Adidas India to take a hit of Rs 1350cr
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 euros and warned it could take a further 70 million euros hit barely a month after replacing the local leadership team in India.
This makes it one of the worst financial irregularities to surface in the Indian arm of any multi-national company, and comes amid mounting concerns on corporate governance issues in the country. TOI first reported in its March 27 edition that MD Subhinder Singh Prem and COO Vishnu Bhagat had exited the local unit of Adidas, which also owns Reebok, after it plunged into losses on the back of financial irregularities. Adidas Group then remained silent on specific queries by TOI whether the top-level changes were linked to financial mismanagement.
The 13 billion euros 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 one-time charges in the remaining quarters of 2012 is an estimated amount of up to 70 million euros could also occur,” said Herbert Hainer CEO of Adidas 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 only last year in India 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 managing director 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.
The alleged financial irregularities at Adidas India pointed to inflated performance figures, said an industry . “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.
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