Patisserie Share Discussion Threads

[thegreatgeraldo] 26/10/2018 13:04

CAKE downgraded turnover guidance fairly sharpish & most of that missing turnover comes straight off the bottom line, creaming profits & margins

[dmipne] 26/10/2018 13:00

Hi mr 10pc

I’m not defending the auditor at all. All I am saying is it is hard to audit something that is not there than something that is. Auditors check bank balances to confirmation letters from the bank. If they have opened a secret bank overdraft with another bank and not told the auditors, then they won’t be able to write to them, bar writing to every bank in the world

But that brings me to my second point. Those overdrafts arose because money was paid out of them. Whatever it was has not been recorded in the profit and loss account. That is what the auditor should pick up. I’m still leaning more to accounting incompetence and some sort of consistent illogical method of accounting, possibly on the intra group transactions, than fraud. Or maybe vat accounted for wrong.

However it would be better for the company if it was pure fraud and it has gone in someone’s back pocket. Fraud can be eliminated going forward ( and maybe even partially recouped) , and that means the underlying profitability, without the fraud, in the signed accounts was correct.

If that really is the case I’m steaming in with a buy at anything under 75p.

Still leaning though to the fact that the real profitability and margins of the business are way lower than recorded in the accounts and 50p to 60p will put the business on a fair p e going forward of maybe 10 or 11.

[rich2006] 26/10/2018 12:53

Not invested in this but following due to learning lessons etc.
I wish all existing shareholders all the best.
IMO
The CFO should not of been allowed to resign.
He should be fired for gross misconduct if the allegations/rumours are true.
I know the company line is reserving judgement on potential future claims but what then what normally happens is a deal that saves “legal costs on a protracted dispute in court”. F—-k that.
By being allowed to resign, he could potentially keep his share options, pension etc.
Fired for gross misconduct usually means losing all Benefits.
Why should he be entitled to his pension if it is fraud.
Looks to me that current directors are looking after their own, when they should be sending a clear message to everyone “crime doesn’t pay” and also saying to shareholders “we’re going to try to claw back as much of your funds as possible”
If I was a shareholder I would be asking why this has been allowed.

[mrtenpercent] 26/10/2018 12:26

@Dmipne -
'First the cash figure is wrong as there are missing overdrafts. It’s easier to audit what’s there than what’s not there so without making excuses for GT , if there is management fraud here, I can see how they missed this , particularly if the debt is with another bank.'
Well you're cleverer than I am because I can't figure out how the auditors missed it, unless the cash which the hidden overdrafts provided never went through the company's main account/s and was just stolen, by which I mean it was transferred from the overdraft accounts to a non-company account. And that doesn't make sense because the banks providing the overdrafts would want drawings to be transferred to the borrower's main account/s, wouldn't they? If a company arranges an overdraft or any other loan the lender isn't going to let the company's FD draw the money down to his private offshore account, they are going to want to see it going to the company's account/s. Assuming incompetence, not theft, is the root cause of the disaster the cash from the overdrafts must have been used to pay business expenses somewhere along the line, so the only way it could have been hidden would be for every such expense to be hidden too, and surely the sample checks that form part of every audit would have revealed this by way of supplier statements not reconciling with invoices booked? The chances of hiding millions which have been filtered off to pay bills that never get booked are very slim unless the auditor just isn't checking.

Finding out why the audit process failed is far more important than anything else in this mess for the reason given by in this post by Gustavfenk:

[dave4545] 26/10/2018 11:34

Resigned and taxi to jail ?

[thegreatgeraldo] 26/10/2018 11:24

"Dmipne
26 Oct '18 - 05:48 - 2110 of 2115
0 2 0

I would guess this has been going on for years and the internal accounting system is fundamentally flawed. Could even be the CFO is so incompetent he didn’t realise it , rather than an outright fraud."

Given what we actually know (the accounts do not reflect the actualite), the above fits my theory. Originally some end of year window dressing.... then you either risk being discovered when this is unwound, or need to repeat the trick (with interest) in following years, until it escalates out of control. Nobody sneaking out the back with wheelbarrows full of cash!

[corrientes] 26/10/2018 11:20

No such thing these days, and writing screeds of recommendations changes nothing as there's not the will or money to carry them out. Mind you, the authors of these wonderful reports (a few people off the street would do an equally good job) do earn a crust or two, so its not all bad news !

