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Executives

John-Paul O’Meara - Vice President Investor Relations

Herbert Hainer - Chief Executive Officer

Robin Stalker – Chief Financial Officer

Analysts

Sujith [ph] – Maintrust [ph]

Michael Kuhn - Deutsche Bank

Antoine Belge - HSBC

Andreas Enthest - Exane BNP Paribas

Julian Easthope - Barclays Capital

Adidas Ag Or (OTCPK:ADDDF) Q4 2011 Earnings Conference Call March 7, 2012 8:30 AM ET

Operator

Good afternoon ladies and gentlemen and welcome to Herzogenaurach for our full-year 2011 financial results presentation. As you would have seen this morning’s release the adidas Group has completed 2011 on a high-end with strong momentum. So in today's presentation Herbert Hainer, adidas Group CEO and Robin Stalker, Group CFO will reflect on a perfect start to our Route 2015 strategic business plan and discuss our initiatives to keep the momentum going in 2012. But as always let’s start with a refresher of the widespread presence and success of our brand and athletes in 2011.

Herbert Hainer

Good afternoon gentlemen – ladies and gentlemen, sorry, still a male dominated group. Let me start with our presentation and thanks for joining us this afternoon. It's a sort of any strategic plan I think it is important to gain momentum quickly and a President by the hitting targets. In this respect, we couldn’t have asked for a better start to Route 2015 as we met and in most cases exceeded our initial expectation for the year.

With sales increasing 13% currency neutral or 11% in euros to over €13.3 billion, we enjoyed the group’s strongest organic rates since 2006. We succeeded in offsetting almost all of the negative pressures from higher input costs. And by leveraging our operating overhead costs we drove net income up by 18% to new record level of €671 million, representing earnings-per-share of €3.20.

We also finished the year with our balance sheet in top shape with fresh inventories and net cash position of €90 million. Most striking in our performance was the broad-based growth achieved across all markets, brands and channels. And this was true through the whole year as we grew at double-digit rates in every quarter, including 11% in a strong fourth quarter. In particular, we were big winners in our three key 2015 tech markets which as we laid out in our strategic plan accounted for more than 50% of our growth.

Currency neutral sales in North America grew 15% with adidas increasing 21% in TaylorMade-adidas Golf increasing 25%. Reebok sales in the region also grew for the year rising 4% and that despite the significant decline in toning revenues. In Russia/CIS, revenues were up 26% driven by outstanding comparable store sales growth of 24%. In Greater China, sales increased 23% currency-neutral, as we won back market share and picked up the pace in rolling out franchise stores.

Equally as encouraging was our strong growth in Western Europe and resilient performance in Japan. Revenues in our home territory were up 10% driven by double-digit growth in Germany, France, and Spain. In Japan, we ended the year with only a slight decline of 3% currency neutral against the market which declined at the high single-digit rate following the unfortunate event last March.

These examples clearly highlight that in tough times consumers and customers gravitate towards those brands that being real and tangible value through innovation and cutting-edge design as well as best in class customer service.

In all categories we resonated with our consumers around the world in 2011. Footwear sales were up 18% currency neutral was double-digit growth in nearly all categories. In apparel, sales were up 8% currency neutral was grossing training and running more than compensating for the double-digit declines in footwear apparel due to the high volumes related to the FIFA World Cup in 2010. In hardware sales were up 10% (inaudible) outstanding performance in golf.

All of this would not have been possible without great innovation, great marketing, and great sporting moments, which we created and shared together with the athletes and their consumers around the world. So let me quickly recap some of these starting with the engine of our group, the brand Adidas.

In 2011, Adidas went all in with its largest brand campaign ever. Sales increased 14% currency neutral was 13% in euros to €9.9 billion, the brands highest growth rate in 13 years. Backed by our largest ever media spent the adidas all in campaign. This campaign was a runaway success. Throughout the year we seeded the notion adidas is all in reaching an estimated 370 million people are 80% of our next generation consumer. At the time of launch we immediately surpassed all competitors in social bus we ranked as the number one sponsored site on YouTube. Since then adidas has gathered millions of new fans on Facebook with the total across all of our pages now dwell over 32 million and counting compared to just less than 30 million a year ago.

Sport Performance sales were up 11% currency neutral as adidas continues to dominate the lightweight segment. And you only have to look at the mesmerizing performance of three-time FIFA player of the year Lionel Messi in his adizero f50. The unstoppable plays of youngest MVP winner Derrick Rose in the adizero Rose. The dazzling speed of 100 meter IAAF World Champion Yohan Blake in his 99 gram adizero Prime. And the sensational marathon times and course records set in London by Emmanuel Mutai, in Berlin by Patrick Makau, and in Boston and New York by Geoffrey Mutai in the adizero adios. And then you will understand why adidas is clearly the fastest brand on earth.

Looking at the categories in more detail. In football the adiPower Predator Japan’s victory at the FIFA Women's World Cup and the fusing of fast and smarter with the launch of the adizero f50 miCoach in Q4 let to a strong football year for the brand in the absence of a major tournament. Footwear sales were up over 20% extending our global market leadership in this important category.

In running, we more than achieved our goal to grow at the double-digit rates with sales increasing 19% as our success at retail net on the track with robust sales growth in the adizero Supernova and Clima product franchises.

On the court, our come back in basketball gathered pace with sales increasing 11% for the year. The launch of the Crazy Light in (inaudible) the success was the Derrick Rose signature franchise were the key highlights. The Crazy Light in particular at the $130 price point showcases the power of our innovation allowing us to move up the price ladder. And this is the brand that you will see continuing in 2012.

In outdoor, we also saw same strong momentum with sales growing 40% for the year. This standout performance was again driven by the award winning Derrick’s collections of footwear apparel and backpacks which combined lightweight materials modern design and innovative technologies.

We also made as you know a very exciting acquisition by adding Five Ten to the adidas Group family. So let’s take a short look at the Brand of the Brave.

Finally, once again adidas Sport Style was a major highlight adding almost half-a-billion in sales as it grew 24% to over €2.6 billion. This was driven by the men's global popularity of adidas Originals as well as the expansion of the adidas NEO label in the emerging markets. For today’s use, adidas is clearly both an innovative performance and an authentic sportswear and lifestyle brand.

Turning now to Reebok were sales increased 6% currency neutral in 2011. Of the past two years, we have brought Reebok back on the map with three highly successful commercial product hits, EasyTone, ZigTech and RealFlex. We can be proud of our achievement as we have grown sales by more than 20% and improved the gross margin by over 4 percentage points since 2009. While the toning market provided rapid growth early in this period, the fact that ZigTech and RealFlex has fully compensated for the equally swift deceleration in the category, highlight that Reebok has regained its touch at creating broad-based innovatives and highly attractive products. The launch has also helped to drive prices up for the brand as overall ASPs increased 5% for the year, this double-digit increases in men’s and classics, partly offset by declines in women’s due to reduced pricing in the toning category.

