Reebok fraud cost Adidas euro 153 mn in 2011

Last year, Reebok India had filed an FIR alleging Rs 870 crore fraud by its former MD Subhinder Singh Prem and COO Vishnu Bhagat

 

German sportswear maker Adidas today said its 2011 balance sheet took a hit of euro 153 million (about Rs 1,085 crore) due to “commercial irregularities” at its Reebok India arm .

“As we announced last April, we discovered commercial irregularities at our Reebok business in India, bringing to light a high level of criminal energy and collusion between former employees and external business partners. Key findings from our internal investigations include inappropriate recognition of sales, a failure to book sales returns and a failure to correctly post credit notes to accounts receivable,” Adidas Group chief executive Herbert Hainer said in a statement today.

In April 2012, Adidas had stated the estimated negative impact from the irregularities at Reebok could be worth up to a pre-tax amount of euro 125 million.

“We have restated our accounts in accordance with IAS 8, which has led to a reduction of net income attributable to shareholders of euro 58 million for 2011, compared to what we previously reported. In addition, shareholders’ equity in the opening balance sheet for 2011 was negatively impacted by euro 153 million to account for prior year periods,” said Hainer.

For 2012, Adidas Group had reported a six per cent rise in total sales at EURO 14.9 billion. Its net cash position at the end of the year stood at EURO 448 million. Excluding goodwill impairment losses, basic and diluted earnings per share stood at EURO 3.78, according to a company statement.

“2012 has been another successful year for the Adidas Group. The resulting margin improvements and significant cash flow generation underpin the trajectory and value we are unlocking with our Route 2015 strategic plan,” Hainer said.

In May 2012, Reebok India had filed a first information report alleging a Rs 870-crore fraud by former managing director Subhinder Singh Prem and chief operating officer Vishnu Bhagat. An investigation on the case is underway.

Earlier this year, Adidas Group had appointed Erick Haskell, who headed the group’s operations in China, as head of its Indian business.

Hainer said the company was “committed to India” for both the brands---Adidas and Reebok. “As unpleasant as the identified irregularities at Reebok India Company are, I am satisfied we have diligently completed our efforts to uncover all the wrongdoings, while simultaneously laying the foundation for a healthy and profitable business for Reebok in India in the future,” he added.

After the alleged fraud, to introduce a new business model, the company shut about 500 stores across India.