Following the severe impact on its business from the coronavirus pandemic, Adidas received approval from the German government on Tuesday to participate in KfW, the German public development bank. The company will receive € 3 billion (US $ 3.3 billion) at normal market conditions to deal with this unprecedented situation.
The syndicated loan to be concluded, a financing instrument offering borrowers access to larger-scale financing as well as flexibility in terms of drawings and repayments, includes a loan commitment of € 2.4 billion from KfW and 600 million euros in loan commitments from a consortium of the company’s partner banks. The consortium is made up of UniCredit, Bank of America, Citibank, Deutsche Bank, HSBC, Mizuho Bank and Standard Chartered Bank.
One of the conditions of the syndicated loan is that Adidas de facto suspend the payment of dividends for the duration of the facility. The management board recently took the decision to stop the buyback of Adidas shares as well as to waive its short and long-term bonus for the year 2020, which represents a total of 65% of the target annual compensation.
The long-term bonus component for the next levels of leadership within the company will also be lost for the current year. All of this is in line with Adidas’ approach to liquidity management in today’s environment.
“The current situation poses a serious challenge, even for healthy businesses. We thank the German government for its swift and comprehensive action plan in response to this unprecedented global crisis, ”said Kasper Rorsted, CEO of Adidas. “We are doing everything we can to protect the long-term well-being of Adidas, our 60,000 employees and our partners, and are implementing many measures. These measures include the implementation of strict cost and working capital controls, the reduction of executive compensation, the end of the share buyback program and the suspension of dividend payments. But in addition to that, access to additional liquidity is essential to overcome this crisis. We will repay any used portion of the loan, including interest and fees, as quickly as possible. “
In addition to the significant drop in revenue and profits the company has experienced in China since late January as well as Japan and South Korea from late February, Adidas has also seen a severe impact on its revenue and business. cash generation in most other parts of the world since mid-March. Following the rapid global spread of the coronavirus, almost all owned and partnered stores in Europe, North America, Latin America, emerging markets, Russia / CIS and much of Asia- Pacific have been temporarily closed for the past four weeks. As a result, wholesale and physical retail activities in these markets, which typically represent 60% of the company’s activity, have come to a complete halt.
In light of these serious consequences, the company has reached an agreement with local works councils to reduce the working hours of several groups of employees in Germany. This agreement provides, among other things, for paid leave, a reduction in overtime as well as partial unemployment for 1,200 employees. Additional measures of this type are explored in close consultation with relevant stakeholder groups.
The future course of the coronavirus epidemic and its impact on the company’s operations cannot be predicted at this point. As a result, Adidas is still unable to provide any outlook for the full year 2020 that includes this impact. In this context, it was decided to bring forward the publication date of the first quarter 2020 results to April 27, 2020, in order to keep the market informed of the financial performance of the company as soon as possible.
Photo courtesy of Adidas