Finally to complete my overview of our brands, there is no doubt that the star [ph] golf industry in 2001 was again TaylorMade-adidas Golf, as sales broke through the €1 billion barrier for the first time growing 16% currency neutral. The speed and game changing impact of our innovation and technology launches over several years has brought us to the number one spot in this sport. And 2011 was no exception with the (inaudible) white R11 series of drivers without doubt the story of the year.

So ladies and gentlemen, as you can see summing it all up, 2011 was a year where our group excelled everywhere around the world. We achieved all of our key operational goals; A, growing our business in all regions with double-digit growth in our three key attack markets, North America, Greater China and Russia/CIS; B, creating excitement in our important Route 2015 categories of Running and Basketball; C, extending our market leadership in Football; D, maintaining Reebok‘s positive trajectory despite the impact of weak toning market in North America. At last, but not least, achieving or exceeding all our financial goals for the year.

I will be back in a few minutes to tell you about what we have for you in the pipeline for 2012 but first let’s take Robin to the podium and he will guide you through all the financials.

Robin Stalker

Great, thanks very much Herbert and a very good afternoon ladies and gentlemen. 2011 was an unprecedented year of growth and momentum. For our group equally impressive in its magnitude and I would suggest also in its diversity. Now from Herbert you have already heard about all the ingredients that facilitated this performance. Therefore I will concentrate today on how all of our efforts came together and the strong financial development we reported early this morning and I will also give you some further details on the execution in our segments.

Now without deflecting from our great topline achievements I believe our margin development in 2011 is one of the financial highlights we can be most proud of. This comes back to an important pillar of our Route 2015 strategy, which is to focus on quality growth, to drive long-term enduring success for our brands and obviously for our group. Several times over the last 18 months, the severe pricing pressure we faced in procuring our products due to record-high raw material cost and wage inflation was a significant headwind all year. In fact, this headwind after supply chain mitigation amounted to 2.3 percentage points for the full year peaking at 3.2 percentage points in the fourth quarter.

Now limiting the negative effect to a mere 30 basis points of the full year therefore was definitely no small feat. In this respect, three key factors where beneficial for offsetting the input cost pressures equally important both from the full year and in the fourth quarter. Firstly, through our constant innovation we were able to sell more higher-priced, higher margin products, in particular this was very visible at Reebok, where the strong growth in ZigTech and the successful introduction of RealFlex help to improve gross margins for the brand by 40 basis points. Secondly, faster growth in higher margin emerging markets positively impacted the group’s gross margin. And thirdly over proportionate growth of sales in our retail segment which as you know carries higher margins helped to mitigate the negative headwinds. Here through the steady progress we're making on improving store productivity we were even able to increase margins in the segment by 80 basis points for the year and I'm going to come back to that important point in a few moments.

Now turning to the operating leverage. We also delivered as we promised achieving the reduction in our other operating expenses as a percentage of sales by 70 basis points to 41.4%, of this marketing investments grew 6% to €1.7 billion. As a result of the strong topline development marketing spend as a percentage of sales however declined 60 basis points to 12.7%. By brand, adidas marketing investments grew 7% to €1.25 billion, while spending at Reebok increased 5% to €286 million. Now as a result, 2011 operating profit was up 13% to over €1 billion. This translates into an operating margin of 7.6% fully in line with our target range of 7.5% to 8%. For the fourth quarter operating profit increased 34% to €38 million.

Turning now to the non-operating items of the P&L. Net financial expenses decreased 4% for the full year and 50% for the fourth quarter. As you know, it has become a bit of a norm that exchange rate variances have a significant influence on these results. Excluding these FX, which amounted to a swing of €9 million for the full year, net interest expenses declined 13% for the full year and 12% in the fourth quarter. The full year tax rate also came down 1.8 percentage points to 27.7%, mainly due to one-time tax benefits related to the favorable resolution of tax disputes for prior years. Therefore net income attributable to shareholders increased 18% to €671 million, the highest net income figure our group has ever achieved.

Fourth-quarter net income more than doubled to €18 million compared to €7 million from last year. For the full year, this translates into record earnings per share of €3.20 beating even our revised November expectations of €3.15. As I mentioned now in my opening remarks, the key tenant of our Route 2015 strategy calls for quality topline growth. This is where execution really matters.

So, lets have a quick look at our segmental results. Starting with wholesale, revenues increased 11% for the full year and 9% in the fourth quarter. This was driven by outstanding growth rates in Greater China and North America where currency-neutral sales increase 24% and 15%, respectively. All adidas sub-brands grew. With adidas Sport Performance increasing 10% and adidas Sports Style growing 20%. In addition, Reebok wholesale sales increased 3% on the currency-neutral basis for the year, as a result of solid growth in North America despite declines in toning as well as double-digit growth in other Asian market.

Now on the fourth quarter, wholesale revenues increased in most regions. Adidas wholesales sales increased 13% with growth in all regions except for other Asian markets which declined 1% due to softness in Japan as we had expected. Reebok wholesale sales decreased 8% on the currency-neutral basis and solid growth of 7% in North America was offset by double-digit declines in Latin America and Western Europe.

Full year wholesale gross margin decreased 1.3 percentage points to 40% as the positive impact from a more favorable product and regional sales mix as well as clearance sales was more than offset by higher input costs. Moving now to the retail segment, currency-neutral sales grew 20% to €2.8 billion representing 21% of total group sales for the year. This was driven by robust comparable store sales growth of 14% which is impressive considering the already strong 11% comp store sales growth in the prior year. Both adidas and Reebok comp-store sales increased 14% and 11% respectively.

From a store concept perspective, the key highlight was the performance of our concept stores where comp growth was 18%. In addition, our sales per square meter by concept also improved considerably with concept store sales per square meter increasing 13% and factory outlet sales per square meter improving 20%.

In the fourth quarter, comparable store sales growth increased 11% on a currency-neutral basis in particular Western Europe and North America performed strongly as comp store sales advanced 15% and 14% respectively. I am even more pleasing is the jump in retail profitability. As segmental operating margin expanded 2.3 percentage points to 21.2%. In the fourth quarter we achieved 5.5 percentage points of operating leverage which drove profits for the period up 51% and that ladies and gentleman underpins the great progress we are making behind the scenes on improving our retail operations and it should give you confidence that we are well on-track for our Route 2015 plan to expand retail segmental operating margin by 5 percentage points.

Now, at the end of the year, the adidas group retail segment operated 2401 stores while this represents a net increase of 131 stores or 6% compared to December 2010 total selling space remained pretty much unchanged versus the prior at around 670,000 square meters. During the period we opened 323 new stores closed 192 while 151 stores were remodeled.

