A logo sits on a business card on the counter of a Folli Follie SA store in the Glyfada district of Athens, Greece. (Photographer: Kostas Tsironis/Bloomberg)

Folli Follie Says Probe Found Asia Sales Overstated by 90%

(Bloomberg) -- Consultants hired by Folli Follie to probe its Asian business have found revenue was almost 90 percent short of figures reported in financial statements, the company confirmed in a statement on Wednesday.

Following a three-month investigation, Alvarez & Marsal’s preliminary analysis said that 2017 Asian sales were about $117 million, compared with $1.1 billion declared in the company’s most recent financial report published in April. Asia accounted for about 68 percent of 2017 reported group revenue, according to data compiled by Bloomberg.

The Greek retailer’s founders, Dimitris and Ekaterini Koutsolioutsos, resigned from the company after a board meeting on Tuesday at which the Alvarez & Marsal report was presented, the company confirmed. The findings were submitted to Greece’s Capital Markets Commission on Wednesday.

The developments cap months of turmoil for the company that started in May when hedge fund Quintessential Capital Management said it was shorting the stock because it disputed its published revenue and the stated reach of its store network. Quintessential’s report, estimating Asian sales were around 100 million euros, sent the shares into a 70 percent tailspin and the Athens Stock Exchange suspended trading at the end of the month.

Family Business

Folli Follie was founded in 1982 and Koutsolioutsos’ son Georgios is chief executive officer. The company, which sells accessories including bags and jewelry, expanded into Asian markets in 1998. China’s Fosun International Ltd. is its second-largest shareholder with a 15 percent stake, according to data compiled by Bloomberg.

Alvarez & Marsal also found that Folli Follie made a loss of $45 million in the region in 2017, rather than the reported gain of $316 million, according to the statement from the company. Bank and cash balances were $6 million, compared with the reported $297 million, the company said. Bloomberg News reported some of the findings of the investigation before the company’s statement on Wednesday.

In July, a Greek court granted Folli Follie provisional protection from creditors as it considered restructuring its finances. The company hired Rothschild as adviser in June, but the firm resigned on Monday, the company said.

Advisers Quit

Allen & Overy, a law firm advising the company, also resigned earlier this week, according to people familiar with the matter, who asked not to be identified because it’s private. EY, which was hired to conduct a full review of Folli Follie’s 2017 consolidated statements, has also asked to terminate its contract with the retailer, separate people familiar with the matter said on Wednesday.

Officials at Alvarez & Marsal, Rothschild and Allen & Overy declined to comment on the resignations and results of the investigation. A spokeswoman for EY wasn’t immediately available to comment.

Folli Follie’s 250 million euros of bonds due July 2019 are quoted at 24 cents on the euro, according to data compiled by Bloomberg. A group of bondholders appointed Latham & Watkins in June to advise them.

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