Adidas reveals ‘irregularities’ at Reebok arm in India

LONDON, UK – German sportswear giant Adidas reported a strong rise in first-quarter profits on Monday, but warned that “commercial irregularities” at its Reebok unit in India could hit full-year earnings and cost the firm up to $165 million.

The group reported a net profit of 289 million euros ($383 million) for the first three months of 2012, up 38 percent from the year-earlier figure, the Agence France Presse reports.

Operating profit jumped 30 percent to 409 million euros, with sales rising 17 percent to 3.8 billion euros.

Shares in Adidas, which have already gained 19 percent his year, hit an all-time high in early trading of 63.75 euros on the news, according to Reuters.

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However, Adidas told the BBC that it is carrying out an internal investigation into irregularities resulting from a chance of leadership at its India business in March this year, following the departure of two top executives.

The group could not reveal what the problems were, but said it planned to make “significant changes to its commercial business practices” in India and had brought in new local management last month, The Evening Standard reports.

“Due to the sensitivity of the ongoing investigation, specific details will be disclosed as appropriate in due course,” Adidas added, warning that “the currently estimated maximum negative impact could be up to a pre-tax amount of 125 million euros.”

Nevertheless, group raised its annual sales target on Monday, expecting sales to rise in 2012 by nearly 10 percent, up from a previous forecast of 5-9 percent. The new forecasts include the potential impact from the Indian restructuring, with Herbert Hainer, chief executive, insisting:

“The situation in India, although unfortunate, will allow us to now accelerate plans to improve a specific underperforming part of our business. Looking at the bigger picture, we are right where we want to be,” The Financial Times reports. 

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