Now, finally our other businesses finished the year with another remarkable performance growing 12% in the fourth quarter. This is mainly a result of a 14% sales increase TaylorMade-Adidas Golf as well as a 13% increase at Rockport. For the full year currency-neutral revenues and other businesses grew 13% as all segments gained with particular strength at TaylorMade-Adidas Golf as Herbert has already mentioned just now.

Currency-neutral sales at Rockport and Reebok-CCM Hockey both increase 6%. Full year gross margin and other businesses remained stable at 43.5% as improving product margins at Rockport and Reebok-CCM Hockey were offset by lower product margins with TaylorMade-Adidas Golf, simply the latter here was due to the success of the R11 Driver where we had to incur extra cost and meet the very strong demand; however, due to scale ethics segmental operating margin throughout the business has increased 1 percentage points to 27%.

Now we’re going to move on to the balance sheet where again I can report on some very impressive achievements. Despite the growth of our business in 2011 our ratio of operating working capital has a percentage of sales remained at a low level of 20.8% just as it was in the prior year. This very strong performance is better than our original expectation of a slight increase of this ratio. At year end, inventories were up 16% currency-neutral to €2.5 billion reflecting a further slow down in the growth rate from 20% at the end of the third quarter looking deeper into that if you take into account the value inflation in our inventories caused by input cost increases then our inventories are actually only up at a single digit rate at year end. Given the good aging profile in our gross profit for upcoming quarters I believe we now have the right balance to take advantage of our opportunities going forward.

Accounts receivable increased 3% on a currency-neutral basis to €1.7 billion which compared very favorably to a 9% currency-neutral increase in wholesale related sales in the fourth quarter of 2011. Accounts payable increased 12% on currency-neutral to almost €1.9 billion reflecting growth in the inventories to meet the ongoing high demand for our products. In 2011, we again demonstrated industry leading ability to generate operating cash flow which amounted to €1.2 billion. After cash outflow for financing investing activities this allowed us to finish the year with a net cash position of €90 million. This development not only reflects €311 million improvement compared to last year’s net borrowings, it also marks the first net cash position since 2005 prior to the completion of the Reebok acquisition. And finally our equity ratio has also improved considerably increasing 3.3 percentage points to 46.8% in 2011.

Now, over the past three years through our ongoing focus on improving cash flow we have reduced our net borrowings by €2.3 billion. This highlights the strengths of our business model and puts us in a great position to further invest in our opportunities in growth initiatives, but in terms of our approach to both capital management; however, I see no reason to change anything. In fact, the current economic climate only reinforces our pursuit of conservative and cost effective capital management policies. Nevertheless, there still is plenty of room to continue advancing direct shareholder returns. So, now all focus is on the annual dividend, here we have a clear target to increase the payout ratio within our 20% to 40% target range. For 2011, we intend to pay a dividend per share of €1 that is 25% more than last year representing an increase in the payout ratio of 1.7 percentage point to 31.2%.

Drawing conclusion ladies and gentleman, our 2011 financial performance has given us the perfect start to our Route 2015 strategic plan. I believe you can as we do take confidence from these results. They show our ability to tackle big challenges and they also highlight the discipline we are instilling in the organization to leverage our cost base as we grow and with that let me hand you back to Herbert to tell you how he planted the stay in our success in 2012.

Herbert Hainer

So, thanks very much Robin. I am sure ladies and gentleman you will agree with me that Robin’s presentation made one thing quite clear that the adidas group has never been in a better position than today. And let me also tell you that this will only get better. We begin the year 2012 fully energized and fully prepared for what promises to be another great year for our group. Guided by our five pillared innovation approach faster, cooler, stronger, smarter and natural will release several new end revolutionary broader concept this year. Building on our multi-category leadership in lightweight technologies we are going to use various elements of technology pillars to create more holistic and exciting experiences for the consumer. In football and running you have already seen this with our new speed cell technology and product such as the Adizero, F50, miCoach. And these capabilities will be further rolled out into categories like basketball, American football and tennis.

This technology enables athletes to train and perform better while at the same time offering unique social engagement experiences where consumers can share, compare and analyze their stats with their friends or their heroes such as Lionel Messi or Derrick Rose. And this technology can also be used by complete team and you will hear more about this in the next few weeks. In addition in 2012 we are also going to bring revolutionary new product in natural motion extending the adiPURE franchise from training into running and over the course of the three years our adidas innovation team has carried out extensive research and testing to develop the adiPURE running range. This is a collection of three shoes that mimic the natural movement of the foot with the goal of helping the body gradually adapt to the demands of mid to fore foot running.

On the back of these findings we have created a new Tech-Fit Upper sole and these help the runners use their muscles more effectively, improving balance and flow without sacrificing stability for a more natural running experience. As well as great products we will also continue with great marketing. The old adidas platform will again be the focal point of our brand marketing activities. While we consolidated the adidas all in message to one trying and campaigned last year. There will be several major global installments of the campaign in 2012. This will be amplified by leveraging our partnership asset base to energize even more consumers. So, lets take a sneak preview. With this kind of brand energy, our expectations are obviously high for the year.

In football, our target is clear. We want to set new record sales of more than €1.5 billion in the category. And we have all that we need to achieve that goal. As the official sponsor, outfit and licensee of the event, as well as partner of six high caliber teams, including favorites Spain and Germany, and host, Ukraine.

Our unraveled global presence in the sport will be supplemented by fantastic new product innovations, like the Tango 12 match ball, the next iteration of AdiZero F50 miCoach and the highly anticipated new presence of football boot, coming out in June. And this all will help secure our position as an undisputed number one in football.

For the London 2012 Olympics and Paralympic Games, we will use the events as a platform to reach market leadership in the UK. As the official sportswear partner of London 2012, adidas will again showcase its global leadership in innovation by outfitting Olympic and Paralympic athletes, who’s top performing product, including host nation Team GB. Combining technology and innovation that only Adidas, can bring, together with unique style and creative direction of Stella Mccartney, we have a tremendous offering already, hitting the market.

In addition, Adidas will be the official licensee, providing fans across to UK, with both licenses as well as event branded Olympic sun wear. However, our ambition toward the event goes far beyond the financials, as we strive to ensure the gains lives up to the spirit of what they are all about. In particular, we are fully in praising low coax sustainability goals in terms of responsible sourcing practices, and product creation, 90% of all Adidas products for the games will contain sustainable content.

Initiatives like this form part of our environmental strategy 2015, which is an integral part of our overall Route 2015 strategic business plan. The details in this strategy, showed that we are actively working on being more, and are environmentally sustainable, using resources more efficiently, and taking the next generation need into consideration. And this is also reflected in the many sustainable entities we been included such as the Dow Jones Sustainability Index, where we have been a member for the 12th consecutive year.

