So, a company that had £28m on the balance sheet at its last interims at 31 March, no bank debt and with £16m post-tax profit in the year to 30.09.17 and £9m in the six months to 31.13.18, and with a stock market valuation of £440m is seemingly unable to pay a tax bill of £1.5m.
Moreover, it has been unable to pay this bill for such a long time that HMRC have got so fed up that they filed a winding-up petition a month ago.
And today the FD was arrested - and released on bail, and fraud is being discussed.
What is going on?
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I’m sure it’s all about having your cake and eating it too.
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>> What is going on?
Its a company that claims it had £28m on the balance sheet etc etc. That the FD was arrested its likely that was not the case.
Confidence in Industry Finance and Commerce is plagued by the big 4 cartel of auditors who have been exposed as utterly incompetent over recent years.
Last edited by: VxFan on Fri 12 Oct 18 at 12:49
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Auditors AND consultants. It's the conflict in their role which gives rise to the "blind eye" approach to accounting (see Carrillion and others) IMO.
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>>Confidence in Industry Finance and Commerce is plagued by the big 4 cartel of auditors who have been exposed as utterly incompetent over recent years.
Which is good as they didn't have a Big Four auditor, but Grant Thornton instead.
>>Its a company that claims it had £28m on the balance sheet etc etc. That the FD was arrested
>>its likely that was not the case.
Indeed. But...
It's surely not the case that the FD nicked the cash. If he had, then he'd be in Panama by now, not on bail. So he's been arrested for lying in his accounts. As the accounts don't show his receiving any bonus last year, it seems unlikely that he did it in order to receive a bonus based on share price/performance. Edit: "banked a £700,000 profit selling share options in July". Maybe he did then.
And I find it very difficult to believe that the cash was not there a year ago. First stop in auditing is to write to the company's banks to confirm the cash in the bank account on the last day of their financial year.
Luke Johnson - the 37% shareholder, whose stake was supposedly worth £160m, and who has loads of other super investments apparently does not have the ability to raise the cash that the company needs. Wonder what he will turn out to have known and what his involvement might be.
Last edited by: Mapmaker on Fri 12 Oct 18 at 12:59
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I'd expect arrival of a winding up petition to create an instant hiatus but this one seems, on reports, to have been around for a while.
Surprised it's issue didn't generate publicity there and then.
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The FD has been charged with Fraud by misrepresentation / false representation. which means fixing the accounts rather than actually stealing the money. Though I guess that might come.
It is entirely possible that the money is there but that it is owed elsewhere, owned elsewhere or already committed. It is difficult to create cash that does not exist, it is less difficult, though still not easy, to lie about what that cash is.
£30m odd was raised a few years ago to pay off debt. I suspect that the problems were already existing at that time. Or at least beginning.
Last edited by: No FM2R on Fri 12 Oct 18 at 13:30
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Also there seems to be some confusion between Patisserie Holdings and it's trading subsidiary Stonebeach.
The HMRC order was against Stonebeach which the Holdings Board seem not to be aware of. So I guess that the FD was misrepresenting Stonebeach to Patisserie Holdings.
I guess Holdings and Holding's investors are trying to work out whether or not it is worth putting the additional money into Stonebeach, not whether or not they can afford to do so.
Last edited by: No FM2R on Fri 12 Oct 18 at 13:34
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>> I'd expect arrival of a winding up petition to create an instant hiatus but this
>> one seems, on reports, to have been around for a while.
>>
>> Surprised it's issue didn't generate publicity there and then.
That is why one trades from an anonymous-sounding company like Stonebeach. Luke Johnson says so:
www.thetimes.co.uk/article/luke-johnson-a-business-beginners-guide-to-tried-and-tested-swindles-08220xhqf
"Financial bandits know that the more opaque their operations, the less regulators might detect any wrongdoing. So dodgy entrepreneurs are experts at shuffling their corporate assets — changing names and owners frequently."
I'm guessing it was a PAYE liability, non-payment of which gets HMRC moving quickly; but I still think it would have been months before they reached the point of court. The company's Client Relationship Manager at HMRC will have been on the phone to the FD regularly, looking for the cash; this did not come as a surprise within the business.
Perhaps Johnson is not putting up the cash as he wants to buy it out of receivership. That way he becomes a hero. Johnson writes:
"Buy companies from desperate sellers: find assets so undesirable that you can pay nothing for them."
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I hadn't spotted they were using Grant Thornton but a;though they may not be Big Four they do have a couple of skeletons in the cupboard.
www.ft.com/content/1ada3b64-ab58-11e8-94bd-cba20d67390c
Older - www.fcpablog.com/blog/2015/12/16/blown-audits-sec-penalizes-grant-thornton-45-million-and-sus.html
They clearly aren't as bad as the real bad boys though.
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It doesn't matter if it is Big 4 or not, it's always the same issue; the Auditor is trying to keep a customer and present an honest account to the world.
Hence the value of pre- / non-pubic audits which do not have to be disclosed.
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>> Hence the value of pre- / non-pubic audits which do not have to be disclosed.
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...you might wish to edit that... ;-)
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Discovery of fraud is not the purpose of an audit.
I have huge sympathy with auditors. Who would be one? You are faced with a hugely complex corporate structure across a whole range of jurisdictions. "Reviewing the books" means "looking at a load of spreadsheets" And if somebody has pulled the wool over your eyes you might never find out - until the whole pack of cards collapses.
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>> Discovery of fraud is not the purpose of an audit.
The purpose of an audit is to provide an educated judgement on the validity and appropriateness of the presented financial situation of an organisation to increase confidence in and credibility of that material.
