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PATISSERIE HOLDINGS (CAKE)

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staffordian
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Re: PATISSERIE HOLDINGS (CAKE)

#196565

Postby staffordian » January 25th, 2019, 10:41 pm

There is a bit of detail in the FT on the suspected MO for the fraud...

The suspected £40m fraud at Patisserie Valerie that led to the café chain’s demise this week involved finance staff and a supplier enlisted to provide fake invoices, according to a report by PwC commissioned by the company’s board


It's behind a firewall, but putting...

Patisserie Valerie report talks of fake invoices and ledgers

...into Google should bring it up.

Charlottesquare
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Re: PATISSERIE HOLDINGS (CAKE)

#196572

Postby Charlottesquare » January 25th, 2019, 10:53 pm

staffordian wrote:There is a bit of detail in the FT on the suspected MO for the fraud...

The suspected £40m fraud at Patisserie Valerie that led to the café chain’s demise this week involved finance staff and a supplier enlisted to provide fake invoices, according to a report by PwC commissioned by the company’s board


It's behind a firewall, but putting...

Patisserie Valerie report talks of fake invoices and ledgers

...into Google should bring it up.


Surely fake credit notes from a supplier. Fake invoices from a supplier would have reduced stated profit which appears not to be the issue, the issue seems to be dodgy assets on the balance sheet, so Dr Balance Sheet Cr P & L.

It could be son of Tesco. (Rebates)

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Re: PATISSERIE HOLDINGS (CAKE)

#196579

Postby Alaric » January 25th, 2019, 11:34 pm

Charlottesquare wrote: the issue seems to be dodgy assets on the balance sheet,


There's an allegation of undisclosed bank accounts which were overdrawn. So omission of liabilities rather than misstatement.

Expect discussion of this to be closed down if there's a prosecutable case of fraud.

Charlottesquare
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Re: PATISSERIE HOLDINGS (CAKE)

#196580

Postby Charlottesquare » January 25th, 2019, 11:53 pm

Alaric wrote:
Charlottesquare wrote: the issue seems to be dodgy assets on the balance sheet,


There's an allegation of undisclosed bank accounts which were overdrawn. So omission of liabilities rather than misstatement.

Expect discussion of this to be closed down if there's a prosecutable case of fraud.


Wonder if auditors do bank letters these days.

I read elsewhere a quote re thousands of false entries in the books,see link and quote.

https://www.accountingweb.co.uk/busines ... nistration

"Perrin indicated that repairs of Patisserie Valerie’s financial situation were well underway, but the going was slow. “This is a complex and time-consuming task,” Perrin wrote. “We are gradually ensuring that overdue payments are made and that terms agreed with suppliers are adhered to, but there remains much to do to complete this task.”

Perrin’s careful optimism quickly dissipated, however. In a company update on 16 January, Patisserie Valerie said the company's forensic accountants had “revealed that the misstatement of its accounts was extensive, involving very significant manipulation of the balance sheet and profit and loss accounts.

“Among other manipulations, this involved thousands of false entries into the Company's ledgers. It will take some time before a reliable trading outlook can be completed while the above work streams progress.

“The initial indications from the work carried out to date is that the cash flow and profitability of the business have been overstated in the past and is materially below that announced in the trading update on 12 October 2018, which was based on limited work carried out over a 48-hour period.”"

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Re: PATISSERIE HOLDINGS (CAKE)

#196586

Postby johnhemming » January 26th, 2019, 7:55 am

What I think is significant is that a substantial number of shops shut down. That implies that they have basic management accounting [now] that those shops were materially loss making.

I find it sad that Druckers have all shut down. I quite liked Druckers when they had a local shop in my suburb of Birmingham. It may be that the rents in the more prime locations made things particularly difficult, but it should have been possible to run some of the shops at a profit even if the business as a whole was insolvent for reasons of debt and interest.

dspp
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Re: PATISSERIE HOLDINGS (CAKE)

#196591

Postby dspp » January 26th, 2019, 9:12 am

Yes, auditors still do bank letters. At least some of the time.