For Reebok, 2012 will be another important year in the brand development. While the end of the NFL license and the transfer of our US related NHL business to the Reebok-CCM Hockey segment, will see Reebok sales decline in 2012. The core of the Reebok brand is expected to show further improvements.

As we have learnt from our years of brand building with Adidas, while continuous innovation is the most important ingredient for long term sustainable brand success. It alone is not enough without the clear consumer understanding, of what the brand truly represents. And this is where we turn our attention to for Reebok, in 2012. Reebok’s brand positioning is about making fitness aspirational and fun for everyone. By providing consumers’ experiences, that are exciting and the engaging. And to the attempt, we now have some right tools in place to tell this message more broadly and more boldly.

It starts with the introduction of a new global brand campaign, the sport of fitness has arrived. Our partnership with CrossFit is an integral part of this. CrossFit is one of the fastest growing fitness movement in the world and it involves a community, passionate about living a healthy lifestyle and the camaraderie that can be found in fitness. With the support of the Crossfit community, we are aiming to change the way people perceive, define and experience fitness empowering consumers to be fit for life, in a fun way. And this resonates in a very real endocentric way, with the well use of Reebok. The campaign will also be used to reinforce the performance credentials of Zig tech and RealFlex to sustain their commercial success. So let’s have a short look.

At the point of sale, the commercial relevance of Reebok to our retail partners continues to be highlighted by their strong support for the brand. Again in 2012, Reebok is partnering with Finish Line to take over, all 700+ Finish Line stores from mid February to mid March. And so far the volumes and the sell throughs are already well up, on the very successful collaboration we had with Finish Line at the same time, last year.

While we still have to anniversary some tough comparisons due to the toning sales in the first few months of this year, our effort in 2012, will give us a platform to build a more robust business, as we grow our fitness empire and continue the growth, we started in invigorating Reebok Classics.

Moving on, I also fully expect growth in our Groups and other businesses in 2012. This currency-neutral phase sector increase at a mid single-Dixon rate. TaylorMade Adidas Golf faced a largest segment will be the key driver. Already our latest revolution R11S and the Rocketballz are shaping up to our promise to help golfers to increase, both be it distance and accuracy. So for the golfers in this room, here is also a short sneak preview.

Our success in goals will not just be limited to (inaudible). In performance golf apparel, we are adding an exciting new fashion performance line, which features both colors and unique patterns, combining our proven apparel technologies is contemporary, fashion forward styling. And we somehow caused these surprises in the back, which you will see later in the year, our best days in golf are still to come. So as you can see ladies and gentlemen, through the power of our product pipelines, strength of our marketing and excellence in point of sale executions, we are all set to inspire more consumers achieve new records, and sustain our momentum in 2012.

Therefore, we forecast group sales to increase at mid to high single digit rate on a currency-neutral basis and to reach new record heights. With the exception of Reebok, for the reasons I outlined earlier, related to the follow up of license sale all geographies, brand and all channels are expected to contribute to our growth. Again in 2012, the big drivers will be our three key tech markets as well as the further rollout of our own retail activities.

Looking first in North America, is our Route 2015 plan for the US. We are setting up the right conditions for the Adidas brand to be successfully long term. Over the past two years by being more focused on our choices, consistent in our execution and consequences are follow through, the numbers are starting to come through powerfully, The Adidas brand sales in North America had increased to 41% over the past two years. The biggest champ we have achieved as a management team, was the 21% growth in 2011, being the best ever. The shape of our distribution mixes evolving nicely, with strong market share gains in the high quality mall and sporting goods channel, as well as further diversification who’s important directional account regional. And when I look at this outstanding product pipeline and house of brand is resonating with the consumers than the customers. So consistency is now where it needs to be in. You will see this again in 2012, as we push to achieve the hat trick of years, of double digit growth for Adidas in North America again.

Secondly, greater China, the Chinese consumers’ desire for innovation and quality will continue to spread demand for our brands and products. In contrast, to many domestic players, which are facing challenges from a lack of differentiation and from over inventories, we have worked hard to keep retail channels clean, while at the same time ranging a comprehensive offering of our freshest and latest product. Additionally, we continued to build close relationship with our customers in China, which provide us with daily or weekly feedback to co-ordinate a fast and more efficient supply chain. Consequently from our order book and the clear visibility on the solid brand momentum, we have in our other franchise store base, which is now almost around 6700. I am fully confident that we will deliver another year of double digit growth in line, with our Route 2015 aspirations.

Also in Russia/CIS we expect strong momentum to continue. As I outlined in investor trip to Russia in October to most of you, we still see plenty of room to expand, our sole footprint as well as increase store sizes and productivity. Given the strength of both, Adidas and Reebok, as well as the support to see European Championship in this market, we now expect sales to top €1 billion already this year, one year ahead of our communicated target.

This will also play a key role in continuing the success of our retail segment, where sales are protected to increase at a low team rate in 2012. Expansion of the group sale and retail store base and comparable store sales are expected to contribute at the similar rate, to the revenue growth. So in 2012, we plan a met increase of our own store base by around to a 100 to 150 Adidas and Reebok stores.

While most of the store openings, will be focused on the emerging markets, we also kicked off a pilot phase, by opening our first own retail NEO stores in Germany in February. We will open 10, altogether in Germany this year, in addition to our existing NEO-owned retail store base of 29 already, in Russia. These new stores are roughly between 200 and 250 sq mtrs in size and in them, new technology process is end merchandising techniques, including RFID, which is Radio Frequency Identification will be leveraged to support and optimize daily product delivery. We will also engage the consumer with unique insight experiences, like the social mirror, where consumers can try on the favorite NEO outfits, take a picture or video, and then upload it directly to Facebook or Twitter.

With regard to the gross margin outlook, we expect good growth margin to remain stable at around 47.5 in 2012. With the most severest headwinds now behind us after the fourth quarter, we expect modest improvements which will ensure, we hit this goal as we move through the year. Nevertheless, as off late raw material prices have begun creeping up again, labor cost pressures are also likely to persist, so we remain fundamentally cautious on the input cost pressure in general. Nevertheless, in terms of operating margin expansion, we expect continuous progress in 2012 and as Robin already mentioned, operating overhead control in particular remains a key priority. A lot of work is going on behind the scenes as part of our thriving Route 2015 program to ensure we meet our long term margin targets. Initiatives including simplifying our organizational structure, increasing the portion of French[ph] overlap, further consolidating reach to the supply chain operations, as well as pursuing warehouse consolidation such as the Osnabruck Distribution Centre, which is currently under construction in Germany.

