adidas AG
Q4 2022 Earnings Call Transcript

Published: 8 Mar 2023

[Operator:]

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome, and thank you for joining the adidas AG Full-Year 2022 Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions] It's my pleasure, and I would now like to turn the conference over to Sebastian, Head of IR. Please go ahead, sir.

[Sebastian Steffen:]

Thanks very much, [Francie] (ph). And good evening, good afternoon, good morning, everyone, wherever you are joining us today virtually for our full-year 2022 results conference call. Our presenters today are our CEO, Bjorn Gulden; and our CFO, Harm Ohlmeyer. You can see the agenda here; Bjorn will kick it off in a second with his opening, followed by Harm who will recap our financial year 2022. Then Bjorn will be back to take stock, and ultimately share our outlook with you. Last but not least, we will have enough time for your questions during our Q&A session. Talking about the Q&A session, I would like to ask you, as always, to limit your initial questions to two in order to allow as many people as possible to ask their questions. Having said that, we are obviously looking forward to your creativity how to extend that limit and interpret the number two in your very own way. But that's for later. There's lots to discuss today. So, without any further ado, over to you, Bjorn.

[Bjorn Gulden:]

Yes, thanks, Sebastian, and hello, everybody. I guess this is strange listening to me on an adidas call, but that's how the world is. And I have to tell you that this has been seven or eight very busy weeks to understand where the business is and look upon what resources and possibilities we have. And I would like to say that I'm actually proud to be here. That might maybe sound strange after what I told you when I was on Puma. But I just quickly want to repeat to you that I was nine years there, I think I had a very good time. I have, I would say, very close friends left there. And I think it's fair to say, after nine years, fulfilling my contract, it was time to do something different. The plan was definitely not to do it with Adi, but the way things developed, and very quickly developed, that was then an option that I then had to say yes to. And having been here for eight weeks, I'm extremely happy that I did it, and as I said very, very proud. I will tell you, in 20 minutes or so, what I see, and tell you a little bit about the outlook. But I think before that, I'll give it over to the Adi expert, Harm, so you can tell us what happened in '22.

[Harm Ohlmeyer:]