A problem with shutting down some of the shop network is it may make some of the centralised bakeries less attractive. I don't know to what extent that has been taken into account.

The bits that are leaking out make it difficult for me to think this was the work of one person. Quite apart from exposing governance flaws, how on earth could one person have managed the detail that appears to have been going on.

PinkDalek
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Re: PATISSERIE HOLDINGS (CAKE)

#196600

Postby PinkDalek » January 26th, 2019, 9:48 am

dspp wrote:Yes, auditors still do bank letters. At least some of the time.


Presumably only to those banks with which the company and subsidiaries is known to have a banking relationship.

UncleEbenezer
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Re: PATISSERIE HOLDINGS (CAKE)

#196608

Postby UncleEbenezer » January 26th, 2019, 10:00 am

dspp wrote:The bits that are leaking out make it difficult for me to think this was the work of one person. Quite apart from exposing governance flaws, how on earth could one person have managed the detail that appears to have been going on.

Piece of cake.

(For a 'puter running something a bit more sophisticated than MS office).

ADrunkenMarcus
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Re: PATISSERIE HOLDINGS (CAKE)

#196614

Postby ADrunkenMarcus » January 26th, 2019, 10:27 am

johnhemming wrote:What I think is significant is that a substantial number of shops shut down. That implies that they have basic management accounting [now] that those shops were materially loss making.


I haven't done any detailed analysis, but I did take a glance. Some of the store closures struck me as odd, such as the Patisserie Valerie (Drucker's) in the Royal Priors Shopping Centre, Leamington Spa. It's a site I had seen before, seemingly located in a prime position and in a relatively prosperous town. On the other hand, there was a Costa on the same level and I think another outlet upstairs. But then there were coffee shops galore, as with many towns and cities in the UK...

I note some of the original estate has closed, including some of the oldest stores which were running long before the IPO.

Best wishes

Mark.

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Re: PATISSERIE HOLDINGS (CAKE)

#196633

Postby Dod101 » January 26th, 2019, 11:34 am

I am really not that concerned about the closure of any particular store or stores and have not contributed to this thread because I do not have and never have had any financial involvement with Patisserie Holdings, but there are clearly a whole lot of things arising from this fraud that we ought to be thinking about surely.

Luke Johnson the Executive Chairman was not so long ago writing columns in newspapers advising the rest of us about investing and yet clearly he had no grip on his own company where he was a 38.6% owner. If indeed his Finance Director Chris Marsh is the main culprit and we do not know this of course, then it does not say much for the Chairman's skills at picking trustworthy employees. They say in the Annual Report that the Board is responsible for the successful stewardship of the Group and that the internal audit function can only provide reasonable and not absolute assurance against material misstatement or loss. At least they got that right.

The Auditors clearly failed in their fundamental duty I would have thought.

The SFO are apparently investigating this matter and yet their record is abysmal in getting successful prosecutions.

We should all be worried about this. We trust our cash to this sort of undertaking and whether an AIM entity (which Patisserie Holdings was) or not we are surely entitled to expect proper stewardship. And there ought to be vetting of those newspaper columnists who take it upon themselves to give us advice.

Dod

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Re: PATISSERIE HOLDINGS (CAKE)

#196653

Postby Dod101 » January 26th, 2019, 12:53 pm

Another interesting point. In the Annual Report to 30 September 2017, they say that they had net cash of £21.5 million and that the Group is solely funded from operating cash flows. The bankers providing the overdraft facilities, one might have thought, would have raised an eyebrow at that statement. Not only that, but by the time of the Interim Report 6 months later, the net cash had risen to £28.8 million. Quite some business.

Presumably with the demise of bank managers in branches, banks no longer study the accounts of those to whom they are lending, or at least they simply accept the paper provided by the Finance Director.

Dod

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Re: PATISSERIE HOLDINGS (CAKE)

#196700

Postby Charlottesquare » January 26th, 2019, 3:51 pm

PinkDalek wrote:
dspp wrote:Yes, auditors still do bank letters. At least some of the time.