As positive benefits from efficiencies like these start to come through, we project the group operating margin to increase to a level approaching 8% with more come as these projects mature further down the road. Completing the picture for the year, due to the great progress on the balance sheet, we expect lower financial expenses. Also, we project this likely less favorable tax rate, all of this will translate into earnings per share between €3.52 and €3.68 an increase of 10% to 15%.

So ladies and gentlemen, to summarize Route 2015 is already delivering in its first year. We have a great plan, ambitious, and realizable and executing on this will ultimately yield superior returns for our shareholders. Today, we published our annual results under the moto “Together we win” and this statement really sums up who we are, our attitude, our ambition, our passion and the responsibility we have undertaken in sport and society. From the time the first Olympians wore Adidas’s shoes in 1928 to today’s age of real-time social engagement, this has not changed. Our role as a creator, innovator, and inspirer has only possible by our openness to serve the desires, hopes, and dreams of millions of people on the pitch and on the street. And to be there, when great athletes do great things, we will simply take inspiration from the energy and creative of the use. And this is what pushes to raise our game every day. It lives in everything we do, the boot with a brain, CrossFit, miCoach, RocketBallz, NEO and our unwavering commitment to being a responsible corporate citizen.

Life at the Adidas group is a team effort and is all inclusive. And for me, I am proud of our team and I thank them for living this culture. In 2011, we accomplished so much and I am convinced that the passion of our employees, the discipline and their dedication to succeed will continue our legacy well into the future. So, thank you very much ladies and gentlemen and Robin and I will be happy now to answer all your questions.

Question-and-Answer session

John-Paul O’Meara

So, thank you very much Herbert and the rules of engagement for today as follows. We will take some questions in the room first. If you could please limit your questions to three, don’t worry we will still have time to come back if you still have more. And also before you ask your question, will you please state your name and your firm. So, who would like to be first. So, the first hand that went up was (inaudible).

Sujith – Maintrust

Hi Sujith (inaudible) from Maintrust[ph]. First question about the Reebok, how do you think to fix the issues in Latin America, is it may be possible that you buy out your (inaudible), what exactly is going wrong there and then can you give us a bit more detail on the finish line deal of the 700 stores, what means, you take over the stores exactly? And, then my third question would be about Route 2015, very impressive top line momentum, but so far we have not haven’t having seen much of a margin uplift. So, in two years you gained less than 50 basis points, if I take your 2012 guidance, how are you going to manage in remaining the three years to 300 basis points that are left to get to your operating margin target?

Herbert Hainer

Okay, my peers let me take the first two questions and I guess Robin will answer the operating margin. So, Latin America you know that we have (inaudible) for Reebok in Brazil and Argentina, we are not completely happy with setup and the collaboration. We are working on that, please forgive me that I can’t give you any details here, but we are definitely working on that. With finish line last year more less to the same time, finish line has given us a 700 plus stores that we can decorate Reebok in a way like we wanted to do it and we took over the whole store with Reebok decoration from visual merchandising until the product displays for all our categories. And as it was very successful last year, the finish line gave us the same opportunities this year. Again, we started mid of march and this times the results are even better than last year, which is really encouraging for us because, this is a situation where we can showcase the concept and the product depths of Reebok in a way which we are not able to do it otherwise and therefore the consumer is definitely more attracted to the product and this is really encouraging going forward.

Robin Stalker

Okay, may be let me try and give you little more confidence about where we are so confident, we are going reach our profitability goal. Let us start with the 2011 leverage that you see in our operating expenses, that is a 70 basis point improvement year-over-year. And that you haven’t seen often in this group and it does speak, I believe, very clearly to the discipline we are instilling in the organization at the moment, with this focus on the quality of our growth and we really do want to ensure that we have a over proportional bottom line development. So, with a lot of these programs, however it is perfectly logical, I believe to expect the real benefit to come in the latter parts of the period, because we quite frankly have to do things differently and we are investing at the moment in doing some of these things different. You have seen us, significantly improve retail, but that first had to be investment, you can see us also improving things such as our consolidation of warehousing and supply chain. And you see the investments we are doing in that at the moment is the best example, that probably is the European Central Distribution Centre that we have just announced recently. All these things are investments that have to happen at the beginning to be able to give us sort of the leverage going forward. Come back and talk to us next year and I am sure you would be bit more relaxed about it.

John-Paul O’Meara

So would like the next, your going here at the front.

Unidentified Analyst

(inaudible) Three question, first miCoach and especially the Speed_Cell has been obviously a big topic in this whole presentation, can you may be talk a little bit more about it, how has miCoach developed? How many members do you have there currently? How many of those Speed_Cell F50 shoes have you sold? Is that already contributing meaningfully to any kind of your business there and when you roll out what impact might it have? Secondly, on the US impressive growth rates apparently for Adidas and also Reebok, how has the profitability developed in that market? And what do you think is still possible there? And, may be lastly on Reebok again, the shift of the two licenses, can we talk may be again the impact that will have in terms of sales for this year and also on the profit side what that will do? Thanks.

Robin Stalker

I will let Herbert talk about the miCoach and Speed_Cell (inaudible). Yes, I can confirm that this growth in the American markets for both the Adidas and Reebok brands, definitely brings with it an improvement in the profitability. I think we have said in the past that America has been under proportionally profitable for us in the group, highlighting obviously emerging markets being over proportional that is still the case. But, we are definitely seeing an improvement of this and obviously some of that has to do also with our expectation in the future to serve a leverage, the cost base in the States, but definitely we are on the right track with that. In terms of the two license amounts, the first one obviously NFL disappears and that we have estimated in the past to be round about $200 million and in terms of the movement or the shift rather of the NHL sales from Reebok into CCM Hockey, that is obviously still within the family and this is left pocket, right pocket, and we would say that is a double digit top line impact, but we make no comments about the profitability of that.

Herbert Hainer

So, to the first question you had in miCoach, we have around 7 million applications now for the make of miCoach system. For Speed_Cell, I can’t give you any number because the Speed_Cell concept is going through different categories, so we have started with running then going into team sport, the American football, tennis, I can double check if you are interested in a more precise number of pairs which we have sold so far, but I don’t have it with me as I said this goes through several categories, but we definitely can come back.

Robin Stalker

I answered it, didn’t I, you are asking about the profitability in US, continuing improvement.

John-Paul O’Meara

So our next question is, here Mike.

Michael Kuhn - Deutsche Bank

Michael Kuhn from Deutsche Bank, also three questions from my side. First question, I know impression is still rather fresh, but what are the experiences so far with the NEO stores opened in Germany and do the development so far full fill your expectations? And then, secondly and then that’s essentially two questions on the same topic again on operating leverage, we say central administration cost rising by more than 15% last year, I would say it was also around 10%, and if that one cost position that let us say will grow under proportionally going forward and that will let us say result in operating leverage and just for clarification purposes, you said that you had 70 basis points from OpEx last year and this year your margin implies an improvement of 40 bips and that had a roughly stable gross margin that would mean that operating leverage decelerates this year, is this correct?

