Patisserie Valerie says its accounts were ‘significantly manipulated’
Patisserie Valerie, the cafe chain which came within hours of financial collapse in October after discovering a multimillion-pound gap in its accounts, has uncovered “thousands of false entries into the company’s ledgers”.
In a statement to the Stock Exchange, the company, which operates 200 cafes and employs 3,000 staff, said work carried out by 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”.
The company said it was now clear that the cash flow and profitability of the business had been overstated in the past and was “materially below” the numbers the company provided when the accounting black hole first emerged in October.
Luke Johnson, the multimillionaire chairman of the business, was forced to put £20m of his own money into the firm to keep it afloat after the uncovering of potentially fraudulent accounting irregularities that left it teetering on the brink. Other shareholders later put up £15m, £10m of which was used to pay back half of Johnson’s loan.
The company was valued at £450m when the problem was uncovered, but the shares were suspended and have yet to restart trading.
The company’s finance director, Chris Marsh, was arrested by Hertfordshire police, bailed and resigned.
The Serious Fraud Office has confirmed that it has opened a criminal investigation into an individual but has not given further information.
The Financial Reporting Council is meanwhile investigating accountancy firm Grant Thornton for its role as auditor to Patisserie Valerie.
The group’s chief executive, Paul May, resigned in November and was replaced by Steve Francis, a turnaround expert who previously ran the pork producer Tulip. Only Johnson and the deputy chairman, Lee Ginsberg, remain of the original board.
On Wednesday, the company said it had hired accountants KPMG in an attempt “to preserve value for its stakeholders going forward”.
It is understood that a number of options are being considered. However, KPMG is known for its expertise in restructuring and insolvency, particularly a procedure known as a company voluntary arrangement. CVAs enable businesses to renegotiate rental agreements with landlords or close stores.
They have been used by a string of casual dining chains, including Carluccio’s, Byron and Jamie’s Italian, to reduce their high street presence amid a slowdown in consumer spending in an oversaturated market.
Patisserie Valerie was granted a standstill of its banking facilities until this Friday, protecting it from action to recover debts, and is in talks with its lenders to extend the agreement. The company has previously said it wanted the standstill to last a year.
When the scandal was first revealed, Patisserie Valerie said an initial investigation of its accounts showed that instead of having £28m in the bank, as the company had previously told the City, it was nearly £10m in debt.
In a 12 October statement it said underlying profits might have been only £12m in the year to 19 September, compared with £26m reported a year before. The new update said that £12m was an overestimate.
It added that it would take some time before a reliable trading outlook could be produced.
Johnson has waived his £60,000 salary and pledged to give up some of his other directorships as he tries to turn around the chain.
He remains chair of at least 10 boards including the Almeida theatre in London, the Institute of Cancer Research, the entrepreneurial campaigning group StartUp Britain and a number of companies held by Risk Capital – his investment company. These include , Brighton Palace Pier, Majestic Bingo and the owner of Gail’s bakery chain, Bread Holdings.