Nugget: Adidas CFO on Capital Allocation

From the adidas 2Q2011 earnings call Q&A session, available at

Chris Svezia – Susquehanna Financial Group LLP

“And the third question would be the use of your cash. If you keep your run rate of the declining net debt, you’re going to be net cash positive by the end of the year. Any thoughts on share buybacks or do you focus more on increasing the dividend?”

 Robin Stalker – adidas Group CFO

“And in terms of use of cash, Matthias, nothing new in that. You know our first priority is obviously to continue to pay down debt. We want that flexibility. You’ve seen that we’ve increased our dividend payout ratio policy and have every expectation we would continue to move in the right direction with that. We have no plans whatsoever at the movement for any sort of share buyback.”


–         I like the fact that adidas is not drawn into the fad of using stock buybacks just for the sake of it. Buyback are beneficial for shareholders if the stock is trading at steep discounts, which is not the case at adidas momentarily.

–         I wander if it would be more appropriate to refinance the debt as interest rates are at very low levels historically.

–         The company is generating substantial amount of free cash flow. I will be interesting to see how they chose to allocate capital once debt has been repaid. Further increase in dividend rates are likely, but I would assume that the Group will look at acquisition targets in the near future, perhaps in the region of €200-€500 million.

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