adidas Sport Performance sales up 12%.

 For example, in running, sales were up 13% driven by the key franchises such as the adizero and the Clima. In basketball, we had growth of 18% with footwear even growing at double the pace, and here the adizero Crazy Light 2 has been a major success retailing at the premium price of $140 which is $10 higher than its predecessor.

 And it generated outstanding sell-through rates of over 30% in its first six weeks. While for many this may be seen as a performance year, it would be wrong to overlook our continuous success with adidas Sport Style. Sales in the first half were up a strong 14% driven by double-digit growth in adidas Originals, and the adidas NEO label.

 And I'm pleased to report we are making good progress at our NEO test stores in Germany where traffic has continued to strengthen and we are hitting important milestones in terms of conversion, product, and gender mix. And today we will complete our rollout of 10 stores for this year by opening our new NEO store in Cologne.

 Turning to Reebok, sales declined 26% in the quarter and 16% year-to-date. Of course I'm disappointed by these results. Unfortunately, this year we couldn't build on the great momentum we created by bringing unexpected innovative products to the market like EasyTone, Zig, and Flex.

 Nevertheless, our fitness positioning for Reebok is exactly the right one because it resonates with consumers and customers alike. In fact, retailers have already seen our extended fitness proposition for Reebok which will be visible in the marketplace beginning in 2013 and we will capitalize on many major fitness trends in addition to our already successful CrossFit initiative.

 Stay tuned to hear more about this at our Investor Day in September in California. However, what I can already tell you today, I am very optimistic that we will create a new dynamic for Reebok in 2013.

 Looking at the Reebok results in the first-half of this year, I think it's fair to say that there are also a few one-time factors that you should have in mind. Firstly, the impact from rectifying the situation regarding our operations in India accounted for a significant portion of the sales decline.

 A further part of the decline relates to our decision not to renew the NFL license and the shift of the NHL US-related sales to the Reebok-CCM Hockey segment. In addition to that we continued to face challenges in Latin America, due to difficulties at our joint venture partner and import restrictions in certain countries, and also in Western Europe as we clean up our toning inventory.

 On the positive side, we continued to enjoy considerable success for the brand in controlled space, driven in markets such as Russia and Korea. In North America, the underlying trend is also quite good. Although sales for the quarter are down there as well, this was mainly due to a strategic decision which we took in May and June to reduce the wholesale shipments of Zig and Flex products which are still seeing strong demand in the market to ensure we protect and do not overheat these franchises.

 Otherwise, our trend in the US for Reebok in the market remains promising which is underpinned by continued strength of our own retail sales. And with the introduction in the second half of ZigLite, the CrossFit Nano 2.0 and our new SmoothFlex running shoe, I expect an improving sales trend in this market as we move into the second half.

 Let me now also take the opportunity to update you on our situation in India. As you will have seen since our announcement at the end of April, our local management team has filed criminal charges against former offices of our Reebok subsidiary in India and is currently closely cooperating with various authorities on that matter.

 As a precaution the team also moved the Reebok business to a cash-and-carry model for the interim to protect the Group from further losses until they have carried out the due diligence on their customer-base. To ensure a thorough and independent review, we have also engaged the services of Ernst & Young to support our efforts.

 The Reebok customer review will be completed in the next few weeks and as announced in May there will be a reduction in the Reebok store-base in India as a move towards a more profitable business model for the brand in this market. In general, while the issue is unpleasant, we will achieve our goal and set Reebok up for a fresh start in India in 2013.

 And I can also confirm that we are not expecting a major deviation from the EUR70 million negative impact in 2012 Group operating profit which we projected already in May and told you. And this relates to our loss of business, actions Reebok India is taking to move to a performance-based trade term policy and other reorganization activities.

 And about EUR17 million out of this EUR70 million are already booked in the results so far.

 Finally, for my review of the period, I can't go without commenting on the outstanding performance of TaylorMade adidas Golf. From an industry perspective it is shaping up to be one of the most promising years in more than a decade.

 In the US, rounds played are up 12% for the first six months. And while we are definitely benefiting as golfers return to the course, even more than that, we are capitalizing from a full onslaught of product innovation from RocketBallz clubs to Tour360 and Powerband footwear, to which the competition simply doesn't have an answer.

 This is reflected in our record first half top-line growth of 29% currency-neutral. We grew in all categories, with metalwoods, irons, putters, and footwear all recording growth rates above 20%.

 We also completed the acquisition of Adams Golf, which has been consolidated effective June the 1st, and looking at its performance we have clearly acquired the second starlet of the industry as sales for Adams products are up 16% in the first six months. Therefore, ladies and gentlemen, I can only reiterate that we are the ones to watch in golf.

 So ladies and gentlemen, that completes my comments on the first half. I will be back in a few moments to share some more details on what's to come in the second half, but first let me handover to Robin who will take you through all our financials in more detail.

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 Robin Stalker,  adidas AG - CFO   [4]
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 Great, well, thanks a lot Herbert. And a very good morning, ladies and gentlemen. While Herbert has explained all about the excellent growth we generated in the first half, I would now spend some time on showing you how we have converted this growth into meaningful bottom-line and cash flow generation.

 However, first let me spend a moment to round off the review of our Group's top-line performance by giving you some more specific details on our second quarter. Currency-neutral sales increased 7%, or that's 15% in euro terms, to over EUR3.5 billion with every region except Latin America posting sales gains.

 In Greater China, currency-neutral sales increased 13% driven by 16% growth at adidas Sport Performance. In North America, second quarter Group sales grew 10% on a currency-neutral basis as a result of sales growth at adidas and TaylorMade-adidas Golf of 15% and 31% respectively.

