While Puma managers were getting ready for the investor day, they had to issue a warning that they had discovered large-scale fraud at their joint venture in Greece, Puma Hellas. The alleged irregularities were apparently committed by Puma’s Greek partners over a period of several years, and they involve tens of millions of euros. Puma said it would assert all claims according to civil and criminal law against the minority shareholders of Puma Hellas and members of its management.
The news rocked the Greek sports industry this week since Puma’s partners in Puma Hellas are none other than George and Antonis Glou, two high-profile businessmen from Piraeus. Puma sealed a distribution agreement with Glou S.A. in 1995, and Puma Hellas was formed 10 years later, with a majority of the shares in Puma’s hands and management led by Glou.
Zeitz confirmed that Puma intended to fully take over Puma Hellas. It already has 70 percent of the joint venture, which also covers Cyprus, and it will exercise its option to acquire the remainder from George and Antonis Glou, who have 15 percent each.
Puma expects to write off up to €115 million before tax for the entire disaster, with €90 million relating directly to the alleged fraud and €25 million in goodwill impairment. Only €15 million will be included in the fourth quarter of this year, while the remainder will affect revised statements for the two previous years. Puma should incur another €15 million in one-off restructuring charges to downsize the operation.
The suspected fraud was detected through a half-year audit by Deloitte in the summer and more in-depth investigations were launched in the last months, focusing on alleged irregularities in the last three years. The managing director of Puma Hellas, George Glou, has been fired along with the company’s general manager and its chief financial officer. The management has been taken over by Miguel Andrade, former French country chief and then European manager of the group, who had been on a sabbatical in the last months.
Officials of Puma Hellas told us two years ago, in connection with our Europe-wide market research, that their target called for sales of €120 million in 2010 and that they were reaping very juicy profit margins. However, Zeitz said that all reported numbers were thrown into question and Puma Hellas would not contribute to profits this year.
The outgoing chief executive added that little could be done to uncover fraud in a case where managers colluded to disguise irregularities. The situation was further blurred by the fact that accounts receivable are generally higher in Greece than elsewhere. Zeitz expressed sadness and shock at the discovery, more prosaically admitting that Puma had been “screwed, big time.”
The two brothers established Glou in 1984 and built it into a large Greek retail and wholesale company, focusing on apparel. When we last met Glou managers in Athens two years ago they had 58 stores around the country, 40 of them fully owned and the others franchised, separately from the Puma stores owned by Puma Hellas. Until recently Glou was also the Greek distribution partner of Quiksilver and Rossignol, but the ski company said it had quit working with Glou last year and the action sports brand ended its contract with Glou earlier this year. It appears that Glou came under heavy pressure in the last two years, particularly after the riots that destroyed several of its stores in Athens. Glou managers could not be reached for comment.