Thank you, Bjorn, and thank you, Sebastian. A warm welcome from my side as well and good morning, good evening, good afternoon wherever you are dialing in from. And of course, there's the potential for me to talk about '22, and of course it was not just a disappointing year for me as a person, but definitely more important for adidas as well, and we clearly did not perform as we should have performed. And I will get you through some of the details. But of course, there have been a lot of bright spots as well. And after several years, sport took center stage again in '22, Real Madrid winning the Champions League, Benzema winning the Ballon d'Or, three stripes at the heart of UEFA Women's EURO. Germany, unfortunately, only coming in second but played very well, brought the female soccer to a different level. And ultimately, the FIFA World Cup, with Argentina winning, and also that privilege being part of it live in the stadium, it was a fantastic final. We also dominated running with Adizero. We won more marathons or major marathons than combined all other brands together, and we brought these athletes to our home turf, here in Herzo as well to the Road to Records, where we again had a lot of European and national records. And, of course, the Winter Olympics, just one example, Denise Herrmann-Wick bringing home gold. But also product highlights, whether it's the Y-3 kit with Real Madrid or the X Speedportal combined with Rick and Morty, also the ball with the World Cup, Al Rihla, or Al Hilm for the final. Again, Adizero Adios Pro 3 delivered what really matters most in running, one win after the other. Outdoor extended the sustainability offer with Spinnova hoodie, Agravic Flow 2 for the trails, and we launched Sportswear as well with a capsule collection focused on the Gen Z, and a lot of collaborations with great creators out there, whether it was Pharrell or the collaboration with Gucci just to name some. And basketball was growing nicely, also driven by the Forum that we brought back to the market. All of this is happening with great campaigns. Storytelling is what we need to work on and what we will continue going forward. We talked about it many, many times. But also our attitude, Impossible is Nothing, was visible. And also the commitment to gender equality with I'mPossible campaign definitely took a lot of hearts out there. We shook up the marketplace with the Bra Revolution, and there is more to come, but clearly focusing on a better offering around bras and tights to win the minds of the female athletes as well. And we continued the Run for the Oceans with almost seven million people joining around the headline of end plastic waste of our oceans. And the world's biggest football Family Reunion, dedicated campaign spotlighting the fun of the game around the FIFA World Cup, and again Rick and Morty X Speedportal excited the younger football enthusiasts out there. So, you can see a lot of things that have been excited to consumer, But of course, we had a lot of company and market-specific challenges as well. Of course, the war in Ukraine, a tragedy still and more than a year ongoing, the wind down of the Russian business, COVID-19 restrictions were still felt in many countries, specifically in China. But also Greater China was just not a market topic but also company-specific challenges that we talked about in the past, and of course, unfortunately the termination of the Yeezy partnership which definitely weighted on our top line and our bottom line. And again, you heard me saying that many times, if you lose three profit pools in one year it has at least its marks on the P&L, where we see it here. Net sale currency neutral growing 1%, the gross margin down by 3.4 percentage points to 47.3%, the operating margin down to 3%, and net income from continuing operations around €254 million according to the guidance that we set as well. So, clearly, we had planned for the different year. We originally had planned double-digit growth, we originally had planned double-digit margin, and very clearly after several profit warnings, this was not the year that we wanted to talk about, but very quickly we come back how we want to talk about '23 as well. When we talk about the markets, clearly still some stars on the map. We are growing 9% in Europe, it would have been 14% without Russia, double-digit increases on the performance side, while lifestyle was up single digits. And we look at North America, up 12%, strong sales from our product launches in football, running, and outdoor. Latin America, also double-digit growth, strong growth in both performance and lifestyle. And then, APAC, strong growth again in outdoor, football, and running, and lifestyle was down low single digits. Overall, the profitability still very good in EMEA and Asia-Pacific, and in Latin America, around or above 20%, but of course Greater China declining 36% was not what we were planning for, especially the profitability with only 10% as far away from what we used to see from Greater China. But also important that we are growing nicely in the performance categories, overall plus 19%, and again football growing significantly based on the products that we launched, but it was prepared to all the federation kits. We also, of course, utilized the FIFA World Cup with more than 50% growth in the fourth quarter, and achieving also our guidance that we gave around the football net sales, of the World Cup net sales. Running growing double-digit, and of course that's where we start utilizing commercializing the wins that we generated with the Adizero Pro, and building credibility and advocacy to commercialize the running category even further in '23 and '24. And outdoor was a very balance growth of footwear and apparel. And U.S. sports, definitely the highlight, with Patrick Mahomes being the MVP and bringing the Super Bowl home for the brand. He is probably the athlete in the U.S. right now, I'm very glad to have him with us. And there is more to come from him. And we shouldn't forget golf, after the COVID restrictions, definitely a category that was growing nicely also for us. All of these categories are growing double-digit, so a good foundation for what we need to do in the future. When it comes to lifestyle and Bjorn will come back to this in more detail, but clearly disappointing what we saw from a commercial offer in Sportswear. And there's definitely an opportunity for the future. We launched a capsule collection, but some of the offers could have been better there. And Originals, great collaborations with Gucci, Bad Bunny, Pharrell Williams driving hype, but again commercially we should have and we will do better in the future, that is something that Bjorn is going to talk about. When it comes to the channels, wholesale growing 1%, double-digit increases in EMEA and in North America and Latin America, D2C grew 2%, own retail was largely flat also impacted by the closure of the Russian business which almost entirely was own retail. E-comm grew 4%, still reflecting some higher comps from early last year as well as some online fatigue after markets were opening up again and consumers moved more to the physical space. Nevertheless, North America and LAM to see as a whole and ecomm was up double digit, but again, we shouldn't forget wholesale is still 61% of the overall business, and played significant role not just in '22 but also going forward. What's important to note is when you look at the quarterly split as you can expect from me a lot of numbers, but I would focus here on the fourth quarter review only. The net sales were down 1%. What has really happened there because originally once you grow around 20% in the fourth quarter; of course, there was around €600 million of Yeezy busy that did not happen. Originally, we said €500 million. But we also took some retails from our wholesale accounts. So, it actually rounded up to €600 million. And of course, there was something we decided significant inventory takebacks in China given the inventory situations that we had in some of the closedowns, and then, the opening of the zero COVID policy where actually consumers did not go out. So, that's where you see the -50% which again was not the original plan, but of course, these two effects weigh on our quarterly results. When we look at the P&L in more detail, again no surprises here, you will see that it's already twice on the 9th of February and this morning again. I don't want to spend too much time on it. Gross margin is down. I will give you some more details on the next chart. Operating margin down by 6.4 percentage points to 3% based on the gross margin decline, based on higher operating expenses reflecting additional investment into new campaigns, products, and consumer experiences, and of course, one-offs that will go into more details of around €300 million. The tax rate was up as well because some of the expenses were not tax deductible. There is something that we should read into the tax rate. But more importantly, the net income around the level where we guided was €254 million. And also there, there was one-off cost of €350 million in there. When I go to the one-off cost, something in more detail, €59 million on the gross profit. There was a decision to wind down the business in Russia and also higher provisions for customs-related risk. There were operating expenses around €253 million. Again most of it linked to the Russian write down, the settlement of legal dispute, and some restructuring cost as part of our business improvement programs that we booked in the fourth quarter. So, overall, operating profit impact of €312 million and then some puts and takes in between operating profit and net income. There was overall €350 million impact of one-times in '22. When you come to the gross margin, the biggest factor here was 400 basis points of supply chain cost, that was higher FOBs, higher freight cost. They were definitely peaking in the third quarter and coming down then slightly. And we definitely talk about that as we move into '23 as well what's happening on FOBs and also freight cost. But that was most meaningful factor. Then when it comes to the price channel and market mix, most pronounced was China there as it has been significant profit pool past, slightly dollar term on the FX that was originally planned to be positive as well, inventory comes to the situation that we have, and then you should look at pricing and discount as a combination. Of course, we priced up. But then as the consumer wasn't as sound anymore, there were some discounts required in promotional environments in the fourth quarter as well leading to a gross margin of 47.3%. Of course, all of it is linked to inventory where you see that the inventory peaked in the third quarter. It was down to a level of around €6 billion at the end of '22. And this already includes an inventory of Yeezy of around €400 million. There is an overall increase of 49%. Again that is the value. In volume, it will be less. And you should see that in relation to the Vietnam closures last '21 that impacted the year and inventory in '21, some FX as well. But also the cost per piece increased and the lead times were longer, so it's not one-to-one comparable, still too high very clearly. That's what we are working on. We are focused on first and foremost North America and to some degree Greater China. But we made good progress in greater China in '22 already and also in the first couple of months. Clearly, excess inventory where it's needed. We are focusing on apparels first and foremost because footwear is easier to carry forward into other quarters. We significantly decreased our buying volume going into not Spring/Summer '23 but also more importantly forward in '23. And we are technically repurposing some existing inventory again primarily on footwear but also where it makes sense moving it to market where the demand is higher. So, we believe overall depending on the market, we will be in a much better situation in summertime. But we still need to work with this one over the next couple of months. When you look at the working capital, I don't want to go through the details of receivables and payables. But again, it's a story of inventories again. And do you remember that we probably were best-in-class in the fourth quarter 2019. We dealt with during COVID in 2020. We know how to do that. It always takes some months and quarters. But we are very confident that we would do it again. And I mentioned what we are doing already. Buying less, carrying the inventory where it makes sense. And, this will definitely normalize again through the course of the year. Given the inventory is also linked to the adjusted net borrowings and what happened to our rating. Before I go to the rating, notch down on S&P and Moody's, I want to explain real quick in more detail the adjusted net borrowings because it was our plan to reduce the cash position that we had at the end of '21. That's why is accelerated the share buyback in the first quarter '22. We also returned the proceeds of Reebok back to shareholder of €1.5 billion also €2.5 billion share buyback, €600 million dividend. But quite honestly, that was not the plan to build up the inventory that significantly and reduce it to that level. So, clearly we overshot a little bit. But it wasn't the plan to reduce the cash position of the balance sheet because back then we had negative interest as well, also that has changed very quickly. But it gives you an idea how get from the €2 billion adjusted net borrowings at the end of '21 to the around €6 billion by the end of '22. Again when you look at the rating, KPIs is the most important one for us, as a leverage ratio, and we clearly have the goal again probably not in '23 with some ups and downs, but clearly in '24 again to get back to our financial policy to get the leverage ratio below 2. We are going in good direction already in '23. But I can't promise you right now that we get below 2. But clearly in '24, that is the goal to get there. All of this discussed with Moody's and with S&P. Moody's gave us two notches down. Now on A minus, and Moody's was A3. As you all know, this is still a strong investment grade with a negative outlook unfortunately, but this that we are committed to. And also me personally as a CFO to get that in the right direction again, but again, still a strong investment grade but not really what I had planned for again in '22. When we look at the dividend proposal, we are proposing €0.70 on the shares outstanding of €179 million. There will be a total payout of €125 million on the net income reported of €254 million. This would be at the higher end of the payout ratio that we always gave a range of 30% to 50% as we moved to the higher end. Of this was 49.2% I believe that is also the right measurement given where we are as a company and where our situation is. So, that is really where we are on financials. No surprises in this. Happy to take some questions later on. But I also want to close before I hand over to Bjorn. The World Cup has not been the turning point for the company yet. But believe me being there personally in more than 110 accounts and customer that we had there is lot of people of our company as well. There were a lot of tears in their eyes, lot of happiness bringing the trophy home. It was definitely pleasure and a turning point for me personally. And back then I was looking forward to January to hand over the baton the o Bjorn. And this is what I do now, again, I hand over to Bjorn to talk more about the future.