 It may clearly offset the declines at Reebok. In European emerging markets, Group sales increased 18% currency-neutral as we further strengthened our dominant market position in Russia/CIS where revenues were up 20% currency-neutral. In Western Europe despite the widely commented macroeconomic challenges in many parts of the region, Group sales grew 5% as Herbert has already discussed.

 In other Asian markets, Group revenue growth was 2% as double-digit growth in Japan and Southeast Asia was partly offset by the negative consequences related to Reebok India. Excluding these effects, sales growth for the region would have been up double-digit.

 Finally, in Latin America, adidas Group sales decreased 2% on a currency-neutral basis in the second quarter. High single-digit sales growth at adidas as well as double-digit growth in other businesses was more than offset by declines at Reebok.

 Now moving on to the profitability where again our focus on driving quality sales growth paid up. Similar to previous quarters the Group was faced with enormous challenges from higher input cost. In fact the total negative impact was around 5 percentage points on Group gross margin for both the half-year and the second quarter.

 Nevertheless, through our various efforts across channels, brands, and operation, we were able to mitigate the majority of the negative pressure and recorded a gross margin decline of only 90 basis points in Q2 and 80 basis points for the first half. The key drivers to offset the negative factors for both the second quarter and the first half are similar to those as discussed during our last earnings call.

 Firstly and most importantly, price increases and a more favorable product and regional sales mix. Secondly, the over-proportionate sales growth in our retail segment which carries obviously higher margin.

 Our hedging provided some tailwind to the six month period. However, as indicated during our Q1 earnings release, this tailwind was reversed into a headwind recently with hedging being a slight negative for the second quarter gross margin development.

 And turn the pages, gentlemen, for the outlook for margins, the impact from input cost pressures will start to ease in the second half of this year which is mainly due to some relief on the global commodity market, particularly on the apparel side. Therefore we maintain our gross margin guidance for 2012 of around 47.5%.

 Moving below the gross profit line we continued to make good progress towards one of our key Route 2015 goals that is leveraging our growth and operational scale to drive operating margin improvement.

 For the quarter and year-to-date other operating expenses increased 12%. As a percentage of sales however, other operating expenses were down 1 percentage point and 1.3 percentage point respectively. Thereof, sales and marketing working budget expenditures increased 13% and 7% for the second quarter and the first half respectively.

 The latter mainly reflects our marketing investments at the adidas brand to support its exclusive presence at the UEFA EURO in Poland and the Ukraine.

 Group operating profit increased 25% in the first six months to new record level of EUR665 million. This translates into an operating margin of 9.1% that's up 70 basis points. And the second quarter operating margin expanded to 7.3% from 7.1% in the prior quarter -- in the prior year.

 Now, let's turn to the non-operating items of the P&L. Year net financial expenses decreased 20% in the first half compared to a year ago. This mainly reflects a 32% increase in interest income and a 47% decline in negative exchange rate effect.

 Lower interest expenses also contributed obviously to this development.

 Now, the first half-year tax rate decreased a slight 10 basis points to 27.4% which is due to a more favorable regional earnings mix. Therefore, net income attributable to shareholders for the six months increased 30% to EUR455 million, a new first half-year record mark for the adidas Group that translates into basic and diluted EPS of EUR2.17.

 Now second quarter net income attributable to shareholders as well as basic and diluted earnings per share increased 18% to EUR165 million and EUR0.79 respectively. Now let's -- ladies and gentlemen let me remind you again that there is no diluted impact from our EUR500 million convertible bond that we issued in March until the conversion price of EUR83.46 is met.

 Let's look at it now by segment. By segment, our currency-neutral wholesale revenues increased 1% in the second quarter and 6% for the first half-year. Gross margin for the segment was down 1.2 percentage points both for the quarter and the first half-year. Price increases and more favorable product and regional mix as well as less clearance sales helped us here to mitigate the headwind from rising input cost.

 In the retail segment, comparable store sales growth continued to be a key driver for segmental revenue contributing 8% of the 16% currency-neutral growth for the quarter. For the first half-year comp store sales expanded 9% currency-neutral while total segment sales grew 16% currency-neutral.

 By brand, currency-neutral adidas comp store sales increased 8% in Q2 and 9% in the first half while Reebok comp store sales grew 9% and 8% for the quarter in the year-to-date period respectively. Retail gross margin decreased 300 basis points to 62.8% for the second quarter and 150 basis points to 62.2% in the first six months.

 The devaluation of the Russian ruble versus the US dollar as well as increased promotional activities at Reebok were the main factors contributing to margin decline.

 At the end of the second quarter we operated 2,436 stores, a net increase of 35 stores versus December last year. During the first half-year period, we opened 185 new stores and closed 150 stores while 40 stores were remodeled. In addition, 57 concept stores were reclassified as stores in other retail formats and one concept store was reclassified as a factory outlet.

 Coming now to the segmental operating margin for retail, I can again report further evidence of our continued progress towards becoming a world-class retailer. Despite the significant decrease in the retail gross margin, segmental operating margin for the second quarter actually increased in basis points to 25.4% and 70 basis points to 21.4% in the first half.

 Last but certainly not least, let me spend a minute on our other businesses, a key highlight of our first half performance. Currency-neutral revenue grew an impressive 22% in Q2 and 27% year-to-date as all segments recorded higher sales.

 In euro terms sales for other businesses grew 34% during the quarter to EUR550 million and 36% in the first half to almost EUR1.1 billion. The first time consolidation of adidas Golf in June added EUR8 million to these sales.

 And while the quarterly gross margin improved 40 basis points to 45.3%, it decreased 70 basis points to 44.5% for the six-month period as a result of lower product margin at Rockport and Reebok-CCM Hockey. For the quarter, however, improvements to TaylorMade-adidas Golf helped to more than offset these negatives.

