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Today's news...5/2/05

MAY 02, 2005 -- Amer Group Acquires Salomon

Adidas-Salomon has been fending off reports that it intended to sell its Salomon subsidiary. But the company found a buyer. Amer Sports has an agreement with Adidas-Salomon to acquire Salomon, including the brands Salomon, Mavic, Bonfire, Arc'Teryx, and Cliche. The combined business will create a leading global sports equipment company with combined sales of EUR 1.7 billion and 6,800 employees. The acquisition is subject to customary conditions including regulatory approvals. The acquisition will give Amer some more leverage in fending off the rapidly growing K2.

Salomon posted revenues of EUR 112 million (-8% in constant currency) in 1Q05. It had an operating loss of EUR 25 million vs a loss of EUR 16 million last year. The decline was said to be the result of lower sales on inline skates, cycling component as well as most winter sports categories.

"Salomon fits perfectly with our own portfolio. The leading freedom action sport brands open up great new potential for Amer Sports. In winter sports, Salomon and Amer Sports' Atomic complement each other very well. Furthermore, the two companies and their brands complement each other well in geographical terms, making our geographical coverage more balanced," said Roger Talermo, CEO/president, Amer Sports. "As a result of this transaction, we will become the leading sports equipment company."

The enterprise value of the transaction amounts to approximately EUR 485 million based on year-end 2004 net assets, and includes EUR 144 million in goodwill. Amer is financing the transaction with debt, which is expected to bring its gearing ratio to approximately 110% at the company's financial year-end 2005. Amer expects that the acquisition will have a slightly positive impact on earnings per share in the current fiscal year, as well as in 2006. It is expected that the transaction will be completed by the end of September.

Headquartered in Annecy, France, Salomon achieved total sales of EUR 653 million and an operating profit of EUR 9 million in 2004 which included a restructuring provision of EUR 19 million. Salomon is a significant player in freedom action sports equipment and is well-established in technical apparel and footwear. In addition, the brands Mavic, Bonfire, Arc'Teryx, and Cliche all represent a true specialist approach in each of their business areas. Salomon is known for highly innovative and performance oriented products.

"Salomon has been a great member of our Group. However, we decided that now is the time to focus even more on our core strengths in the athletic footwear and apparel market as well as our growing golf category," said Herbert Hainer, CEO of Adidas-Salomon AG.

"Most important for us is that the sale of Salomon will improve all major profitability ratios, especially return on capital employed. For the rest of the year, all Group reporting will be operations basis, which means that all non-Salomon segment business will be considered. As a result, we expect an uplift to our gross margin and an improvement of at least 50 basis points to our operating margin versus what we would have otherwise reported.

"However, because of trading losses due to the seasonality of the business and costs associated with the deal, we expect to show a negative impact from discontinued operations on net earnings of around 30 million euro. This impact will obviously be reflected in a comparable improvement in 2006. Nevertheless, we expect reported full year earnings in 2005 to increase by around 20%."


Adidas-Salomon 1Q Sales Increased 11%

1Q05 net sales of Adidas-Salomon increased 11% on a currency-neutral basis with improvements coming from all regions. This represents growth of 10% in euro terms to EUR 1.778 billion in 2005 from EUR 1.623 billion in 1Q04. Gross margin improved 1.0 percentage point to 46.9% of sales from 45.9% in the prior year. Operating profit grew 27% to EUR 179 million in 2005 from EUR142 million in the prior year. Net income attributable to shareholders grew 46% reaching EUR 105 million from EUR 72 million in 2004. Diluted EPS grew 36% to EUR 2.15 from EUR 1.58 last year.

The adoption of new and revised International Financial Reporting Standards (IFRS) concerning the inclusion of the operating items royalty and commission income and goodwill amortization into operating profit as well as the discontinuation of scheduled goodwill amortization positively impacted the Group's reported financial performce. On a comparable basis), the Group's operating profit, IBT and net income attributable to shareholders would have increased 17%, 20% and 26%.

"Adidas-Salomon has got off to a powerful start in the first quarter of 2005," commented COB/CEO Herbert Hainer. "By every key measure – sales growth, margin improvement and profitability - we've delivered outstanding performance."

Sales growth in the Adidas segment set the pace for Group performance. Currency-neutral Adidas revenues increased 11%. Drivers of this growth were significant increases in nearly all Sport Performance categories as well as strong double-digit growth in the Sport Heritage division. At Salomon, revenues decreased 8% on a currency-neutral basis. This decline was mainly due to lower sales in the inline skates, cycling components as well as most major winter sports categories.

Revenues for TaylorMade-Adidas Golf increased 31% on a currency-neutral basis, mainly as a result of strong double-digit growth in the metalwoods, irons, golf ball and apparel categories.

Currency effects negatively impacted sales at all brands in euro terms. Adidas sales in euro terms were up 10% to EUR 1.512 billion in the first quarter of 2005 from EUR 1.378 billion in 2004. Salomon sales in euro terms declined 9% to EUR 112 million. Sales in euro terms at TMAG grew 28% to EUR 149 million in 2005 from EUR 116 million in 2004.


Euro Sporting Goods Trade Group Seeks No China Action

At the end of last week, the Federation of the European Sporting Goods Industry president, Horst Widmann (Puma) and a delegation of senior sporting goods industry representatives met with EU Commissioner Verheugen to call for no immediate action with regard to the imposition of emergency safeguards measures. FESI underlined the vital need for certainty and predictability.

FESI members told the Commissioner that it is unbelievable that in less than four months since the end of global textile quotas, Europe is already facing the possible prospect of renewed protectionism for textile and clothing imports into the EU.

Widmann said, "Policy makers have known for 10 years that quota abolition was going to happen, and our industry is surprised that 10 years of waiting will be undone in less than four months." He also reiterated widespread industry concerns that as manufacturing plans are already fixed for the foreseeable future, the imposition of safeguards at such short notice will hit European retailers and consumers as well as creating a climate of uncertainty.

FESI) represents the interests of approximately 1,800 sports manufacturers through its 10 national sporting goods industry federations and its directly affiliated member-companies. In total the European Sporting Goods Industry (EU15) directly and indirectly employs over 430,000 EU citizens and this number has significantly increased since the accession of ten new countries to the EU.

FESI is a federation that has a diverse and balanced membership, which manufactures both in the EU and in other countries. In addition, many members have significant investments in China, and the country is one of the highest growth consumer markets for European sporting goods companies. The sector is committed to a globally balanced, diverse and geographic


Kevin Wulff, a former Nike exec andmost recently, Adidas' director of sports marketing, has bought a minority stake in American Sporting Goods and has taken the position of president/CEO.

Wachovia Securities upgraded Hibbett Sporting Goods to outperform from market perform, citing a strong outlook. The broker said that with favorable weather patterns in the southeast and baseball season off to a strong start as a result, it is comfortable with its forecast for same-store sales growth of 6% in 1Q05.

Dansko hired of Christian Shea as marketing/development specialist, a new position for the company. Shea's scope of responsibility includes the creation of the shop-in-shop program for Dansko retailers, which will enable retailers to offer a multi-faceted merchandising program. This program will include new graphics, photography and POP signage to convey the Dansko story while also defining each story behind the company's six collections.


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Categories
Sporting goods industry
Profits
Losses
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Investments

Companies
Salomon
Adidas-Salomon AG
Mavic
Amer Group Limited
Adidas AG

Concepts
sporting goods
euro terms
operating profit
winter sports
sports equipment

People
Herbert Hainer
Roger Talermo
Horst Widmann
Verheugen
Kevin Wulff





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