Adidas Reveal “commercial irregularities” at Reebok Unit in India

Global sportswear giant Adidas has admitted to “commercial irregularities” at the Indian unit of Reebok, its most popular and the leading sportswear brand in the country.

The admission came a month after managing director Subhinder Singh Prem and chief operating officer (COO) Vishnu Bhagat stepped down after long stints.

Adidas said the situation in India could result in a pre-tax impact of up to euro 125 million, while further restructuring could cost up to euro 70 million  in 2012.

The firm told the BBC it is carrying out an internal investigation. “We will take further steps” when that process has been completed, a spokeswoman said.

Adidas said the irregularities resulted in a change of leadership at its India business in March this year.

At the time the executives left, the Times of India said it had learned that the departures were linked to “swirling allegations of financial discrepancies and losses” at Reebok in India.

While the company did not provide more information about the investigation into its Reebok business in India, it highlighted that there has been a management overhaul.

In the statement accompanying its first-quarter results, Adidas said: “Management assures its stakeholders that it has, and will continue to, vigorously pursue a course of action to protect the group’s interests, which has already resulted in the appointment of a new local leadership team in India at the end of March.”

“Under this new leadership team, management is further planning an accelerated restructuring of its business activities in India, including significant changes to its commercial business practices.”

“This could lead to additional one-time charges in the remaining quarters of 2012 in an estimated amount of up to 70m euros.”

At the same time, the firm said first-quarter net income increased.

The firm’s profit was 289m euros in the quarter, up 38% from the previous year, and it also raised its annual sales target. It now expect sales to rise 10% this year.