[Bjorn Gulden:]

Thanks, Harm. Let's hope for us that Messi doesn't have his best day today. You know he is playing for Paris against Bayern Munich. So, let's hope he has a bad day. It's more important for us that Bayern gets through. And so, I have been here for almost two months. And I thought it will be worthwhile giving you a short look back what I have seen and talk a little bit about what I think that means. And you know me as always to get you in the right mood, here is the detail. [Video Playing] Yes, I think there's no doubt that this company is rooted in sports history. Have said it many times, I mean, this small town created the sports industry and of course, Adi with a scale and when I look at the archive and I go through the museum, it is actually very emotional because it's very, very, what should I say, touchy to work for a company with that kind of history. Then when you look at the marks of the brands I think there are few companies in the world, regardless of what industry that has this kind of brown marks. I would also like to say that TERREX on the outdoor side has been a very, very good move. And you will see that later from a development. And I think the awareness and the consideration of actually buying product with these logos is very, very high all over the world. And of course, that is the best starting point that you can have. If you then look at the different businesses, there is no doubt that we have a huge credibility in sports. It's also, and especially over the last 20 years, clear that we have credibility in fashion. And then, when it gets to connecting to the street culture, which we all try to do, I wouldn't see many companies that has the opportunistic that that we have. And we'll get back to that in a second. What is very unique to Adi is of course the connection to what I say, the organizers of sports. That has been the DNA of the company always. I think Adi has been part of shaping professional sports. We can discuss if all of that has been good. But my feeling and opinion is that this has been very important because I think it has accelerated the way professional sports have developed. And I think it's much easier to complain about sports than it actually be being part of it, than when you see this kind of relationships that tells you how rooted we are in how sports are organized. When you then look at the teams, again the portfolio is very, very special. I think we all have to agree that they have signed very good teams. For me, it's a little bit special to get Italy and Arsenal back again. You know, I was part of divesting from them at Puma. Now I have them back again. Arsenal actually performing well, and let's hope that Italy will perform better than that last time. Although we also had a very good relationship with them in my previous company, but no doubt if you look at it, we have all the teams that we need to do to have a very, very good image and a very good business in both, I would say, professional sports and college sports and of course also in the license market. The same thing goes for the athletes. I mean, we have the role store athletes in all sports, that is incredible, in America, in team sport, in individual sport, even in winter sport with Mikaela. And I think I also would like to say that you will see us invest more again, also smaller sports and widen our portfolio. I think the DNA of Adi has always been to develop product for all kinds of sports. I think there was even in Olympics where we had shoes for all sports that you could participate in. I'm not sure we go that wide, but I do think from a creativity point of view and from a development point of view we cannot only do the big sports, but have to go wider again. And we have the resources here. I mean, we both have our own factories and our own sample shops and you will see us be more visible again, like Adi used to be in the smaller sports. And then, Adi has been criticized for not creating brand heat enough. And not doing enough. I think if you look at that slide, that's the Collab partners that Adi had over the last, I would say 18 to 24 months, Montclair, Prada, Gucci, and Balenciaga. It's impossible to have higher partners than this. I think what we can discuss maybe it's been too many for a short period of time. And I think that again is caused by the fact that many of these things were delayed. And that then happened to go-to-market almost at the same time. I don't think that had the impact that it might have had, but the fact that all these four brands came to so to go through our archive to work with us on different franchises has been a fantastic recognition of who Adi is. And when I see the list of brands who wants to work with us, I feel we are here in great, great shape. And if you then look at the famous word of street culture, I think Pharrell, Beyonce, Bad Bunny now also Jenna Ortega, again, the lineup to connect to that culture is unique. And again I think we have the resources and the scalability to really create brand heater again. And that is of course what we will do. Pharrell now also being the lead designer for LVHM on the men's side is of course probably the hottest designer out there or creative adult. And him moving to Paris and being closer to us with of course also be very, very important for us. And I think Jenna is probably the hottest, I would say, female connector that you can actually sign. And their impact after two weeks has been very, very, very strong. I also have to say that the state-of-the-art resources that you hear fine, meaning the infrastructure is unbelievable when I see the campus, we are now sitting at, but also our offices around the world Portland, Shanghai, and since a couple of weeks in LA, I mean it's unbelievable what we have here in Herschel, we have a science center for sports, which I never seen anything like it, we have a winter factory, we have stitching lines, we have 3D printing machines, we have all the resources that you need to do to do innovations. And the working environment that our people have around the world is, in my opinion, the best that you can have. And the groundwork for having talent working in accretive environment is great. Same thing on the tech side, Adi has spoken a lot about tech. And when you see they have six hubs where people are sitting, programming for us, different applications working on our tech side. Again, something that I'm not used to see but it's obvious that we have invested a lot on this side and also, of course for future growth because it's always that the payback on this investment has not been there yet because the growth is not there. But the pipeline we have when it gets to applications and it, when it gets to our analytics in our digital business is unique. And again, a pipeline that has been laid that will help us tremendously going forward. Same thing with the stores, we can discuss a lot about D2C and wholesale, but the Hilo stores that we have around the world. And on the left side is the new one we did in Seoul just a couple of weeks ago. Again, very, very good locations, great stores that represents the brand in a great way. And of course, as traffic continues to increase, we will also see that profitability in these stores will start to increase. What is very unique is that we have a shoe factory in Europe, in Germany, 40 minutes away from here, Seinfeld, where we have the capability to make very many different shoes here, you see, for example, Copa Mundial and I think that we will start to exploit this even more than we have done before. European production, European development, especially where you have collabs with artists and also where maybe Made in Germany and Made in Europe will make sense, I think is jewel that we haven't utilized. And me being a product freak, I think you will see us using this more than we ever done. And don't forget that shoe competence in Europe is not that easy to find and create. And we can use this as an education center and make sure that we never loses the focus on product, especially footwear. We talked a lot about distribution centers. Yes, it is a challenge for many companies. The fact that the multi-channel distribution creates a lot of what should I say, new task for our disease. It looks to me what I've seen that Adi has invested a lot that of course now we have an over capacity because we have built distribution centers for future growth. But again I think having them and be ready for the future is better than not having them. And to me, it looks also here that we are in a very good what should I say, state? We talk a lot about talent and diversity. Again, we have people from more than 100 nationalities, and as you see, we currently have more female people than male, should of course be 50

[Sebastian Steffen:]

Exactly. So, Francie, we're now ready to move into the Q&A session.

