Adidas has received approval from the German government for the participation of state-owned development bank KfW in a syndicated loan facility worth €3bn ($3.28bn) as the sportswear company deals with the financial impacts of the Covid-19 outbreak.
Adidas said it has experienced “significant” revenue and profit decline in China since the end of January, and in Japan and South Korea from late February onwards. The company also pointed to a “severe” impact on its revenues and cash generation in the rest of the world since mid-March as Covid-19 spread across Europe, North America and other territories.
Almost all of adidas’ own- and partner-operated stores across Europe, North America, Latin America, Emerging Markets, Russia/CIS and large parts of Asia-Pacific have been temporarily closed for the last four weeks. Wholesale and retail physical activities in these markets – which adidas said usually account for 60 per cent of its business – have come to a “complete standstill” as a result.
The postponement of major sporting events such as football’s Uefa European Championships and the Tokyo 2020 Olympic Games has also hit business hard.
Adidas said the syndicated loan, which is yet to be concluded, comprises a commitment of €2.4bn from KfW and €600m from a consortium of the company’s partner banks, including UniCredit, Bank of America, Citibank, Deutsche Bank, HSBC, Mizuho Bank and Standard Chartered Bank.
One of the conditions of the loan is that adidas de facto suspends dividend payments for the duration of the facility. Adidas’ executive board has also decided to stop the repurchasing of company shares and forgo its short- and long-term bonus for the year 2020, which accounts for a total of 65 per cent of the target annual compensation.
Additionally, the long-term bonus component for the next leadership levels within the company will be forfeited for the current year.
Adidas chief executive Kasper Rorsted said: “The current situation poses a serious challenge even for healthy companies. We thank the German government for its fast and comprehensive course of action in response to this unprecedented global crisis.
“We are doing our utmost to protect the long-term well-being of adidas, our 60,000 employees and our partners, and are implementing numerous measures. These measures include the establishment of strict cost and working capital controls, the reduction of management compensation, the stop of the share buyback program as well as the suspension of dividend payments.
“But on top of this, access to additional liquidity is key to weather this crisis. We will repay any used portion of the loan, including interest and fees, as quickly as possible.”
Adidas has reached an agreement with local works councils to reduce working hours for several employee groups in its home market of Germany. The agreement provides for paid leave, a reduction in overtime and also short-term working for 1,200 employees.
Adidas has also moved the date of the publication of results for the first quarter of 2020 forward to April 27 in a move designed to keep the market informed of its financial performance.