 Now, ladies and gentlemen, let me come to my final and probably favorite topic of the day, our balance sheet and cash flow development. Given that the global economic outlook has certainly not improved over the course of the year, our conservative approach towards managing risk and rigorous control of our inventories is certainly vindicated.

 To that end, I'm very pleased to report that our inventory growth rate has once again declined compared to the prior quarter increasing just 8% on a currency-neutral basis.

 This is a stark contrast to most of our major competitors where inventory growth rates have been higher, in most cases upwards of 20%. As a result, we were also able to maintain an even further decreased operating working capital as a percentage of sales by 10 basis points to what I believe is a very strong 20.6%.

 Now combining this tight control of working capital with our strong operational performance that led to a significant cash flow generation for the period. This is reflected in the significant 63% year-over-year decline in net debt of EUR545 million (sic - see slide 21 "EUR546 million") to a level of only EUR318 million.

 So ladies and gentlemen, on that very positive note this concludes my comments for today. But now it's back to Herbert to take you through our initiatives and give an update on the outlook for the remainder of the year.

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 Herbert Hainer,  adidas AG - CEO   [5]
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 So thanks, Robin. Very well done. Our clear victory in the summer of football, our increased operating margin, and our excellent inventory management, as Robin has just described, show we have exactly the right formula to preserve and sustain our positive earnings and our cash flow trajectory. But let me tell you how we are going to do that and it starts right here and right now.

 At this very moment, we are capitalizing on our involvement in the London 2012 Olympic Games, an event that echoes the values of our Group, performance, passion, integrity, and diversity. And there is definitely no other sports brand that has such an authentic and long heritage with the modern Olympics.

 After spending already several days here in the UK, I can only admire the enthusiasm Great Britain is bringing to these Olympics. And I am proud that adidas through our support of Team GB and iconic sports athletes has been able to contribute to the spirit of this game. From a commercial perspective this will be the most successful games we have ever had with Olympic-licensed products sales up 250% compared to that one in Beijing.

 However, the commercial success is one thing. I believe that it is the long-lasting impact on the consumer in the UK and around the world that will bring us the greatest return on investment. With sales up 24% here in the UK for brand earnings so far this year we have already closed the gap to the market leader from 3 percentage point difference to just 1 percentage point.

 And this is no wonder this emotional impact we are having through our Take the Stage campaign, our on the ground activities in London and events with ambassadors such as David Beckham. So let's just have a look.

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Operator   [6]
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 Ladies and gentlemen, you will hear silence for just a few moments. Please continue to hold. Thank you.

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 Herbert Hainer,  adidas AG - CEO   [7]
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 On a broader scale I also have no doubt that this event will inspire a generation worldwide to get into sport and providing further impetus to the global mega brand towards healthy living. And the message of the London Olympics to drive for greater efforts and sustainability is one that we will harness and use to maintain our success as the most trusted and desired sports brand.

 Over the past week, you will have seen some exciting news on new processes we are currently developing within our innovation team and global operations to take manufacturing techniques to the next level such as DryDye and Primeknit. And let me assure you that this will not be the end of great innovation stories you will be hearing from the adidas Group in the coming months.

 In particular, we are planning a new wave of launches and our adidas key performance attribute, smarter. You might have seen already that we launched in association with our long-term partner the MLS, the Major League Soccer in the US, the adidas miCoach Elite System in New York two weeks ago. And this technology was publicly demonstrated for the first time during the MLS All Star game between Chelsea FC and the MLS All-Star team.

 This technology is a revolution in team sports as it enables an unrivaled understanding of the physical activity of the team on the pitch. A small beta cell fits into a player's (inaudible).

 The cell transmits more than 200 data records per second from each player to a central computer which is then wirelessly available in real time on a coach's iPad. At the touch of his fingertips the coach can monitor the workload of an individual player, compare one athlete with another, or fuse the whole team to gain a complete picture of the sport.

 Beginning in the 2013 season, all 19 MLS clubs will use the miCoach Elite System making the MLS the first smart soccer league globally. And I believe that this will become a must-have tool for coaches and trainers in many team sports as we launch the platform in the future.

 While there will also be a whole host of new product launches to drive adidas sales momentum in the second-half, we also have planned some significant marketing initiatives in time for the important back-to-school and holiday season. The largest will be the next installment of our all adidas campaign this time focusing on Originals. So let's take a look at the sport that we introduced yesterday.

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Operator   [8]
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 Once again, ladies and gentlemen, you will hear silence while the video plays. Please continue to hold. Thank you.

 (Video playing)

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 Herbert Hainer,  adidas AG - CEO   [9]
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 (Audio in progress) -- in the games has jumped from 4,000 to 70,000. And there were more than 30,000 spectators to see it packed into the Home Depot Center in Los Angeles. Also to ensure we are in a position to leverage the move by the brand to cover more holistic fitness offering I'm excited to announce that we are planning a new store experience with the launch of a pilot Reebok Sports for Fitness hub including a store and Reebok CrossFit sports on New York's 5th Avenue, which will have it's grand opening on August the 16th.

 With this, we are creating the ultimate fitness destination by providing the best coaching (inaudible) in New York. And we will cover more on this and as the evolutions of Reebok's fitness strategy at our Investor Day in Carlsbad on September the 20th and 21.

 But let me underline once again at this point, our strategy is quite clear. We will make Reebok the fitness empire. And the implementation of this strategy will lead to new momentum with Reebok in 2013.

 To wrap it all up and bring it all together, we have every confidence that our Group will continue to lead the pack from the front, with great innovation, great product stories, and great marketing. And this is why we can reconfirm our full-year guidance today.

