London: Adidas, the global sports brand and one of the main sponsors of the London Olympics, on Monday revealed that it is investigating certain unexplained "commercial irregularities" at it Indian arm, Reebok India.
The company has announced preliminary results, showing a 38 percent growth in net profit to 289 million euros (USD 382 million) in the January-March quarter.
In a statement from Herzogenaurach, Germany, the sportswear giant said that it has begun an investigation into the issue, but declined to give details.
The sportswear maker said that due to the "sensitivity of the ongoing investigation in India, specific details will be disclosed as appropriate, in the due course".
"... commercial irregularities discovered at Reebok India Company in India will likely to 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 euros," Adidas said.
"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," it said.
Adidas said it planned to make "significant changes to its commercial business practices" in India and had brought in new local management last month. "This could lead to additional one-time charges in the remaining quarters of 2012 of an estimated amount of up to 70 million euros."
"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".
The company in March announced appointment of Claus Heckerott as Managing Director for Adidas Group India in place of Subhinder Singh Prem.
Prem and Adidas Group India COO Vishnu Bhagat left the company last month. Prem, who was earlier Managing Director of Reebok India and associated with the brand for over 15 years, was appointed Adidas Group India MD last year.
When contacted, Prem said he was not aware of the said irregularities.
"I am not aware of what they (Adidas) are talking about in the statement. I have been out of the company for around a month and a half now and cannot comment on it," Prem said.
In its preliminary report for first quarter, the company said its revenues surged by 17 percent to 3.8 billion euros in January-March, 2012.
For the full year 2012, Adidas said it expects its sales to climb by nearly 10 percent, up from a previous forecast of 5-9 percent, while net earnings would grow in the range of 12
and 17 percent, compared to previous guidance of 10-15 percent.
The company would release its final earning report on Thursday.