[Operator:]

Thank you. Ladies and gentlemen, we will start the Q&A session now. [Operator Instructions] We have the first question from Zuzanna Pusz from UBS. Please go ahead, ma'am.

[Unidentified Analyst:]

Bjorn, Harm, and Sebastian, thanks for the presentation. This is [Chris Ham] (ph) from UBS, asking on behalf of Zuzanna Pusz. Thanks for taking my questions. I have two bigger picture questions for Bjorn, please. Firstly on the sports focus, in the annual report and the presentation just now, you mentioned the need to refocus on sports as that's the brand's DNA. This seems to be a clear change given that the brand has increased its exposure to the lifestyle business to almost 50% of sales in recent years. So, we're just wondering what's your view on the idea lifestyle and performance sales split? And is it right to assume that, given the technology involved, the sports performance business tends to carry a lower gross margin on average than the more fashion-driven products? So, that's my first question. And my second is about the 2024 margins. According to your outlook, you mentioned the plan to return to profitability in 2024. I appreciate that this is not the strategic update yet, so you won't be able to share much when it comes to your 2024 margin plans. But given the magnitude of profit drop in 2022 and also '23, would you be able to help us understand a little bit more about how we should think of the cadence of the margin recovery trajectory in the coming year. Is it fair to assume that, and it be more beneficial for the brand to maybe focus initially on sales growth instead, and slowly build up from breakeven to the long-term double-digit EBIT margin or is the underlying profitability of the business currently well higher with the brand being [well-invested] (ph), so the margin is just, at the moment, overshadowed by one-off costs. Any color on that would be super helpful. Thank you very much.

[Bjorn Gulden:]

First of all, you are right that we should have an even higher sport focus when it gets to what we do, and that includes not focusing only on the big sports, but also go into smaller sports because I think that makes us different than all the other brands. And I do think that Adi should keep their DNA of not being a copy of Nike, but we should stand on our own feet. You are also right that if you measure the [real-real] (ph) performance product and you compare them to lifestyle product, the margin on lifestyle is normally higher, but where you're not right is that it's a share of 50-50, because a lot of performance product also goes lifestyle. It means that the consumer, in the end, decides if a product is street or performance. So, I think there's many categories where up to 80% of the product goes on the streets. If you take football, it's not the case because no one is running around with football boots. But if you take running, most running shoes are never run in. If you take basketball shoes, most basketball shoes, especially if they're from classics or originals, is also not played in. So, I think the street business is much, much bigger than 50%. But I think for the brand, we need to make sure that we never, ever loses focus on performance. And when you see the development, I'm actually very relaxed when it gets to that because we are making progress in all the performance is very good. And I don't think that will be our issue. I think on the marketing side and the visibility, we have divested from certain sports, teams, federations that we need to get back again to get the visibility, to keep the credibility. And then, as we said earlier today, is that the lifestyle side, which ironically is where we have a bigger archive than anybody else and where the trend in the market has gone back to the 90s and the 80s, we have not exploited that the way that, for example, Nike has done. And this is where we need to do a much, much better job. When it gets to the margin targets for '24 and going forward, I think it would be very premature for me to give you that after seven weeks here in the office. But those who know me know that I always say that a good-running company, this industry should run at a double-digit EBIT. This is Adi has been, and with the scalability that we have, we should definitely be there. At what time we will be there and how we will combine a margin increase with a leverage on our operating cost and what that trajectory is, I think it's too early to say. But I'm very confident that we can get more leverage on our cost base. And, of course, the margin is now damaged by so many things, and especially inventory, that does not mirror any of the things that we see in the future. But '23 is to, what shall I say, clean up a lot of, I would call it, old mess, and actually be a clean company again, that the consumer, and the retailer, and ourselves see, what I call, a normal business. And I would appreciate if we can leave it by that instead of flying in a spreadsheet now to define what the different components are because I think it's too early. But I can promise you that I will deliver you 10% EBIT before I leave this company.

[Unidentified Analyst:]

Okay, that's super clear. Just a little small clarification from my side, if I may, is it fair to -- it sounds like double-digit margin in the long-term is quite confident. But in terms of your initial focus, is it fair to assume that maybe it's going to be more beneficial for the brand to focus initially on sales growth, and while margin slowly builds up or how should we think about that? Thanks.

[Bjorn Gulden:]

Well, first, you need to think about that I have a GC business that is disappearing, so I am actually losing sales. And then, I have inventories that I need to sell and clear. So, there's two negative impacts, both on my top line and my bottom line. That's why we, this year, have no sales growth, but we say high single-digit decline. And as we do that, of course, we will have growth again next year. But if that growth is 5%, 10%, or 15%, I think we will need to talk about when we see how quickly we are cleaning up the things we have today. That's why I'm very careful saying it. But going forward, and again not a surprise, I think that a company like ours should have double-digit and put some of that growth to the bottom line and some of that growth to investment in marketing. And that's always been the recipe, and I think it's the same here. I do hope though that the scalability that we have is that the recovery that we can have on the bottom line is quicker than what you've seen me working in other companies. But what speed, how quick, and when it turns, I -- again, let us get a little bit more time.

[Unidentified Analyst:]

Okay, thank you very much.

[Operator:]

The next question comes from Graham Renwick from Berenberg. Please go ahead.

[Graham Renwick:]

Hello. Good afternoon, Bjorn, Harm, Sebastian. Thanks for taking my questions. Just on the turnaround where you talk about 2023 as being a transition year, building that base for the '24 and '25. So, just wondered what's captured in the €200 million of strategic costs? And does that already include any organizational changes or any bigger investment into marketing and the commercial proposition? And do you think that level of investment is already sufficient to start to drive that turnaround and to drive market share gains from 2024, because you already appear pretty confident on the product pipeline heading into next year, which is going to be a big sports even year, of course? And then secondly, just on the business improvement plan. It was announced before your arrival, Bjorn, €700 million of net income benefits. I just wondered if you still feel that they're fully achievable this year or will any element of that plan be scaled back or possibly changed under your new strategy, particularly in context of having to reinvest more into the business? Thank you.

[Bjorn Gulden:]

Since these are things that happened before me, I think it's fair that actually Harm answers it so I don't do -- say something wrong. So, Harm, here, you take over.