Robin Stalker

So let us say, I will take the last questions, I think Herbert can talk about NEO. No I think, so very, so good to try and put our various guidance figure from averages that we have given you together, but I believe that your calculation is incorrect, I expect a tad of further improvement in our operating expense leverage for the 2012 year. You are correct that in 2011 we saw already a 70 basis point improvement. Your point is valid however in terms of the CF&A, here there was an increase in the 2011 year. We saw savings against that in terms of sales and marketing overheads and logistics. And that’s exactly the point I was mentioning to (inaudible) in his question, that we have to invest in certain things first and some of that includes, infrastructure, systems, process is more (inaudible), to be able to do our things differently in the past and proves the way we run this organization in terms of being able to leverage our cost base in the future and I am very confident that you see that part the CF&A part grow under proportionally in the future.

Herbert Hainer

Micheal’s question to me, you are right it is still a little bit early, we have started to open the first store Hamburg at the end of January, that was just two week, in the mean time we have opened Dusseldorf[ph], (inaudible) Naumburg, and Berlin as far as I know. So overall reaction from the consumers is very, very exciting and if you do have the chance please visit one of our stores Frankfurt’s for example, you know it and the style when you go down on the left side, this new building what is called we (inaudible) correct, so believe as we look back these stores are really exciting and very new experience for retailing as I said before, the social mirror and a lot of other things. But I think it is still too early after four weeks for one store and the other sequentially coming into giving already some sales numbers. Don’t forget, sorry we have a 1000 NEO stores in China, already running since quite some time in there, progressing nicely.

Robin Stalker

So operator, we will take two set of questions from the telephone please.

Operator

We are now take a question from Antoine Belge from HSBC, please go ahead.

Antoine Belge - HSBC

Good afternoon Antoine Belge from HSBC. I have three questions. First of all, could you comment a bit more on the performance of Reebok in China in the fourth quarter? And then I think you mentioned price increases would it be possible to have some idea of the timing of those price increases in the sale on which category they would be implemented? And finally with the adidas’ stunning cash positives, apart from increasing the dividend ratio, which you have done, what other possibilities of use of cash this year on the following three years? Thank you.

Herbert Hainer

So let me start with the first one, Reebok in China. You know that we have given out the distribution rights and some license right to our partner Weiwei [ph] and they are progressing with Reebok according to plan. We still have to build up the right assortment and the right store locations because we have closed several stores in the past for Reebok and this is all going according to plan. I don’t have the number for the last quarter, do we have this – in last quarter for Reebok in China? So I guess Chai Pe [ph] is giving us the answer because we are not 100% sure whether it was last year or last quarter.

Secondly, price increases. Price increases, as we have said, we started already in 2011 and this is going by individual categories and individual products, as soon as we bring new products it’s more value for the consumer to the market then we are also trying to raise our prices. This differentiates from product to product, from category to category, so therefore I can’t give you an average number, but we definitely will test the market when we bring new innovative products to the markets what the consumer is ready to spend. So far as I gave a few examples in my speech, for example, adizero Crazy Light, we definitely will be able to achieve higher retail prices which at the end the day should mitigate the higher cost, therefore raising labor pressure.

Robin Stalker

So we are very happy with our development of the cash position but obviously we still have a gross debt in the organization it’s about seasonality in our cash flows. So we remain, as I said in my prepared comments, very much focused on a conservative use of our cash flow, yes first is to gain flexibility, so keep on paying down our gross debt, second is to obviously invest in our existing business, our outlook for CapEx and our continued improvement in roll out shops and that sort of things, investing in the business. Third point is, yes to share with the shareholders on the emphasis on our dividend payout and improving that as we can over the years is also going to be a focus for (inaudible).

In terms of would we do anything else with the cash, I think we have been consistent over the last few years and making it clear that we see no need, nor do we have any great ambition for any large sort of acquisitions. We continue to feel it is our duty to look at little opportunities that maybe relevant for the future development of the group, in particular where technology may be available to us or certain positions in niche parts of the categories and you have seen us do that over the last few years with Textronics, with Ashworth and most recently also with the Five Ten acquisition, but there would be small items.

Antoine Belge - HSBC

Thank you very much.

Operator

We will now take our next question from Andreas Enthest [ph] from Exane BNP Paribas. Please go ahead.

Andreas Enthest - Exane BNP Paribas

Yes, good afternoon gentlemen. I have three questions, the first one on Reebok in the fourth quarter and disappointing sales, minus 3%. If I understood you correctly because that’s a bit different compared to the annual report you guide a slight increase in sales on an underlying basis for Reebok compared to the annual report where you see stable growth, maybe you can elaborate on that? And related to that question at Investor Day one-and-a-half years ago you gave out a 2015 sale target of 3 billion for Reebok, we are now at 2 billion, would you regard this target as still achievable or is it now out of reach? And my next question is related to the start of the year, how did it go in January and February, have you experienced a similar development compared to the Q4 sales performance? And my third question and easy one for Robin, the input cost pressure you nicely quantified the impact for 2011, can you also quantify the negative input cost impact on the gross margin for 2012? Thank you.

Robin Stalker

That’s a nice challenge for me, Andreas. I thought it was going to be an easy question and I think I would have to anticipate while I get my little crystal ball out I have no idea really what the impact is going to be, quite honestly of the FFB [ph] pressures in 2012. We do know, as Herbert said in his prepared comments also that there will be a continued pressure on FFBs [ph] no just in the raw material prices which we are seeing some development in that recently also, but also because of the continued wage prices. Our belief is however that the most significant development of this or the negative development that we have behind us that was the fourth quarter of 2011 and therefore we are confident that as we go through 2012 that will again be able to mitigate through the structure of outlook in terms of our retail growth, in terms of our segments (inaudible) to be able to mitigate whatever those pressures may be but I just don’t know at the moment. In terms of the first question, was about Reebok’s development in the fourth quarter and this was despite a very positive growth in the North America market, I think Reebok actually grew 7% in North America but also despite those continuing tough comps for toning. So underlying we have some good product initiatives in Reebok.

In terms of the Western European development and the Latin American development however; that bottles down in the fourth quarter and hope it’s already addressed, as the point earlier, about Latin America and hopefully that will improve in the future.

Herbert Hainer

According to the second question on (inaudible), but several results, nice try, but you know that we don’t give out any numbers for months, but let me say that we had a good start in 2012.

Andreas Enthest - Exane BNP Paribas

Okay. Just on Reebok, your target 2015 target of 3 billion sale?