 We are even in a position now to announce that we will finish the year at the upper-end of our range on the bottom-line which we gave you in May. We continue to project full-year sales to grow at the rate approaching around 10% on a currency-neutral basis with minor adjustments to the segment to reflect on the one hand the Reebok India impact and on the other hand the strong of TaylorMade-adidas Golf.

 Operating margin is forecasted to increase to a level of approaching 8%. Net income attributable to shareholders is expected to increase at a rate between 15% and 17% to a new record level of between EUR770 million and EUR785 million. And this further balance sheet improvement, this will put us in prime position to continue our strong business momentum.

 So ladies and gentlemen, let me conclude by stating that I am very happy with our excellent first-half performance and I'm looking forward to enjoying a fantastic presence here at the London 2012 Olympic Games. And I'm also looking forward to updating all of you on our further growth plan at our Investor Day in September.

 And with that I thank you for your attention and now Robin and I will be happy to answer all your questions.



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Questions and Answers
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 John-Paul O'Meara,  adidas AG - Head of Group IR   [1]
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 So just before we start the questions the dates for the Investor Day are the 20 and 21 of September, where we will have an update on Route 2015 tailor-made presentations from adidas America and our basketball category as well as on the Reebok strategic updates.

 If you could register with us by September 3rd we'd greatly appreciate it so we can get all of the logistics and everything sorted out. So now we will start with the questions. We start over here, Matthias.

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 Matthias Eifert,  - Analyst   [2]
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 This is Matthias. For my first -- the first question I have is, can you give us a bit of flavor going forward what's going to happen with Reebok? 26% decline in Q2 looks quite big. And given that positive in the (inaudible) might get bigger in the next few quarters and India is also probably not going to improve, should we look over the next two to three quarters with similar impact and then hopefully in 2013 to grow again?

 And the second question would about the current trend you are seeing in China, very impressive growth 13%, but everyone talks about the high level of inventories of the specific goods in the market. What is your best chance of the current market growth and what do you expect for the second half on China? That will be my question.

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 Herbert Hainer,  adidas AG - CEO   [3]
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 Okay. Well, you can hear me already. So let me start with the first one. Yes, as I said already on Reebok I am also disappointed about the results.

 But when you take the one-time effect which we set away then the underlying business is down as well but by single-digit, and this is what I do believe continue going forward. We indicated to you already at the beginning of the year that 2012 will be a difficult year with the dropout of the NFL. Then now we have the Indian case.

 And as I said, unfortunately, we were not able to bring new -- rather concepts to market as we did the EasyTone, Zig, and Flex. And this both helped us enormously in 2010 and 2011 to grow our business. But you will see in 2013, we are back to that mode.

 We have already shown our new concepts to the retailers, especially in the US, and now starting in Europe. And we have got very positive comments. So there is no doubt that we will grow in 2013 again with Reebok.

 We have to go now through 2012. We will clean up India, there is no doubt, because we want to have a clean sheet and we will bring new innovative products into the markets, spring/summer 2013. We also bring new products in the second-half of 2012, but they will not be enough to really stimulate the sales as we get back into positive territories.

 But from 2013 onwards we will grow again, this you will see. And we will give you all the details and also the product concepts in Carlsbad in September that you can see it as well.

 Second one, China. I cannot comment on the difficulties the other sports brands have in China. I can only tell you that our growth is very healthy and sustainable. And you might remember after the fallout in 2009 after the Beijing Olympics and then we had the economical crisis, we were discussing with you about the cleaning of the market.

 And I also told you it will take a little bit longer because we want to do it the right way, and we will be back in the second half of 2010 to growth mode. And then (inaudible) we are growing and growing and growing.

 What do we do different? I do believe, we have a great focus on the sales numbers with our franchisee partners because this is the most important thing, it doesn't help if we push [products in] and they don't sellout. Therefore, we have done a lot of IT connections with our key franchisees that we get permanent instant information what is selling and what isn't selling.

 And this leads that we have the highest growth rate in the moment in China and we have the lowest inventory. We had a few Chinese customers here last week in London. They're all very happy with the way which we're dealing with them because they earned the most money of us. They don't have less markdown because inventories are clean, sell-through numbers are good, and they are positive for 2013 as well.

 Yes, in general the market might get tougher in China in 2013, but all what I have heard we are the frontrunner in China also in 2013. And the second half in 2012 our backlogs we have already in the books, they are very good as well.

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 John-Paul O'Meara,  adidas AG - Head of Group IR   [4]
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 Okay, so Andrea is here.

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 Andreas Inderst,  Exane BNP Paribas - Analyst   [5]
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 Andreas Inderst, Exane BNP Paribas. I have a couple of questions. The first one on your development in Latin America, very poor development in second quarter. You elaborated already that --

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 Herbert Hainer,  adidas AG - CEO   [6]
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 This is not correct. We grew adidas by 8%, this is only Reebok.

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 Andreas Inderst,  Exane BNP Paribas - Analyst   [7]
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 Yes. Maybe you can elaborate what's your -- what is your action you take on Reebok in this market in respect to your joint venture partner? And when do you expect renewed growth and maybe you can give us a sneak preview on your 2014 strategy for Brazil? That's my first question.

 The second question, like-for-like growth in own retail plus 8%, quite nice development compared to your competitors. Maybe you can give us more details how the growth rates were by region, so China like-for-like, US, and Western Europe maybe?

 And my third question is related to the current economic situation. In 2008 and 2009, you experienced a significant profit decline.

 What's the difference today? How are you positioned differently today compared to 2009 to reassure us that you won't see a similar development in 2009. I understand inventories are over the -- nicely compared to the past, brand adidas is better positioned, but maybe you can give us more information on that side? Thank you.