[Harm Ohlmeyer:]

Yes, I'll probably start, Graham, with the €700 million business improvement plan. Of course, that is fully reflected in our guidance that we gave, whether it's underlying and breakeven company or if we would decide to write down the inventory of €500 million we get to the minus €700 million. So, it's fully baked in there. And as we said the last time, this is not all in comparison to '22. This is mitigation actions as well because we saw FOBs increasing, we negotiated some of the freight contracts as well to bring that one down. We kept our ratios and marketing going into '23 on a lower net sales base, so compensation follows this. So, all of that is reflected. There are puts and takes, but overall, we mitigated the cost increases that we have seen. We also had some one-time costs in Q4, whether it was the closure of one of the retail store, whether it was severance to right-size the organization that was reflected in Q4. And we will take the benefits of that going into '23. So, all of that has happened. And again, all of that is not a comparison to '22, but is mitigating actions. Some is actually a reduction compared to '22 as well. And then, of course, when it comes to additional €200 million in '23, this will be part of our strategic review. And again, bear in mind, Bjorn is only here for two months, so we have looked a lot of things. I expressed my opinion about what we should do and should not do. But we need to vet all these things with the new team in place now, and will come forward. But of course, it will be all elements, whether we need to invest more, whether we need to review some of the stores or review the organization. So, all of this, but again we don't want to be too detailed right now, too specific. But we believe €200 million would do a lot to get to profitable growth in '24, and that shouldn't take anything away from what we need to invest around the Olympics or the European Championship on home turf, in '24. So, we are well prepared for that.

[Graham Renwick:]

Okay, thank you very much.

[Operator:]

The next question comes from Erwan Rambourg from HSBC. Please go ahead.

[Erwan Rambourg:]

Yes, hi, thanks a lot. Erwan Rambourg from HSBC. Good to hear you, Bjorn. And good to hear you as well, Harm and Sebastian. Just wanted to follow up a bit on the long-term algorithm of growth, and again I'm not asking for a long-term guidance. But when we look at the fact that you were in a sort of duopoly 10-12 years ago with Nike, they have an algorithm of growth of high-single to low double-digit sales growth, and eventually mid-to-high teens EBIT margins. I'm wondering, with the exception of scale, notably in the U.S., if there's any structural reason for you not to go to those levels once we have the big hiccups behind us? And then just talking about the big hiccup of the day, looking at Yeezy, I was just a bit confused by a few press articles around the solutions to Yeezy because my understanding, but please correct me if I'm wrong, is that you cannot sell Yeezy for reputational risk reasons, and at the same time you can't destroy the product for the planet. So, I'm just wondering what options do you have to treat the Yeezy stock that you have today. Thank you so much.

[Bjorn Gulden:]

I ask you, so if you can't sell and you can't destroy, what's your option?

[Erwan Rambourg:]

Well, that's why I'm confused. I'm not running the brand. I am confused.

[Bjorn Gulden:]

Well, I just -- I tried to describe the situation that, depend on who you speak to, people will say you cannot destroy because it's a sustainability issue, right? So, please don't destroy. And then, those who are like, "Please don't sell because you have a reputation issue." So, if you say you're confused, I can just say that's the fact, and that's why we haven't made a decision on it because it's a very complicated issue. I think that from the one extreme, to selling the product normally, which we would have done before, booked €1.2 billion in sales, and €500 million in profit, that's one extreme, and that carries a lot of reputational risk. The other side is to say we burn it or we do whatever it takes then to destroy it, and it disappears, then you have another issue. And between that, of course there are different solutions. We could sell the product at cost, and it would be a zero thing. We could sell it with a small margin and give the margin away for different donations. We can sell them with more margin and give more donations. I think the goal that we have is to do what the probability is that it damages us the least and we do something good. And that's what we're talking to many interesting parties, people that have been hurt by, what should is say, this situation, and are discussing what they think is the best option. From a timing point of view, you should not forget that when all these things happened, a lot of products were still in production, meaning that we and the brand had to make the decision should we finish the product or should we just stop it. And in the interest of 10,000 people that were working in the factories, adidas decided to continue to produce all the components, and then ship them to different destination. And it's just these last weeks and days that this inventory has actually showed up in the places where they can be treated or can be sold. So, we couldn't really do anything before now. But now, at least from a logistic point of view, the product is there, and we can decide what to do. But there is still a lot of unclear conversations with different parties that is going on. And at the time, when we think we have all the facts, we and management will make a proposal. And then, of course, also discuss it with our supervisory board because, as you can imagine, this is a pretty sensible case, and not an easy one. So, that is, what should I say --

[Erwan Rambourg:]

So, you could eventually end up making a big gesture to a charity or to --?

[Bjorn Gulden:]

Of course, yes, of course. But the people that are saying send the shoes to Turkey or somewhere that the people don't have shoes or there has been a tragedy happening, I think you agree that this is not normal shoes, so if you did that they will come back again because the value of the product is not the physical value of the ingredients, it is the premium because it's a brand and the merchandise that is sold at a high price. So, I can tell you since I started here, I probably got 500 different business proposals from people who would like to buy the inventory. But again, that will not necessarily be the right thing to do, so a very difficult, sensitive situation. And I can just repeat, if you look at that business, there is no doubt that Ye is one of the most creative people that have ever been on the planet. I think the way this was taken to market is probably the best I would say go-to-market job that any brand has done. And it's very sad that this is falling apart, so…

[Erwan Rambourg:]

Right, right. Okay. And then, maybe on the question of how would you compare to Nike on a very long-term approach?

[Bjorn Gulden:]

Yes, if I say, of course, we will beat them, then I'm in trouble. I do think that our business model should be different than Nike is. But I think going forward, there's no reasonable long-term that we should not be performing like Nike's doing. But will that happen tomorrow? No, but I mean, we have all the ingredients. We are global. We have the history, we have the archive, we have the resources, we should have the talent, so no, not really.

[Erwan Rambourg:]

Excellent. That's great to hear. Welcome and hope to speak soon. Thank you.

[Operator:]

The next question comes from Geoff Lowery from Redburn. Please go ahead.

[Geoff Lowery:]

Yes, good afternoon. And just one question really, can you help us understand what's really going right or wrong at the product creation level? I'm just struck by how adidas has been capable of getting something so right and yet missing so badly. Is this just a case of speed? Is it case of organization? What if you had to give us sort of one or two things that really sort of summarize it, would you attribute to that, that sort of hit and miss quality to? Thank you.

