Adidas Offers VRS to all 200 Reebok India Staff After Accounting Scandal

Economic Times reported that the German sportswear giant Adidas Group has offered  voluntary retirement scheme (VRS)  to all 200 employees of Reebok India, the company at the heart of a Rs 870-crore accounting scandal, the foreign boss of Adidas’ India arm said, while bemoaning the complex procedure of investigations in India.

He said the company filed a police complaint against two top former executives for financial irregularities in Reebok India but now find itself facing investigations from three different agencies – the Serious Fraud Investigation Organisation (SFIO), the Income Tax department and the Gurgaon police.

“My experiences with the investigating agencies are interesting. It is tiring….I feel under scrutiny,” Adidas Group India CEO Claus Heckerott said breaking his silence, three months after the German company unearthed financial irregularities in Reebok India in May that resulted in the sacking of its CEO and CFO, and could result in a restatement of pre-tax income for the Adidas Group of upto 870 crore in 2011 and the preceding years. There will also a negative impact of up to 487 crore on the Adidas’ operating profit in 2012.

He said it would have been better if the three agencies had investigated the matter one at a time, and not simultaneously. He said each one of them had a difference perspective because each of them looked at the case from different angles. The Income Tax department was looking at the tax implication of financial irregularities, while the SFIO was examining the case from an another angle.

Reebok India has named former CEO S S Prem and and CFO Vishnu Bhagat as the main culprits in the FIR lodged with the Gurgaon Police, a few months ago.

When asked why the break up of alleged financial irregularities given by the company to the SFIO differed from the break up filed in the police complaint, Heckerott said the company had mentioned in the police complaint that it would take a ‘hit’ of up to 870 crore.. On the issue of goodwill loss of 25 million euros, he said, “It is based on a complex calculation process.”

Heckerott said the Adidas Group has launched a new programme for Reebok India’s new start after taking the hit of financial regularities of 125 million euros from 2013 to ensure sustainable profitability for the company. The restructuring will involve Franchisee Transformation Project on revised business terms and the company estimates one third of the 900 franchisees may not be in position to transit to the new model.

However, he clarified that Adidas would not kill the Reebok brand.

 May 1-12: Adidas says ‘commercial irregularities’ at Reebok India; seeks criminal probe; turns heat on former MD Subhinder Singh Prem
May 21: Reebok India files an FIR with Gurgaon police, accusing Prem and former COO Vishnu Bhagat of ‘criminal conspiracy’ and ‘fraudulent’ practices
May 23: Ministry of Corporate Affairs (MCA) orders scrutiny of Reebok India’s books
May 24: Gurgaon police say Reebok fraud amount ‘far from reality’; I-T dept issues notices to executives May 26: Prem, Bhagat denied anticipatory bail
May 29: MCA refers the case to Serious Fraud Investigation Office (SFIO), blames the company for not cooperating
June 1-6: Prem, Bhagat deny fraud charges; SFIO says fraud figure inflated; I-T dept, Institute of Chartered Accountants (ICAI) start probe
July 2: Adidas values goodwill impairment at Rs 170 cr; auditor N Narasimhan & Co says no accounting wrongdoing in Reebok
 July 9: Reebok refuses to give ‘scam’ details to ICAI
July 15-18: I-T finds no signs of corporate fraud; summons  auditors

(Sourced from Economic Times/Business Standard)



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