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 Herbert Hainer,  adidas AG - CEO   [8]
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 Okay. I guess I take the first and the third one and Robin you take the second one? Good. So let me start with Latin America. As I said already Latin America, we have been growing by 8% with the adidas brand. We still do have the same issues on import restrictions for adidas as we have for Reebok.

 In addition, for Reebok we also have seen with our joint venture partner and our joint venture is going until 2015. This will cover us in Latin America. They have difficulties in the market as you might have seen.

 They have to close factories, they have to release workers, and obviously this doesn't help our business either. But we have to go through them until 2015. As I said, we are bringing also then new products, but it is more complicated to import products into Brazil and Argentina, so the governments have built more and more boundaries around.

 The question number three was in 2009 because of the economical crisis -- if I have understood the question correct -- our profit dropped as everybody else. So now macroeconomics getting tougher again, what do we do to prevent this? I do believe that we are in a much better situation although I must say if the world collapses then it might hit us as well.

 But when you look to our balance sheet numbers which Robin showed you I think we have a much better position especially on the inventory side. All of our competitors which announced the result the last two weeks had high inventories and our inventory growth is less than our sales growth.

 And we still drove growth over 10%. So this shows you that I do believe as a Company in general our processes which we introduced in the last several years from planning, purchasing, sourcing, delivering, logistic, and sell-through numbers controlling in the stores is really flawless. And I do believe without sounding too self-confident that we are much better than most of our competitors there.

 And this is how we channel our stream of products into the market. And obviously the situation will have an effect on the next six months because they will have to drop their products, I mean, what do you do if you have 30% over-inventory?

 You have to drop your products with marked down with less margin et cetera, whereas we can still continue our clear channel segmentation approach that we give only products to these channels where the consumers are who can buy this product. This means we take Originals away from certain customers and give it to customers where we do believe these are the right ones.

 Giving you an example, we don't sell Originals here in the UK to SportsDirect, but JD obviously is our Originals customer number one because he is consumer based. And this is what I think gives us a much better position than three years ago and as our main competitor.

------------------------------
 Robin Stalker,  adidas AG - CFO   [9]
------------------------------
 Andreas, there's a lot of good news about retail. And one of that is that the comp store growth, the development is throughout all the regions. We have in Russia a 12% comp growth, US 10%, China 8%, and Europe 4%.

------------------------------
 Jurgen Kolb,  Cheuvreux - Analyst   [10]
------------------------------
 Jurgen from Cheuvreux. Maybe focusing again on India and the Reebok situation, excuse me if I missed that and -- or I overheard it, do you have the Reebok underlying growth excluding NHL, NFL, and India, how did Reebok do there?

 And then maybe a little bit of an outlook what the impact of the situation in India will be for Q3, Q4, how is that going to develop there? On the gross margin of the Group, was there an impact from India as well?

 And lastly, the EUR70 million restructuring expenses that you mentioned for India, did that also include the expected sales decline in the [Indian] market or is that just the pure restructuring cost for closing down stores?

------------------------------
 Herbert Hainer,  adidas AG - CEO   [11]
------------------------------
 Okay, should I take the first one and you take all the gross margin and restructuring costs.

------------------------------
 Robin Stalker,  adidas AG - CFO   [12]
------------------------------
 Okay.

------------------------------
 Herbert Hainer,  adidas AG - CEO   [13]
------------------------------
 So the Reebok numbers without NFL, NHL et cetera would have been minus 8% for the first six months.

------------------------------
 Robin Stalker,  adidas AG - CFO   [14]
------------------------------
 And yes, you're absolutely right Jurgen, obviously the issues that Reebok India had an impact on our margin and anticipating that I've got some calculated figures for you.

 So in terms of the Reebok India business, if that wasn't in our numbers, we would have had a 30 basis point improvement in the Group gross margin. If you look at how we've adjusted that on quarter it'd be practically for the half-year. If you look at it on the wholesale base -- but I think you know I'm looking at wholesale development as well -- wholesale for the six months was 70 basis point negative impact 10 basis points for the half-year. And in the Reebok numbers themselves, obviously a significant impact for the quarter, it's 5.1 percentage points and for the half-year, 1.2 percentage points.

 Your question about what we included in our so-called restructuring cost, as we gave you guidance at the end of our first quarter, we anticipate that not just the restructuring cost, but also the impacts of changing our business model in 2012 will result on less sales and less profit obviously in this period, and that altogether will be a negative, approximately EUR70 million more than we had anticipated. That number is still our best estimate for the full year. And of that EUR70 million, EUR17 million is in the first half and that does include the negative sales development.

------------------------------
 John-Paul O'Meara,  adidas AG - Head of Group IR   [15]
------------------------------
 William there.

------------------------------
 Herbert Hainer,  adidas AG - CEO   [16]
------------------------------
 Yes.

------------------------------
 John-Paul O'Meara,  adidas AG - Head of Group IR   [17]
------------------------------
 Will, Will, sorry.

------------------------------
 Will Hutchings,  Goldman Sachs - Analyst   [18]
------------------------------
 It's Will Hutchings, Goldman Sachs. Two questions, one on share gains. You gave us an update on your share gain performance in the UK. I wonder if you could give us an update on a more global basis and where you think you've got good opportunities to continue to take share.

 And just one on the weighting of cost presumably there's quite a significant marketing budget going on for the Olympics. How much of that has been incurred in the numbers that we've seen and how much is to be incurred? Thanks.

------------------------------
 Herbert Hainer,  adidas AG - CEO   [19]
------------------------------
 So I don't have unfortunately any share numbers for the global world. I have it for individual markets, be it US or the UK as I said. In general, I definitely do believe that we have gained share because when you just look to the sheer sales growth numbers of all the people in the sporting goods industry, then we must have gained share.