[Bjorn Gulden:]

Again, I have to be careful coming from the outside. I think COVID hurt adidas a lot because I think when other brands were trying to be very fast and flexible and actually chase the business wherever it was, I think Adi was very strategic and going for growth. And I think we're much too optimistic about what, where the market is. Don't forget that Adi was extremely successful before COVID. I mean, a tremendous growth in China, tremendous profitable in China. We talked about GC and had a momentum, and then COVID hits and then you have a strategy change that is going for more growth and more D2C. And I just think that the circumstances didn't fit that, so --

[Geoff Lowery:]

Thank you.

[Bjorn Gulden:]

So, I do think that the circumstances was making it difficult to reach those targets, and that made things difficult.

[Geoff Lowery:]

Understood. Thank you.

[Operator:]

The next question comes from Warwick Okines from BNP. Please go ahead.

[Warwick Okines:]

Yes, hi. Thanks very much. Similar line of questioning, really your comments to me suggest you don't really think adidas has got a problem about product innovation, and it's more about how you go-to-market through marketing and channels. Is that a fair assessment and does it make a turnaround easier? And what do you need to do in order to do a better job in lifestyle?

[Bjorn Gulden:]

No, I think what I said is that the criticism that Adi hasn't brought innovation in performance is not true. Again, I always ask, what was the last innovation that Nike brought? Because you're always comparing it to that, and when I look here at the 3D printed shoes, so I look at the Adizero, I look at the Predator, or I look at the soccer shoes that I know, but you don't know about. I do think that the performance side is actually in good hands. I think the transition into lifestyle when it gets to creating trends, creating stories, using your archive, tweaking your archive has been too slow. And that might have to do with empowering people to be more creative. I think it has to do with being more executional and strategic. So, I think I'm disagreeing that Adi has all the resources to bring innovation both from a lifestyle point of view and a performance. But I do think that the lifestyle side has been hindered by putting too much more product on the market that hasn't worked, being too high inventory because of too optimistic sales plans, therefore being hurt again on the discount side. And that's why the lifestyle side and the brand heat has been missing. At the same time, doing product Montclair, Balenciaga and Gucci within 18 months is also too much. And again, that is probably because COVID and the timeline and supply made it all be delayed. And then, certainly, the delayed projects went into the on-time project and certainly was all at once and then I think some of the street culture relevant things, if it's Pharrell or Lorenzo or Beyonce, you have to remember that a lot of this artist and the people that use potential has not been out there for the last three years. There hasn't been any festivals, there hasn't been any tours, there hasn't been any releases. So, I think a lot of the places where we again, can create bright heat and a lot of excitement has kind of been hampered by many things. And at the scale that Adi is, it has done not been enough. So, speed, empowerment timing, discipline are probably the elements that that has made it difficult. But the ingredients are there, believe me. I mean, we have designers that are very talented. We have sample rooms, we have technologies. And that's why also I'm probably more optimistic than you guys are.

[Warwick Okines:]

Thanks very much, Bjorn.

[Operator:]

The next question comes from Jurgen Kolb from Kepler. Please go ahead.

[Jurgen Kolb:]

Yes, thank you very much. Welcome Bjorn to adidas on the other side of the street. Two parts of other question from my side, one is you mentioned Seinfeld, and it sounds as if you are thinking about maybe rolling out a little bit more on production. But correct me if I'm wrong, is that on your mind to maybe become or gain a greater control over your own production lines? And if so, is that going to be meaningful or is that just really for special makeups that you have on mind? And the second thing going into smaller sports I appreciate, I think this is where the brand stands. This is where the visibility is. At the same token, however I remember when adidas had the strategy to get out of these smaller brands because of the increased complexity. Now, what is the right approach here? Is it correct to be in the smaller sports for visibility? Or is the complexity a problem, from a productivity point of view? Thank you.

[Bjorn Gulden:]

First of all, Seinfeld is a factory 40 minutes away who has traditional making shoes for 50 years. And I think what I tried to signal is that shoe competence is not easy to find today, at least not in Europe. And I think we have something that we can utilize more, the scalability that of course not that you will do millions of pairs because you know, then the air shoring on shoe production back to Europe, I don't think will happen. But I do think that we have something unique that no one else has and that we can combine that to educate people to have creative people work there to do collabs there to make samples there. And I think even to make small series of European, German made product because I think it means something and when we work with luxury parties that we do, I think we can take part of that production maybe if we do it the right way. So, I look at that as a resource and not as a problem. The smaller sport again, I wasn't here when they should divest. It's obvious that if you go into a small sport that will increase complexity instead of increasing productivity. But then the question is what's the Hilo effect and I have always thought when I was at Adi in the 90s and also later, that some of the creativity coming out of Adi in design or development and technologies was coming from the fact that they were working on smaller sports. And again, if that is the result, then it's worth a lot more than adding a 100 SKUs to the line. So, I do think that we need to be careful and not being over analytical efficiencies and KPIs on productivity, I don't think is what, is not what is going to drive us. It is our creativity, speed, and agility. And that will bring much more margin than trying to find more efficiency efficiencies on the SKU count. So, again, I'm a sport romantic. I think adidas love us sport romantic. I think putting that DNA in again will make us different than any other brand. And that is for me, a small marketing cost compared to many other things we do. So, and I do think there's a big agreement about that when you talk to the designers and the product people and even to the financial people, they all say, yes, this is what we should do because it's our DNA and it makes us different. Next time you hear, you should go into our archive and see how many, what should I say, special product we have made through the years and what these special products again does have done for the inline product. Then the connection is there, and we need to do more of that. I think we have standardized too much and become too, or should I say almost boring in the way we brief and go to market on our what should I say inline product especially on the life science side.

[Jurgen Kolb:]

And maybe a small spoiler, any specific sports you're thinking of?

[Bjorn Gulden:]

Anything where you sweat and can win medals.

[Jurgen Kolb:]

Understood. Very good. Thanks so much.

[Operator:]

The next question comes from Cedric Lecasble from Stifel. Please go ahead.

[Cedric Lecasble:]

Hello gentlemen. Thank you for taking my questions. I have two also. So, first one on your distribution networks today. Could you comment maybe on the site organization, on your store network, on your e-com and digital ecosystem, what needs to be fixed and what are you happier on today? And the second one is on is on China, low base in '22, sometimes recovery already. When do you think China can definitely be back into the equation and do you think China can come back to the kind of old growth and profitability in maybe a more open competition, interested in having all sorts of things?

[Bjorn Gulden:]

I think that, we have a $3 billion business in China in a very difficult time without having been able to do real meaningful marketing and people being in lockdown. If you take the lockdown away, and you also say that we can start to do marketing again, it's obvious that we will have growth. Will the growth come for free and will it be as easy as it maybe was? No. But does China have a huge potential for us with their population and their growing population in sports? Yes, definitely. And again, I don't have a crystal ball, but my feeling is that China will again, turn into be a major growth vehicle for us, when it starts to grow. But I'm not saying that it will turn around this year, and you should count that in to be a huge contributor. I'm just saying that midterm, I'm counting on China coming back, and that's why we are investing in both creation centers and more sourcing in China again for local, for local. When it gets to your help me again, what was the first question?