Herbert Hainer

Yeah. Sorry we haven’t answered that of course we still stick to our targets, but you should worry, I think it is weird to say that this target was in losing NFL so we have to exclude the NFL from this target because this revenue, we don’t have anymore.

Robin Stalker

And so now we are back to the room again and here is (inaudible) in the front?

Unidentified Analyst

(inaudible), one main question. Q4 sales growth dynamic slowed down in China and other Asian markets, so could you give a bit more detail on that background?

Herbert Hainer

Yeah, I guess we have said it from the very beginning that sales growth in China of 25% to 30% in the first quarters we cannot keep, but we are very confident on our China businesses as I have said during my speech. I am just coming back from China and I have spoken with our key retailers, as with our employees. I can tell you that we as in the moment in China, the cleanest inventory of all suppliers. We have the best sales through numbers and according to the two biggest retailers, they are earning most of the money with us and therefore they are willing to expand into further retail stores and this you can see already in one number, in 2011, we had a net increase of stores of around 1100. In this there are only due if they believe in the business and if they make profit.

Most probably we will not affect many in 2012 again, but definitely a few 100 stores we will open or our partners will open and we are quite confident, we will grow double digit in China in 2012 as well.

Robin Stalker

Our next here, yeah, Peter.

Unidentified Analyst

Hello, this is Peter (inaudible). I have two questions. First on marketing, what is your assumption for the next one or two years for your marketing working budget, and we have been talking last year about shifting more of your budget to the new channels social media and so on, and that could also be a factor during marketing expenses and what are you seeing here for the next couple of years. And the second question relates to FX volatility is still a factor for you, what is a working assumption for this year and what is your hatching rate?

Herbert Hainer

In terms of marketing, there is no change in our strategy. We had said already some time ago that we will spend between 12.5% to 13% and this is what we are leveraging out during the ESPs of non-event or an event year as you call it. And this will not change. It is definitely correct that we are putting more and more money into social media, you see it on a digital approach. We spoke about 32 million fans on Facebook, etc, in our presentation, and this will continue. We still will do TV advertising and auto advertising and visual merchandising in our store. But, we definitely see a huge crowd and a huge fan base for us in the digital media and this is what we are building further.

Unidentified Analyst

(inaudible) shift to social media.

Herbert Hainer

I don’t think we can give any specifics to that.

Robin Stalker

So Peter, yes currency, I mean we have obviously a tremendous in number of currency payers and we are doing our business in various currencies around the world. So currency is always going to be a factor, but there are three key points; however, what I was mentioning in my prepared comments was about the swing in the financial costs, which was 9 million over the year and that basically is a translation of foreign currency denominated balance sheet items at the end of the year, And we have no idea what that is from quarter to quarter.

But the largest part of the inference is either through translation of the topline, all through our hedging and I think here we do the very best we can and continue to pursue our rolling 6 to 18 month hedging period and for 2012, we are obviously already a 100% hedged and will probably on a good way 25% to 30% hedge for 2013.

It is true however, that the 2012 hedging rate will be slightly worse than we enjoyed in the 2011 period. Well one doubt we had about 138 to the dollar, Euro dollar in 2011, we’ll probably have 136 for 2012.

Herbert Hainer

So next, right down at the back, Mark.

Unidentified Analyst

(inaudible) Follow up questions from the previous questions really, but to start with the gross margin, you made it clear that you believe that that the headwinds or the peak in headwinds, behind us now, probably in Q3 for that Q4 number, But that was quite a deterioration is Q4, so are we presuming in our guidance going forward, that the price increases are going to stick. Have you got any evidence that that is the case? Secondly with respect to the inventories, I think 16% to 17% up at the year and presumably if that is mainly for delivering the next 6 months or so. So in your final guidance for the full year, is there a sort of significant bias to the first half, these will be the second half in terms of rate that grows to the topline and thirdly with respect to NEO, with the earlier Chinese stores (inaudible) early shops that you have Russia, Can you give us some idea on the sales density of these stores compared to our stores under the Adidas label, non NEO stores? How’s south ends for comparing?

Robin Stalker

So, let me give it an attempt (inaudible) for your question about the gross margin. I mean, pricing we have already started increasing our pricing as we said last year and that was in Spring, summer also and for Winter for 2011 summer 2012, and I can’t quote any particular evidence there totally, but I believe that we’re being successful in all that had been given and I have to just give an example of where we have actually been able, with innovation, with new product, launches to significantly increase those price points. So I think we are very confident that, that’s going to help us mitigate these FOB pressures.

And the second question is about inventories. And I made the comment that really, the inventories, here are extremely clean. I believe if I go through all of the geographies, we can be very happy with that and I also said that it includes some of the FOB increases, and so we have our fairly good increase in (inaudible) very much in line with what we would be expecting sales and I would say that the 6-month period is probably too long. And that we would hope to deserving them quicker and therefore we actually anticipate good sales develop throughout the whole of the year, but through my comment with the FOB’s, I think we do see that we are expecting the FOB’s to be better the second of the year than the first half of the year.

Herbert Hainer

Just in addition to that, I think Robin had told that he had to send inventories, that we took inventory in earlier this year, because Chinese New Year is much earlier, as early was in the second part of (inaudible) and the factories are closed, and so we took some inventory earlier that we could have good start into 2012, so you will see this easing down. In terms of NEO, in general, the indications which we got from the rational market where we have, I think 29 stores now, are very encouraging. Germany, as I said before is too early, the stores are smaller, they are around 200 square meter, but in terms of density per square meter, if you relate to that, then this is comparable or even a little bit more density, because it’s more t-shirts, its more tops, its more shorts, etc. But you cannot compare it on a total size because the normal Adidas stores are bigger than the NEO stores. But density is relatively high there as well. Does it answer your question or what do you mean with density exactly?

Unidentified Analyst

It certainly does answer my question. The point is that given another pricing point with the mix, you need to have 20% or so higher balancing…

Herbert Hainer

And this is exactly what I said because of this smaller ticket items and more t-shirts and tops we put, more product onto a table or onto a square meter, that we can get though the same square meter sales as in the bigger Adidas store.

Unidentified Analyst

Thank you.

Herbert Hainer

Yep. Thank you.

Robin Stalker

So operator would take two sets of questions from the phone please.

Operator

We now take our next question from Julian Easthope from Barclays Capital. Please go ahead.

Julian Easthope - Barclays Capital

I have got two questions for me. And just in first in terms of the interest rate, you basically got 1.2 billion of debt and 1.3 billion of cash. You paid down some of your private placements early during 2011. I just wanted to infer any more that you could do to sort of narrow the gap between the 4.9% interest payment and cash of 1%, you get cash on deposit? And the second question really comes back to Reebok. You had a fantastic selling and stocking of Zig and the RealFlex product last year which did see quite decent volumes high margins. I just wanted to see if Reebok margin would also come under a bit of pressure this year, following the loss of the two contracts, as well as what we saw in the selling parts of last year?