 The UK bonds, I have spoken about in my speech because we are here and we said at the very early stage that we definitely want to become market leaders. This is why I pointed it out. But we definitely can deliver it later to you.

 The second one, the marketing working budget, I think, you have to have in mind what I said already several times that we are -- first and foremost spend in general rounds 12.5% to 13% in marketing working budget and this is very consistent over the last years. And this is what we do plan going forward be it whether we have big-event years or not because in non-big-event years we bring in much more product innovation to the market.

 The same will happen to -- in 2012. Even despite the European Championship, which all the marketing working budget costs are in the first half because this thing was over, you see that our marketing working budget costs are not going out of this border what I have just described. And the same will happen in the second half.

------------------------------
 Robin Stalker,  adidas AG - CFO   [20]
------------------------------
 Yes, maybe just to clarify the last point, I think you asked, Will, about Olympic spending there will be some obviously in the first half, but the majority of that will be in the third quarter.

------------------------------
 John-Paul O'Meara,  adidas AG - Head of Group IR   [21]
------------------------------
 Mark?

------------------------------
 Mark Xavier,  Content Frankfurt - Analyst   [22]
------------------------------
 [Mark Xavier, Content Frankfurt]. (inaudible) Just following up from Will's question, the one area which surprised me on the positive was the SG&A expenses (inaudible) down 100 basis points or so. You've highlighted 13% increase in margin, direct -- or your own sales, your own stores are the most spending. So where have you made savings on the SG&A and what's the outlook for that?

 Unrelated to that question, in terms of some of the new brands, NEO, how is the trading densities of NEO in the Chinese stores compared to non-NEO stores? Given the lower pricing points you need much higher densities or some high densities? Are you generating that? And can you give us an update on the early days in Germany again with the NEO brand?

 And then very finally, Adams; if I understood you correctly, about EUR18 million of -- EUR16 million of sales in June brought 16% growth for the brand in H1. So what was behind the brand strength in H1 before you achieved this?

------------------------------
 Robin Stalker,  adidas AG - CFO   [23]
------------------------------
 Okay, Mark, thank you for that. Yes, thanks for identifying that we are making progress. But in the first half of 2012, that progress was also being helped by as a percentage a lower marketing spend as a percentage sales even though the absolute is up.

 But yes, we're definitely making progress on SG&A as well. And to achieve our 2015 goals, which some see as ambitious in terms of increasing our operating margin to the 11%, we have to be also making improvements in the leverage in our SG&A.

 And what we're doing here is a variety of efforts, where we are taking cost out of the organization, not as a cost-cutting measure, but as measures to fundamentally and sustainably improve our profitability, that is including efforts to standardize our processes, common system, the common structures of our operating units around the world, taking costs out in how we run our businesses, consolidating warehouses, you might have heard of our major investment in Germany at the moment for a consolidated warehouse for Europe which allows us also to close other warehouses.

 Various efforts like that are underway. Some benefits you can start to see, but the vast majority of these benefits really going to be coming through in the '13, '14, '15 period as you see our operating margin really significantly improve.

------------------------------
 Herbert Hainer,  adidas AG - CEO   [24]
------------------------------
 I think it's fair to say that we have also some leverage on the SG&A in our retail business.

------------------------------
 Robin Stalker,  adidas AG - CFO   [25]
------------------------------
 That's also true. We're getting better -- that's exactly right, Herbert. As retail is getting better their profitability is also improving.

------------------------------
 Herbert Hainer,  adidas AG - CEO   [26]
------------------------------
 : Okay. Coming to NEO, overall we are very, very pleased with the development in NEO which we have seen sales up by 16% in the first half. And this is mainly coming from China and Russia as this is by far the biggest NEO market.

 So this shows that product range and especially in China which we are offering to the younger consumer is definitely hitting them. And when you go into the stores and you see exactly the consumer-base which we want to have (inaudible) 15, 16-year-old boys and girls who are hanging around, making their photos on the artificial mirror and then posting it to their friends.

 In Germany, we had just opened today the 10th store as I said in Cologne. The overall performance is very good. But as we already said, we want also to learn. And we learned a lot already in the first five months be it on location, be it on logistics, because we permanently have to refill the stores obviously, be it what the consumers buy and what they don't buy. You have special articles we are selling like hot cakes and others are not selling as well as always.

 But the overall trend is very positive. We're permanently increasing traffic, we're permanently increasing conversion in the stores, and all what see so far is quite encouraging. But nevertheless as we said from the very beginning we will take our time 12 to 18 month to really experience everything in a mature market like Germany because if we do it there, then we can do it everywhere before we go out then in Europe to the rollout.

 Last question on Adams. First and foremost, I do believe that Adams is very complementary to TaylorMade because when you are in the [golf spin], TaylorMade is always (inaudible), longer, stronger. And this especially is not relating that much to the senior golfers and to the women's golfer. And this is exactly where Adams is strong.

 Adams was the first one who brought out the Hybrid or Rescue clubs 10 or 12 years ago. They're more forgiving. So it's easier to play. You don't have to hit the ball exactly on the right point.

 And this is why Adams has such a success on senior players. For example, Tom Watson, (inaudible) they all play Adams. Or on the women's side, the number one, the Korean girl [Kim Sam Sing], she is also playing in Adams.

 They have a full portfolio of patents, which we were surprised positively. And I think TaylorMade and Adams are the only two golf companies in the moment which are growing in the market because when you look to Callaway and the others then it's quite clear. And it's a funny story, just to the side, you might know that Gary Adams, he was the founder of TaylorMade, 40 years ago. And then when Salomon bought it, he walked away and founded Adams, and now he is back in the family. Does it answer your question?

------------------------------
 Robin Stalker,  adidas AG - CFO   [27]
------------------------------
 So we come here to Julian. First just to correct you, it was EUR8 million, EUR8 million that Adams added in June.

