Patisserie Valerie suspends FD as financial troubles mount

Patisserie Valerie
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The cake chain Pattiserie Valerie is teetering on the brink after accounting irregularities left it saddled with a £1m tax bill and winding-up order.

The holding company behind Patisserie Valerie has suspended its shares, and with it the company’s FD Chris Marsh, as it undertakes an internal investigation. The accounting black hole, according to a report by Sky News, amounts to over £20m.

The report added that despite Marsh being suspended from his role, there was no suggestion of him being accused of wrongdoing. But according to Kate Coles, the former group financial controller at Graze and director at Enhance, a coaching business for FDs, whether he knew about the irregularities or not, “neither option is great”.

“Not knowing about an irregularity is fractionally less terrible - the moral compass of the CFO remains intact - but it still raises serious questions over their competence and fitness to hold office,” said Coles.

“What were the deficiencies in the control environment that led to this irregularity? Was it a deliberate fraud by someone else in the business, and why was it not picked up? Was it an oversight – and how did one of such magnitude slip past both senior management and the auditors?”

“We always presume innocent until proven guilty: unfortunately, in this situation, being innocent of deliberate fraud still carries a conviction of being guilty of incompetence.”

Luke Johnson, the chairman of Patisserie Holdings and one of the UK’s most well-known entrepreneurs, said the irregularities have “significantly impacted” the company's cash position and may lead to a material change in its overall financial position.

He added, "We are all deeply concerned about this news and the potential impact on the business. We are determined to understand the full details of what has happened and will communicate these to investors and stakeholders as soon as possible."

HMRC’s winding up petition is another twist in the tale. According to a trading update filed yesterday, HMRC filed the petition on 14 September 2018. But directors were unaware of this development until now.

A second trading update released by Patisserie Valerie clarified that the petition relates to "sums due to HMRC of approximately £1.14 million," with a hearing date listed for 31 October 2018.

Patisserie Valerie began its life in 1926, and the 92-year-old chain has over 200 locations across the UK. Johnson’s Risk Capital firm bought a controlling stake in 2006 and floated the business on the AIM in 2014.

In its last trading update before the accounting irregularities emerged, Patisserie Valerie reported pre-tax profits of just over £11m for the six months ending on March 14, a 14% improvement year-on-year and revenues were up 9% to just over £60m.

 

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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By tom123
12th Oct 2018 07:00

How can accounts for a cake shop be so wrong?

Sales - presumably from the till, so hard to get that wrong.
Costs - from purchases, again doesn't sound too hard.

Assets - surely stock cannot be over valued as it is just food.

No debtors as it is a retail business.

They must have included wierd intangibles like brands or something.

I would imagine most premises are rented.

Hard to see how the hole can appear.

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12th Oct 2018 12:54

Be another one of those spreadsheets that doesn't add up Tom.

Excel really needs to up its game, first Tesco now this.

£20m cash black hole in a business that turns over £60m

Stevie Wonder must have done the Audit and clean bill of health.

I am assuming the winding up order was served on the head office and not to shop assistant in the cake shop, you would think would have been acted on straight away and not just put in an in tray.

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By mrlj
12th Oct 2018 12:58

How on earth can something like this happen?

A £20m hole on £120m turnover? Even if it turns out to be fraud, how can this possibly get past the auditors, the board, the entire finance department?

And not one of the directors being aware of a WINDING UP PETITION?

It scarcely seems credible...

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to mrlj
12th Oct 2018 16:06

Surely Luke Johnson knew all about it.
He's a fantastic businessman, so couldn't possibly have missed these material facts.
I'm sure he will get to the bottom of it and explain all.

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13th Oct 2018 20:02

the finance director is a chartered accountant which might have blinded people to his track record which makes for interesting reading.there are plenty of areas where retail operations can go wrong

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14th Oct 2018 19:46

I am fascinated by the news that there were 2 unannounced overdrafts looks like are friends the bankers may have been lax ahem. follow the dough!

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By tom123
to carnmores
15th Oct 2018 11:29

Of all the things to be wrong, I would have thought cash was the hardest to get wrong?

But then, I am in simple SME land..

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By tom123
to carnmores
15th Oct 2018 11:29

Of all the things to be wrong, I would have thought cash was the hardest to get wrong?

But then, I am in simple SME land..

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15th Oct 2018 12:00

And all those share options encashed recently...

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15th Oct 2018 13:50

Surely there is a case of setoff re HMRC's winding up petition re the CT losses that are now available for a CT refund?!

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