Robin Stalker

Okay. So first point Julian, thanks for the tip on the interest. Yes, that exactly what we will be trying obviously to manage that as best we can and some of our debt however is fixed term, and in the 2011 results, we also had certain debt in countries where the interest rate was particularly unfavorable and we have taken steps to correct that also, so I think you can look to us improving this in 2012.

Herbert Hainer

In terms of Reebok, I think when you talk about the two lost contracts, you mean the NFL and then the shift from Reebok to the CCM brand which is not a loss contrary, it’s just a shift, as from the left pocket to the right pocket, but in terms of NFL, it’s should be the other way around, that the margin should get better because the NFL contract product had a lower margin than an ordinary Reebok business.

Julian Easthope - Barclays Capital

Thank you very much.

Operator

We now take our next question from (inaudible). Please go ahead.

Unidentified Analyst

There are two questions from me please. The first one is quite a detailed one on Q4 operating costs. When I look at the central non segmental operating costs, excluding the marketing work in budget, this cost margin have increased pretty significantly year-over-year in Q4. Can you tell us, what’s behind that please? And then the second question is a more general one, you have been consolidating your number of manufacturing partners over the last few years, but this number looks to have increased more than 10% in 2011. How should we think about that development?

Robin Stalker

Okay. Now I can’t give you any answer to that one, I’m afraid, I think that if you are looking at the non allocated or non segmental specific costs, they should also be improving, but obviously what we have here in similar to the question from Michael, was about the development in the CFNA that is why allocated obviously. And we’ll also find in here, certain marketing and some logistics cost. I am not aware of any particular extraordinary developmental cost in the fourth quarter. I think, it can only be a timing issue, look for improvement of that in the 2012 period.

Herbert Hainer

Second question to the suppliers and that we added a few a suppliers, this is for three reasons. One is that obviously we have much bigger volumes, 10% increase on average every year or 13% in the last year. This needs bigger volumes, which means more capacity. Secondly, is we want to have more diversification when our partners go out into some other countries, be it Vietnam, Cambodia, Laos etc,. And the third point is that with NEO, we have also started with some new suppliers who are specialized in fast fashion production capabilities. And these are the reasons for that.

Unidentified Analyst

Okay, Thank you.

Robin Stalker

And so back to the room here, any question in the front?

Unidentified Analyst

(inaudible). Two questions I would like to ask. The first one is on what you said on the Olympic games, you mentioned that you are planning to open 100 multi spot facilities. Can you explain a bit what that means, are you also selling products there or is that just a marketing thing. And the second thing on Reebok again, would it be possible on the way up for the last two years, you gave us some indications on the volumes you sold in (inaudible) for example, could you give us indication where you are there, do you expect this to have bottomed out or is it that this type of product is very difficult to pick up again and related to that, if you could give us some indication on Zig tech and RealFlex as well in terms of units, that would be great, thanks.

Robin Stalker

So let me start with start with adiZones, this is a corporation with the community and with the Lowcock in England. These are areas, which we build into the individual villages and communities, where people especially kids have free access and they can do outdoor, they can do climbing’s, they can do basket ball, they can play football, so we want the kids in UK to give more accessibility to doing sports and this is what we are doing, We have already bailed 50 of this adiZones and still 50 to come during the course of the year. We don’t sell any products here, we just are really just providing the play grounds for kids so that they can play there. And, the second question was to Toning, we said in, I think it was in 2010 and in our best view that we are close to 10 million pairs Toning, obviously this number went down through the reasons which we mentioned. We are still Toning in some countries very well. So, we are also still talking a few million pairs, but we want to bring it back to levels which we had before. Therefore, we are introducing a series of new Toning product in the second half of 2012. We definitely believe in this category because our market research clearly shows us that there is a lot of consumer demand out for this kind of product and we definitely have been the most innovative in terms of brining Toning products to the market. So, we definitely believe we can rebuild the category. Zig and Flex here we are also talking about millions of pairs for both franchises, I don’t think we have given out any numbers and therefore we don’t give any numbers today as well.

John-Paul O’Meara

So anyone left in the room with a question, so Philip[ph] we will take last question from you today.

Unidentified Analyst

My last question on, Philip (inaudible) research on retail actually, well retail you had very strong compared to store space, but I am a bit surprised that you are so cautious in the expansion speed, what would give you the confidence to get actually bit more aggressive in terms of retail expansion and how do you currently see the return on invested capital in your retail operations, particularly in new openings? And a bit of related question, how can you bit, split your CapEx last year into maintenance and expansion CapEx, and particularly in the Expansion CapEx, how much to CapEx was related to retail?

Herbert Hainer

Okay, let me start with retail. So, we mentioned that we want to open around a 100 to 150 stores on own retail, we still will open lot of franchise stores with our partners in China etcetera. So, overall first foremost Philip you should know that we are not retailers, we are born in wholesale business 60 years ago and this is what we really, -- now we are getting better and better every day as you can see on our constant sales. But, we still want to be sure what we are doing is going in the right direction helping us to support our 11% operating margin target. Secondly, you know that in retail, if you make a mistake you have to carry long with this mistake, because normally you have to make several years contract, so retail locations so we are very careful that we get the locations which we really want to have and be very selective in how we choose our locations and this is the reason. Still I think a 100 to 150 which is mainly in emerging markets because in this European markets we have a good retail network with our wholesale partners, this is still fine for us to support our growth initiatives.

Robin Stalker

So, retail, in terms of profitability and our CapEx. So, I think I have committed in the past also to gradually as we boot up that experience that Herbert has just mentioned that we share with you more and more information about how we look at the investment and the return on investment internally and then probably get a system where we can share that with you. At the moment, we are still developing all the historic numbers and getting the comparisons right, I think the best thing for you is to see, as the following we are starting to share additional KPI’s with you such as what we just mentioned with the increase in the sales per square meter by concept shop. And, we are also seeing in the general improvement, in the profitability of retail, that our focus on this is clearly moving up in the right direction here. In terms of CapEx, it is fair say that over 60% of the CapEx investment is definitely in a new, CapEx was about something less that 40% obviously in the refurb or renewal and of all our CapEx about a third of that is being spent at the moment on retail or just over a third.

John-Paul O’Meara

So, ladies and gentlemen that concludes our 2011 annual results presentation. Our next event will be the release of our first quarter results on the 3rd of May. And just a final note to those of you here in the room, thank you very much for making the effort to come here today. And, we also are very proud to present you with our Adidas Brand Book, which is basically telling the story of Adidas over the last 40 years and into the future, in pictures and the interviews with many of the people who have contributed to the success of our great company and with that, thank you very much for attention and have a good day.

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