Whilst not every document, transaction or statement is reviewed, rather the process and controls are validated, you'd hope that they would spot inaccuracies, inconsistencies or inappropriate practices which would indicate a fraud.
In other words, they may not be there to find fraud, but it would be difficult to do a proper job without doing so and if it was my I would expect good reasons and justification as to why they didn't find it.
It may well have been auditors who detected these inconsistencies.
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>>It may well have been auditors who detected these inconsistencies.
Very likely. Last year's stats were signed towards the end of November, so presumably they will be in there at the moment. Or are just about to go in and management realised they could hide something no longer. Or, perhaps more likely, the winding-up petition caused banks to freeze Stonebeach's accounts.
I am sure we shall know a little more by Monday. PwC won't be able to hold off from pressing the 'administration' button much longer. That's when we will find out whether the problems are structural and long-term, or purely the result of a nasty accident with a bank account.
The timescale for the FD's cashing in of the share options has made me wonder - but that would be as mad as stealing the cash.
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>> www.ft.com/content/1ada3b64-ab58-11e8-94bd-cba20d67390c
That is an invitation to subscribe to the FT.
Which I don't want to do.
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You're not missing much except a fairly badly written and underwhelming article which reveals such 'secrets' as do business in cash, con your friends, don't pay bills until you're sued and appoint your relatives as directors.
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>>Landlords forfeited the leases on locations in Hammersmith and Edgware Road, citing a breach of contract.
That was a bit rash. I do hope someone is regretting that right now.
I'd be a bit cynical about Johnson's offer were it not for the fact that there is no interest or fee, and in fact it is unsecured at this moment. Obviously it is in his interest for the business to keep trading but this seems to be a very fair approach for the company.
It says they have a net debt of £9m. I wonder where that £9m fits in with the missing £20, the £20m loan, the £1.2n debt to HRMC, the Share Issue for £17m and the intended repayment to Johnson of £10m
Complicated times, still it all seems to be going in the right direction, though I guess the FD is living in interesting times.
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I'm not surprised it's the largest shareholder lending the money - otherwise his share of the business could suddenly be worth very little.
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>> I'm not surprised it's the largest shareholder lending the money - otherwise his share of
>> the business could suddenly be worth very little.
If the company has been losing cash over the last five years, not making it, then he may be throwing good money after bad. Is it a cash cow, or a money pit?
>>FD living in interesting times
Yes... but you can't do something like this on your own. You need half the finance department in on it too. Wonder how big their finance department is. With 200 leases and fit-outs to manage it must be a decent size.
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So the company has instead of £30m cash, net debt of £10m, which has apparently arisen over a number of years. Long-term fraud at a pastries shop.
Luke Johnson is going to get 10m shares at 50p on a non-pre-emptive basis, as well as lending the company £10m for three years interest free and a further £10m on a temporary basis - the latter being settled by a rights issue.
otp.investis.com/clients/uk/patisserie_holdings/rns/regulatory-story.aspx?cid=844&newsid=1199404
If you wanted to take your pet company private at a cheap price then this would be a good way to do it...
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Their turnover was pretty poor
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Some of their cakes were okay but pricey. I find the ones in bakeries in Greece much better and also better value for money.
I agree Mapmaker that he might be throwing good money after bad but he used to have a share of the business worth about £160m.... He's probably afraid of losing that.
And if he did have a 37% share worth over £100m then he must have wrongly trusted those running it.
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Glad the 100's of probably low paid staff have got a reprieve!
Never been in one but was hoping to give one a try in the near future.
We have a good local independent bakery and café that does some superb cream cakes, sweet and savoury buns, sandwiches and pies as well as a decent cuppa.
A cream cake and a cuppa is about £3 which isn't bad considering the quality and size!
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Expect to pay around three times that in P V
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My bank Premier Card gives me a free coffee every day when ever I visited VP, no other purchase required. Had not realised that I had consumed £28M worth in the last 6 months!
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Never quite sure about PV, some outlets are quite good, some are very poor. Bring back J Lyons!
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>> Never quite sure about PV, some outlets are quite good, some are very poor. Bring
>> back J Lyons!
>>
Sure you don't just fancy a nippy?
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Some more news...
www.bbc.co.uk/news/business-45854817
Short of following the bank accounts to the cashbook and the cashbook to the TB there isn't a lot more the auditors could have done but I would have expected a charge to show against lending if the overdraft was secured (and £20m ought to have been).
I would have also expected the bank to have confirmed all account balances and lending in the audit letters even if asked about just one (we certainly do).
We also write to all guarantors to tell them of any changes and even if the company is huge we tend to take a guarantor from the shareholding directors just to stop them walking away and leaving us with a mess.
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>>Short of following the bank accounts to the cashbook and the cashbook to the TB there isn't a >>lot more the auditors could have done
1. There's a lot more to find out yet. Presumably he was just borrowing money and pretending it was cash receipts. You look at the profits of a sample of shops in great detail and try to work out if the overall group profit makes sense in that context. Problem is, nobody expected a coffee shop to be the subject of a huge scam.
2. Why did he do it? Was it just for his share options profit? And as that is clearly theft, why not nick some cash as well. But how did he expect not be found out? No hope whatsoever.
3. For the sake of the company's profitability one must hope he was nicking cash. If he wasn't
4. What were the banks (with overdrafts) up to? They will have been sent a copy of the accounts, didn't they look for the line with their overdraft in? And didn't they think it odd that a company with £28m cash had an overdraft with them? That's an overdraft, so flexible and for short-term financing - why have cash on deposit at the same time?
>> even if the company is huge we tend to take a guarantor from the shareholding directors
But not presumably if it is listed.
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Patisserie Valerie - CGNorwich