[Cedric Lecasble:]

Distribution.

[Bjorn Gulden:]

Distribution, when you look upon what has happened already, then you see that the GC business disappearing which was mainly a D2C business. You will see that our D2C share will fall dramatic in the next quarters. Then the question is what is an optimal balance between D2C and wholesale? And I can't give you the number, but what I can tell you is that we need to be very service minded for the retail partners. We should be as visible as Nike with our retail partners. We should own part of the wall, and our retailers should make money with us, and we should make it very, very clear to the retail partners that is what we want. And that is a change of mind in the sense that we need to stop talking on the D2C. Does that mean that D2C is not important? No, it does not. We should have a very professional e-com platform. We should be continuing to invest in all the applications and the analytics we're doing, but we need to make sure that if we become much more full price on e-com today, there's much too much discount. And there's too much inventory sitting on that side. On brick-and-mortar, there are markets that needs full price normal stores, all those stores or all those markets who doesn't have a big multi-branded retail business, India, probably parts of China maybe some other markets like Turkey. Then we need some Hilo stores in our major cities like New York, like Paris, like now in Seoul. And then, of course, we need factory outlets, wherever factory outlets is a major part of it where I don't see that we need to have our own stores is in markets that has a lot of multi-branded retail and where we do normal stores just to have stores in a mall or in a shopping street where all our retail partners are, because that doesn't make sense. So, I think it would be a more targeted brick-and-mortar strategy and it will continue to be a strong e-com strategy. But I think the way we go-to-market, I think it'll be more wholesale first and then need to see afterwards. And then, we will see how long that takes us.

[Cedric Lecasble:]

Thank you so much.

[Operator:]

The next question comes from James Grzinic from Jefferies International. Please go ahead.

[James Grzinic:]

Thank you. Good afternoon everybody. Bjorn, just I guess a couple of clarification questions for me. The first one is I'm unclear on your thoughts on sportswear and generally the progress segmentation that we saw introduced last year. To what extent do you, can you work with that? To what extent do you think you need to change that? And secondly, did I get it right that you're saying your ambition is basically to compound double-digit growth for the business? That that's what you looking for?

[Bjorn Gulden:]

I mean, to take the first thing first, I think that when we get out of the clearance and we set the base, then I think double-digit growth should again be our target is. Again in a world where we don't have pandemic, war or anything happening, but the normal world, again I think that Adi should have the ambition of growing 10% again, yes.

[James Grzinic:]

Okay, perfect.

[Bjorn Gulden:]

When it gets to the segmentation, this is where we need to be very specific. I think when you saw the logos, we have the original logo, we have the performance logo, we have the sportswear logo, we have the Terrex logo. I think the balance of that is probably okay, but I think the sportswear side of it, we need to stretch more and make sure that we are more commercial and that the collections breed more. I think COVID, the fact that people haven't traveled that much, the inspiration of the creatives and maybe also the freedom haven't been big enough. I think there's more work to do there and that we are not at the end of that game. That is correct. And then, the question is the segmentation on this brand or these logos then to our retail partners. I think there's a lot of moving parts there, and I don't think we are at the end of that. So, we have I think all the brand marks we need but how we are using those brand marks and at what price points do they start and end, and where do we put the effort? There's a lot of work to do there. And I said speed and agility in the local markets to exploit; these brand marks where we can find business and where the consumer is. I don't think we are not even close to being good at that, to be honest. So, there might be changes also in the way we look at this but we don't need to create another logo, if that's what you're asking for. We have all the marks that we need, but I'm not convinced that we have the right mix between them. And I'm also not sure that the segmentation on how we use them towards the different segments and the different retail partners is the correct one.

[James Grzinic:]

Understood. And I guess as a follow-up on that, I guess my point was trying to understand how much you need to change the base and how much the product architecture is loaded into the channels up until when, so are you mostly to what extent you're committed as a business to what we saw last year and through to what point and trying to get a sense from that perspective?

[Bjorn Gulden:]

And this is again, I mean, if you look at it now, we are already now signing off the collection for Spring Summer 24 as we speak. We have the markets in today. And again in a normal world that would be locked in, I think today because of the changes. And one of the reasons why I put myself on top of the brand is, of course, speed up decisions where we need to do things different than the calendar. And I'm making myself available for the different business units so that they can actually be allowed to speed up things and challenge the calendar. So, you will see product that were meant to be in '24 being pulled forward to '23, you will see volumes of, for example, the Tito collection being increased dramatically in '23, even if the plan was different. You will see product that were meant to be innovation be pulled into the first-half of '24, so you will see us taking more risk and speed up things because that's what we need to do. We cannot just drive business as normal when we are not performing. So, there is a, there is I don't know what you can call it, but there is a wake up call to get speeding and to challenge a certain rules and regulations why things are slow. Yes, definitely.

[James Grzinic:]

Thank you.

[Operator:]

The next question comes from Edouard Aubin from Morgan Stanley. Your question, please?

[Edouard Aubin:]

Yes, and good afternoon guys. So, two questions for me, on China, sorry to come back on that, but Bjorn, could you please comment on kind of the sellout selling dynamic year-to-date and kind of what you expect to a certain extent to pan out in this year? Obviously, you don't have a crystal ball, but your sense and related to China, I mean, obviously you took back a lot of inventory, so I guess you're going to be some of it is going to be sold in outlets or discounted and to what extent, that could impact the brand desirability in the next two, three years. That's number one. And then, question number two on your balance sheet and what it implies in terms of buybacks and dividend and so on. So, adidas used to be net cash ex lease liabilities, you're now net debt. How do you see the net debt situation evolve throughout the years? And what about your share buyback program, I think you have 2 billion more to go. You've not talked about that in the release as far as I've seen and what it could imply. I mean, should your net debt increase this year, what it could imply for your dividend next year? Thank you.