------------------------------
 Julian Easthope,  Barclays - Analyst   [28]
------------------------------
 Julian Easthope, Barclays. I've got two questions. The first one concerns China. Your chief was in Chinadaily news a couple of weeks ago, English version saying you were going to open 500 to 600 new stores through franchise partners. Those -- stocking of those new stores, how important is that within the growth rate for China and how many more stores can you open through the franchise partnerships?

 And the second question relates to the wholesale. You cut your expectations or guidance down to mid-single-digits now from the last quarter. So what have the disappointments been within that guidance geographically? And is that obvious from the futures orders coming through? Thanks.

------------------------------
 Herbert Hainer,  adidas AG - CEO   [29]
------------------------------
 So in China, yes, this is true. I don't know exactly will it be 520 or 530, but what it clearly indicates is that we have strong confidence in the Chinese market as have our franchisee partners, otherwise they wouldn't open the stores. And we still do believe there is a potential for much more stores in China as we penetrate ourselves through into lower tier cities, but also store improvement and location improvement in the big cities be it Shanghai, Beijing, or Guangzhou.

 But this is clearly a confidence level of what we do believe we can do and the franchise partners do believe. And that we have high expectations for China until 2015 which we have outlined, and we are on the best way to achieve them.

 You have seen our growth rate. And I'm absolutely convinced that -- just was over two months ago in China and have seen the consumer, have seen the traffic in our stores, have spoken to the two biggest franchisee Belle and Wei Wei, and I have anything to say than being optimistic for the future for us.

------------------------------
 Robin Stalker,  adidas AG - CFO   [30]
------------------------------
 And Julian, the only reason we have amended our guidance for sales (inaudible) for wholesale is to reflect the situation in Reebok India. I mean the second quarter increase of wholesale was only 1%, but had we been able to take out all of Reebok, not just the Reebok India, that would have been up 9%. And it was very confident on our growth in wholesale throughout the rest of this year, but the actual figure will be under what we have initially anticipated largely because of Reebok India.

------------------------------
 John-Paul O'Meara,  adidas AG - Head of Group IR   [31]
------------------------------
 Louise, you may take the stage.

------------------------------
 Louise Singlehurst,  Morgan Stanley - Analyst   [32]
------------------------------
 Louise Singlehurst, Morgan Stanley. Just a couple of questions from me please. Can you talk a little bit more about Western Europe and the trends that you're seeing there, obviously benefiting from the events in the first half of this year no doubt Q3. How should we think about growth going into 2013 to Western Europe?

 And then secondly, again, another follow-up on China I'm afraid. At this stage obviously you've been talking a lot, Herbert, about the double-digit growth you're expecting per annum on average to 2015. Are you quite confident at this stage for 2013 and double-digit growth?

 And then as a follow-up, can you tell us what the contribution of NEO is within the 13% growth to China in Q2?

------------------------------
 Herbert Hainer,  adidas AG - CEO   [33]
------------------------------
 Okay.

------------------------------
 Louise Singlehurst,  Morgan Stanley - Analyst   [34]
------------------------------
 And then my final --

------------------------------
 Herbert Hainer,  adidas AG - CEO   [35]
------------------------------
 Sorry.

------------------------------
 Louise Singlehurst,  Morgan Stanley - Analyst   [36]
------------------------------
 Apologies, one last one, a clarification point. I think you said that you were stopping or withdrawing some of the big shipments to wholesale in the US. Is that just clearing the inventory ahead of some big launches that we should expect towards the end of the year? Thank you.

------------------------------
 Herbert Hainer,  adidas AG - CEO   [37]
------------------------------
 So let me start with the -- with the last one. No, this has nothing to do with big clearance. What we see is that we have still very strong demand in the US for Flex and for Zig. But what we don't want to have is that the same thing happens like we're stalling, that the market is full with products and we ship and ship and ship and then the market is exploding. We definitely believe that we have with two -- with these two franchises really franchises which we can build over the long term, and therefore we don't want to sacrifice the good buildup and the segmented distribution strategy and this was the reason.

 We could have sold more definitely, which wouldn't have changed the picture in Reebok and the results completely, otherwise we might have done it. But we really have taken a strategic decision that we want to build it long-term learning out of the toning thing.

 The other one, NEO, I can't give you the percentage what the contribution of NEO is. But we have around a 1,000 NEO stores out of the 6,000 stores which we have for the adidas brand in China. So it is quite a significant part.

 In China general, you were asking why I am so optimistic going forward and what will 2013 look like. I think it's a little bit too early to talk about details already in -- about 2013. This we will do in September in Carlsbad.

 But all what I have seen so far -- as we are selling already in for spring/summer 2013 -- all what I have seen is we will continue our growth momentum in China. Not everybody will do, this is quite clear, and this you have already heard or seen from some of our competitors, but I have all reason to be optimistic going forward what I have seen so far.

 And then I think your first question was on Western Europe, how we have penetrated from the events. I mean, when we see that we are growing in Germany, we are growing in Spain, obviously the European Championship has helped us because we have sold a lot of replica jerseys. But I do believe that in general our business is very solid in Western Europe.

 When you look that especially in Western Europe the market is much more performance-driven than fashion-driven and this is what we're all about; be it football, be it running, our basketball business is good, our training business is good.

 We are very deep rooted be it in UK, be it in Germany, be it in Spain, be it in France. And therefore I definitely expect tougher times in Western Europe according to all this discussions which we have now in two years about the euro and whether it's collapsing or not or breaking apart.

 But overall I think our fundamental position in Western Europe is very good and there is no other way than to grow in Western Europe as well because this is what we need to get to our target.