Presumably only to those banks with which the company and subsidiaries is known to have a banking relationship.


Which of course begs the question what documentation, like Board Minutes etc, was required to be displayed to A N Other bank re creating a new further banking relationship.

ADrunkenMarcus
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Re: PATISSERIE HOLDINGS (CAKE)

#196701

Postby ADrunkenMarcus » January 26th, 2019, 3:53 pm

Dod

The points you raise are spot on.

Luke Johnson had a huge personal stake in the business and yet it collapsed dramatically. Management ownership is no guarantee of a good strong business.

Dod101 wrote:In the Annual Report to 30 September 2017, they say that they had net cash of £21.5 million and that the Group is solely funded from operating cash flows. The bankers providing the overdraft facilities, one might have thought, would have raised an eyebrow at that statement. Not only that, but by the time of the Interim Report 6 months later, the net cash had risen to £28.8 million. Quite some business.


The fake cash is perhaps the single most puzzling part of the whole affair, for me. It should have been so easy to verify. And, yes, the bankers don't seem to have done the necessary diligence. The cash, for me, was considerable reassurance that the business was performing well, because they were reporting a growing cash pile and free cash flow. They hadn't raised further equity or disclosed that they had taken out borrowings, so that cash had to come from operations. Of course it didn't exist.

Best wishes

Mark.

dspp
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Re: PATISSERIE HOLDINGS (CAKE)

#196732

Postby dspp » January 26th, 2019, 5:32 pm

Also, if this was motivated by way of a share incentive scheme, then that created a perverse incentive.

Also, depending on when the fraud commented, either the original ipo was flawed, or subsequent accounts, or both

And, if they don't fully trace out the causes then the fca will be an utterchocolate fireguard.

My personal suspicion at this point is that - at thievery least -the auditors should be on the hook for all lost investments of anyone who was not a notifiable shareholder. There needs to be a level of pain sufficient to make them do their job properly.

Just my 2c
Dspp

Dod101
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Re: PATISSERIE HOLDINGS (CAKE)

#196738

Postby Dod101 » January 26th, 2019, 6:03 pm

There was certainly a LTIP in place and the CEO and Finance Director stood to gain from share options but I must say it all seems somewhat incredible considering that the Finance Director was reporting on what seems to be entirely false figures. He must have been pretty skilful for no one to pick him up.

Dod

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Re: PATISSERIE HOLDINGS (CAKE)

#196743

Postby johnhemming » January 26th, 2019, 6:14 pm

Its a big issue about financial control and the audit process.

ADrunkenMarcus
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Re: PATISSERIE HOLDINGS (CAKE)

#196814

Postby ADrunkenMarcus » January 27th, 2019, 10:38 am

Did Madame Valerie even exist?

https://www.bbc.co.uk/news/business-46821488

Best wishes

Mark.

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Re: PATISSERIE HOLDINGS (CAKE)

#196825

Postby scrumpyjack » January 27th, 2019, 12:00 pm

There is, as I recall, an old legal principle that the auditor is a watchdog and not a bloodhound, and is not expected to disbelieve statements made to him/her by the directors unless there is something that creates a lack of trust. That may apply in this case as the fraud seems so extreme!

However I suspect there is a much higher standard of diligence required for a prospectus so if the fraud goes back to then, the investment bank and reporting accountants for the flotation could well be liable for damages. But perhaps if it was an AIM flotation, that does not apply. Look at some of the other AIM scams like Naibu!

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Re: PATISSERIE HOLDINGS (CAKE)

#196827

Postby PeterGray » January 27th, 2019, 12:02 pm

The fake cash is perhaps the single most puzzling part of the whole affair, for me. It should have been so easy to verify.

Presumably it was verified. But it appears that was wasn't declared/verified or whatever were significant debts that should have been netted against the cash that were hidden?

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Re: PATISSERIE HOLDINGS (CAKE)

#196828

Postby johnhemming » January 27th, 2019, 12:22 pm

As I remember it auditors are supposed to check at least some of the assets and liabilities. One would assume they are supposed to see some details of bank accounts.


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