Mumbai: Adidas, the world’s second largest
sports goods maker, may take a Rs 1,350 crore hit after unearthing a massive
commercial fraud in its Indian unit. The German giant has already booked a
negative impact of €125 million and warned it could suffer a further €70
million loss barely a month after replacing the local leadership team in India.
Mumbai: In March, the Adidas group had remained silent on specific queries by TOI whether the top-level changes were linked to financial mismanagement.
“When the Germans appointed Prem last year as the MD of the group, they did that seeing the huge success that Reebok has achieved in India. They thought he must have done something right. But it did not turn out to be that way,” he said.
This
makes it one of the worst financial irregularities to surface in the Indian arm
of any MNC, and comes amid mounting concerns over corporate governance issues
in the country. TOI had first reported on March 27 that managing director
Subhinder Singh Prem and chief operating officer Vishnu Bhagat had exited the
local unit of Adidas, which also owns Reebok, after it plunged into the red due
to financial irregularities.
1,350CR
FRAUD Did success mask Adidas ex-MD’s actions?
Mumbai: In March, the Adidas group had remained silent on specific queries by TOI whether the top-level changes were linked to financial mismanagement.
The 13-billion-euro group had replaced the
top management in India with Claus Heckerott taking charge as MD and Frederic
Serrant assuming the role of sales director. “We discovered commercial
irregularities at our Reebok business in India. These irregularities will
likely affect the prior-year consolidated financial statements of the Adidas
group. In total, we are talking about a negative impact of up to a pre-tax
amount of 125 million euros. Additional onetime charges in the remaining
quarters of 2012 amounting to an estimated 70 million euros could also occur,”
said Herbert Hainer, CEO of the group, in the internal communication sent
across to employees, and reviewed by this newspaper. He said the company may
take legal action if necessary.
Allegations of financial discrepancies and
losses swirled at the group’s India unit following the merger of Reebok’s
operations. Adidas and Reebok merged in India only last year, even though a
$3.8-billion global buyout of the latter happened in 2005. Reebok India had a
turnover of about Rs 600 crore, while Adidas clocked a revenue of Rs 480 crore
in 2011. The company on a combined level had debts to the tune of Rs 600 crore
and had registered a loss of about Rs 90 crore with the Registrar of Companies
The former MD Prem and COO Bhagat came into
the Adidas fold through the Reebok merger. Prem, who denied any wrongdoing
while he was at the helm of the India operations, had joined Reebok in 1995
when it entered the country and rose up the ranks to become the MD in 2003.
The
alleged financial irregularities at Adidas India pointed to inflated
performance figures, said a senior industry executive who on condition of
anonymity.
“When the Germans appointed Prem last year as the MD of the group, they did that seeing the huge success that Reebok has achieved in India. They thought he must have done something right. But it did not turn out to be that way,” he said.
Source: The Times of India, 01.05.2012
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