------------------------------
 John-Paul O'Meara,  adidas AG - Head of Group IR   [38]
------------------------------
 Over here in the middle.

------------------------------
 Chris Walker,  Nomura - Analyst   [39]
------------------------------
 Chris Walker from Nomura. Three quick questions. Firstly, you mentioned clearance for the toning products in Western Europe. Can you talk us through that and how much further there is to go?

 And then secondly what have you learned over the first half in terms of stretching the pricing architecture higher of the products, which is the Crazy Light 2, new price points coming through in the US? Does that give you confidence to stretch the pricing architecture higher even further or maybe more quickly over time given how gross margins evolved?

------------------------------
 Herbert Hainer,  adidas AG - CEO   [40]
------------------------------
 Good, the first one on the toning thing. We do believe that at the end of the year we will have by far the biggest portion of toning cleared. Maybe we get to everything, maybe there will be a few thousand pairs less.

 I don't know exactly because we also don't want to over-float the market. We're still getting decent price of EUR40, EUR50, EUR60, depends a little bit on the market. We still have a market like Spain where we sell shoe with EUR70, EUR75. But the biggest part is done at the end of the year.

 The second question was on pricing. I mean, as we told you already 12 months ago when all the FOB price increases came in we have to raise prices. Obviously we did some other things to mitigate the prices as well, but we tried to stretch as much as we can by bringing innovative new products to the market.

 And Crazy Light 2 is definitely an improvement and we see the consumer is paying for that, 30% sales growth in the first few weeks.

 But we also learned, I have to be fair here, that some prices we overstretched a little bit and we saw that -- where a critical price point which we took one notch above and sales were going back a little bit. So this we are correcting as well.

 We're looking quite careful into the market, but I do believe that we still have further possibilities to raise prices because our products are better than the ones of our competitors.

------------------------------
 John-Paul O'Meara,  adidas AG - Head of Group IR   [41]
------------------------------
 The gentlemen here at the front and you'll be the second last today.

------------------------------
 Rod Lache,  Deutsche Bank - Analyst   [42]
------------------------------
 Rod Lache from Deutsche Bank. You mentioned on input costs that there should be less pressure in the second half, and you talked about 500 basis points in the first half. Can you give us some kind of idea of what that would be? And perhaps more important, how do you see the outlook for 2013 where you must have some visibility by now?

 And secondly on -- could you talk a bit about Russia? Obviously with the ruble moving how do you put prices up -- started putting prices up to make up for that? How do you feel the outlook is for demand in Russia?

------------------------------
 Robin Stalker,  adidas AG - CFO   [43]
------------------------------
 The first on input prices, Rod, and I want to talk about Russia. I can't give you a specific figure for the second half of the year, but we obviously already know that the costs of our product are significantly -- the increase is significantly lower than has been in first half year.

 I've guided however over the last several quarters to say that 2012 is still going to mean that the FOBs are higher than they have been in 2011 even though their growth rate will be significantly lower. We said that for the first quarter we thought we'd got to the peak, second quarter has been actually a little bit worse, but the visibility we have gives us confidence still that our gross margin guidance is still very good for the full year. And most of that is obviously coming through our expectations from the FOB development.

 2013, you're right that we're expecting that it should -- these increases should be a little bit less in terms of the input prices from raw material. We're still under pressure, however, with wages.

 Don't forget that in most of the places that we are producing, there's still considerable wage pressure. But we understand that some governments, China also is not necessarily pursuing all of the increase that might have been anticipated. There may be a better development in 2013 than 2012. But it's always still -- it's still up. It's just at a less rate.

------------------------------
 Herbert Hainer,  adidas AG - CEO   [44]
------------------------------
 The second question was concerning Russia. I mean in Russia we have really a very prominent position. And when I look to our sales, which has been up for the first half by 15%, for the second quarter by 20%, so the second quarter was better than the first quarter.

 Overall, yes, also in Russia, the consumer is more critical. But once again we do believe it's placed in our hands because we are really bringing innovative new product concept to this market, and this is what the consumer is enjoying in Russia.

 And as I said it in my speech, we are growing with both brands. Also Reebok is still on a growing mode in Russia and we will open more stores. And we have -- as I said, we have a dominant position especially with both brands. I think we are close to 70% market share. And I definitely do believe we will see further growth in Russia.

------------------------------
 John-Paul O'Meara,  adidas AG - Head of Group IR   [45]
------------------------------
 Andreas.

------------------------------
 Andreas Inderst,  Exane BNP Paribas - Analyst   [46]
------------------------------
 Just a follow up on retail. You mentioned a like-for-like growth of 8%, which I find quite good. What's the sales productivity gain, the sales per square meter gain you had in the second quarter?

------------------------------
 Robin Stalker,  adidas AG - CFO   [47]
------------------------------
 That's a lovely question, Andreas. I'm sure you are not going to be surprised that I'm not answering those sort of questions today. I've told you before that as we get more and more sophisticated with retail and really striving towards being a top retailer, we will obviously be making those sort of KPIs also public. At the moment, we're still developing these KPIs internally.

 You can be assured however we have a close eye on all of those sort of retail KPIs. And the underlying point that we've made also in our prepared comments today was that retail profitability is getting better. And it's getting better for all sorts of things and obviously our productivity on a square meter basis has also to be improving.

------------------------------
 John-Paul O'Meara,  adidas AG - Head of Group IR   [48]
------------------------------
 So ladies and gentlemen, that concludes our event and call for today. Thank you all very much and so many of you for really coming out here to Stratford to see us today. And we look forward to welcoming you to Carlsbad at the end of September.

 So enjoy your summer. Enjoy your breaks if you're going on a break and hopefully the market is favorable this summer and as we go through the rest of the year.

------------------------------
Operator   [49]
------------------------------
 Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.




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