Adidas Group is reporting that preliminary first quarter figures are materially above market expectations. In the first quarter of 2012, Adidas Group revenues increased 14 percent on a currency-neutral basis, or 17 percent in euro terms, to €3.8 billion ($5 bn). Growth rates in Greater China and Japan as well as at TaylorMade-Adidas Golf were stronger than originally anticipated. Despite a 0.7 percentage points decline in the Group’s gross margin to 47.7 percent of sales, Group operating margin improved 1.1 percentage points to 10.7 percent of sales. In absolute terms, Group operating profit grew 30 percent to €409 million $536 mm). Due to lower financial expenses and a lower tax rate, the Group’s net income attributable to shareholders increased 38 percent to €289 million ($379 mm).
In addition, Management also announced that commercial irregularities discovered at Reebok India Company, in India, will likely affect the consolidated financial statements of the Adidas Group. The currently estimated maximum negative impact could be up to a pre-tax amount of €125 million. Due to the sensitivity of the on-going investigation, specific details will be disclosed as appropriate in due course. As these irregularities have been deemed to have occurred prior to the 2012 financial year, the Adidas Group might have to restate prior-year consolidated financial statements in line with the requirements of IAS 8. The financial statements of Adidas AG will not be affected by this issue. 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 € 70 million.
Taking into account the stronger-than-expected first quarter financial performance, the continuing strong momentum of the Group’s brands in key markets, as well as the impacts from potential one-time charges for 2012, management is updating its financial forecasts for the full year accordingly.
Group sales for the full year are now expected to grow at a rate approaching 10 percent on a currency-neutral basis (previously forecast in the mid- to high-single-digit range). Net income attributable to shareholders is expected to increase at a rate between 12 percent and 17 percent (previously forecast between 10 percent and 15 percent).