[Bjorn Gulden:]

I'll start and then Harm will take the last one. I mean, the China model has been a push model. Remember that almost all the Adi stores in China are owned by retail partners. We sell into them eight, nine months before, they sell through in a quarter. And based on the sell-through, we take product back and we flush them in outlets and also online. We have reduced this, I would say almost dramatically. So, we are delivering a lot less into the stores and we are trying as we speak, it's not been done yet to go into reduce their amount even further by, for example, doing 30% of the volume in-season, meaning that you're producing local for local 30% of what you think is the need and not even take orders on it. That will partly take you from a push model to a pull model. Even before we have done that given the reduction of the buys and not pushing the way I think it has done before, you will see less takebacks and you will see less inventory. Having said that, the amount of inventory in the China market from everybody has been high for the last three years, this has not been only an Adi issue, but because of the size of Adi is that, it has of course had a bigger impact on Adi. But the China model needs to be more vertical. It needs to be more local for local and it needs to be run more by the local people that almost close supply chain. And we are working on that very, very, I would say focused as we speak to, to make it a more pull model than a push model. But that has had no impact on the business yet because it's not in place. But I think it could be in place at the back end of this year. So, it could be fully utilized in '24.

[Harm Ohlmeyer:]

Here on the balance sheet, you're absolutely right, the net debt is higher than we originally planned for by the end of '22. With the consequence also on the rating that I explained earlier, and of course it's our ambition now on '23 to cost correctors. The key enabler for that will be reducing inventories because we are buying significantly less and utilizing the inventory that we have to return into cash. But we should also keep in mind that we return $3.1 billion to shareholders in '22, 2.5 billion share buyback and $600 million in dividends. And of course our priority is probably not fully in '23, but starting to prepare for fully meeting our rating KPIs again in '24. Until then, we should not expect a share buyback in '23 unlikely also in '24. Because first we need to get to authorization at the Annual Shareholders Meeting in May, which we are proposing to get to authorization because we bought back almost 10% of our capital. And then again in '23 very unlikely, and then we'll take count again, you're going into '24 and I know that the $2 billion outstanding from originally announced share buyback program, but that is secondary right now. First, we want to make sure that we're generating cash again, secondly, want invest into the company because we want to get prepared for growth again. Secondly, it would be dividends first and only then we would look at share buyback again. So, be patient, stay tuned. But it's a focus right now to return to profitable growth first.

[Edouard Aubin:]

And Harm, I know you have many different moving parts this year and one of them being easy in terms of the cash, but how do you see your net debt trajectory this year roughly?

[Harm Ohlmeyer:]

Well, again, there's a lot of moving parts, right? I mean, when you look at our guidance and as you say, a lot depends on that, but whatever option we are choosing, it would probably preventing to write down the inventory if it would tell that cost, I mean, it's an easy, cash in as well from a calculation. But again, a lot of things depend on how quickly we clean the inventory. What are we buying at year-end, if you believe there's growth coming in '24 again, what is the reopening in China? So, really, even if I would have it, I don't even have it in, in detail because we plan for different scenarios and the most important thing is generating cash, but turning the company around to be prepared for proper growth in '24. So, '23 year is transition year. That's what we said.

[Edouard Aubin:]

Okay. Thank you.

[Harm Ohlmeyer:]

Sure.

[Operator:]

Thanks, Ed. And Francie, I'm afraid we're slowly running out of time. That's why we need to take the last question now please.

[Operator:]

Okay. That will be from Olivia Townsend from JPMorgan. Please go ahead, ma'am.

[Olivia Townsend:]

Hi, thanks for taking my questions. And I have two, the first one is on China. So, I'm just wondering, since you've been talking a bit about bringing some marketing back into that region, could you just talk about where that marketing level is versus where you would expect to get back to once you have a bit more of a recovery? And then the second is just a clarification question on the double-digit EBIT margin that you suggested could be achievable longer-term. I'm just wondering, are you able to commit to a certain year for this? I think when you mentioned earlier some people have taken that to me around 2028, so I'm just wondering, do you have a comment on that? Thank you.

[Bjorn Gulden:]

I'll take '28 if that, if you're happy with that. I think it's wrong after seven weeks to commit to a double-digit in a year. It could be quicker than '28, and it probably should be quicker than '28, to be honest with you. But I hope you can be patient and let us at least work through some months and show you that we are on the right track. And then, we can formalize I would say a new strategy and tell you where that will bring us from an EBIT level. But I think we all agree around this table and at least in our management, and I think also in the company, that if we don't deliver 10% EBIT with our scale and our brand, then we are not doing a good job. But we need to get there first. Before we need to turn it around first, before we promise you when. I think the China, what should I say, marketing thing. What I tried to say is that there is some positive things happening in China because people are out on the street doing sports again. People are not isolated the way they used to be, and they're starting to buy again, both performance and lifestyle. Of course not at the same speed they did before COVID and BCI, but they're doing it. The marketing that we have done is that because sports is getting more attention and there are athletes doing well, we have given the Chinese team the freedom to invest in more athletes that we can showcase. For example, what you saw in tennis, we are speaking to quite some of the so-called celebrities that used to do marketing before BCI and none of them have gone live yet, but at least there is now talks on a different level than it's been before. The hope is of course, that when one celebrity starts to do, pulse things that are more like marketing, that there's no sheet storm being generated and that suddenly we can be back again, where marketing that generates traffic and conversion, especially online is working. At that time, I can assure you that our marketing team in China will get budgets to do whatever is right to accelerate growth. So, there's no limitation on there, what should I say, creativity and investment level when things are possible again. But right now, this kind of a touch and go, you saw hopeful in the presentation that we are, for example, spending money on pop-up stores to actually attract consumers. We have celebrities then coming into these stores. So, without doing something which you call marketing, they are invisible in our business. And that's kind of sneaking, I would say, marketing into to our business again. And of course I cannot tell you at what point in time things are normal again, because if I knew I would be a billionaire by telling it to everybody, right? So, again we are really what should I say, touching the market in a way that our local people are leading. And then both Harm and myself are speaking to them at least twice a week. We currently have 30 Chinese people here in our building, working on products for 24, first time that it traveled to Europe in three years. And it's so nice to be hit back in the normal world again when it gets to what we used to do. And there's so much energy in the Chinese team, those who remember, they have basically been in and out of the isolation for the last two years. And I would say there is quite some optimism. But again, don't get carried away, and then, you know, put your Spreadsheet up at 100% growth, because that will not come, but I think there is some light at the end of the tunnel. All right. So, we just hit the telephone limitations to the support for the Chinese team, unfortunately there is some limitations to the time for this call, and that's why we need to wrap it up now. Thanks very much, Francie. Thanks very much Steffen and Harm, also thanks very much to all of you for joining our call today. I'm sure we could have gone on for hours. I know that there are still a lot of questions outstanding. You please reach out to any member of the IR team or myself if you have any questions. And we are all very much looking forward to seeing some of you over the next couple of weeks as we are traveling the world. And with that, thanks very much again for your participation. Have a good remainder of the day, all the best, and bye-bye. Stay healthy, and buy adidas products.

[Operator:]

Ladies and gentlemen, that conference is now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.