[thegreatgeraldo] 26/10/2018 11:14

Re an independent enquiry, I'd suggest the SFO will be fairly independent

[phowdo] 26/10/2018 11:04

As Warren Buffett said "Only when the tide goes out do you discover who's been swimming naked".

AIM is going to look like a nudist beach once this cycle is done with...

[corrientes] 26/10/2018 10:56

Problem,IMO, is that the time budget for these auditors is limited due to severe competition and more profitable work in other parts of the company,so reliance placed on internal auditors who should know what's going on.As their ultimate controller,the financial director is to blame, and maybe others if they're all in cahoots.

With the loose reporting standards these days, where you can play fast and loose with the truth,I'll bet there are lots more companies where a discussion with the boards is substituted for time consuming hard graft, and problems remain undetected..Giving a veneer of high standards by employing a prestigious name, doesn't really cut the mustard.

All part of the image being more important the the substance these days. When the crash happens, which IMO is almost certain now,CAKE will be seen to be one of many.

[hpcg] 26/10/2018 09:19

Dmipne - Did you work for Grant Thornton? People will commit any level of crime for money. This is especially easy in business because it is rarely punished, and conventional dishonesty is not even counted as a crime half the time.

[dmipne] 26/10/2018 05:48

Didn’t hold this one as could never justify such a high pe for a high st cake seller.

I am an ex auditor though and am intrigued as to the accounting irregularity. The accounts look prima facie absolutely clean to me. There is no area of significant judgement as in contracting companies which is the usual source of error. It’s not uncommon for companies to keep cash balances artificially high at the year end date by delaying payments for a day or two, or switching monies between group companies and I would not have read much in to the large cash figure.

There are clearly (at least ) 2 major things wrong with the accounts.

First the cash figure is wrong as there are missing overdrafts. It’s easier to audit what’s there than what’s not there so without making excuses for GT , if there is management fraud here, I can see how they missed this , particularly if the debt is with another bank.

Secondly though, either some income must be overstated ( possibly included gross of vat)or expenses are understated ( possibly some intra group transactions not being accounted for and reconciled ). This is just a simple cake seller that presumably does weekly store reports. For an auditor to miss this is simply gross negligence.

I would guess this has been going on for years and the internal accounting system is fundamentally flawed. Could even be the CFO is so incompetent he didn’t realise it , rather than an outright fraud. I’d take a good bet Luke Johnson is not involved in any fraud here. He has been made to look a complete numpty outof this, but he’s still too smart to think he could get away with this level of accounting fraud , as it always catches up with you.

[ronin92] 25/10/2018 22:08

FRC's 2017/18 audit quality inspection of Grant Thornton's work (issued June 2018) noted the following as one of their concerns when examining a sample of their work:-

"A lack of scepticism following management’s request for the audit team to not confirm
balances and other details directly with one of the group’s banks." (p. 12)

hxxps://www.frc.org.uk/getattachment/f77334ea-d71c-4730-af5e-e4c5f6a83b72/Grant-Thornton-UK-LLP-Public-Report.pdf

[sikhthetech] 25/10/2018 14:24

Yes, I think the investigation should be an completely independent...although maybe a bit late...


Patisserie Valerie is saved but mystery of how it got into sticky mess deepens

"Investors would like to know, too. Indeed, many would probably be more comfortable if the internal investigation into the financial calamity was led by outsiders, rather than the board. A team from PwC has been hired to assist with gathering facts – but that’s not same as conducting a properly independent inquiry."

[lefrene] 25/10/2018 13:05

Luckily I avoided this one eeza, but I too have suffered major wipe outs in the past. It's taught me to look very closely at things that appear too good to be true, and to check thoroughly other businesses operating in the same sector.

The 'story' here will be a very familiar one of auditors failing in their diligence and blaming their failure on others. A few auditors successfully sued by share holders for large sums might bring about a culture change.

[eeza] 25/10/2018 12:41

I don't hold here, lefrene, but I try not to provoke as I have been in 2 other total wipe-outs, so know how holders here must be feeling.
I am, however, interested in the story and what I can learn from it.

[lefrene] 25/10/2018 12:19

eeza, it's entertaining to speculate upon who was up to what, will we see the full story, or having rescued the business for now, will there be a cover up? The only scenario's that would make sense to me, would be bigging the business up in order to sell it on, or a nervous/timid senior employee trying to hide their failings in the hope something would turn up to save the day. I have sympathy for private holders who will have lost large sums here due to the deception of some one within the company.

[eeza] 25/10/2018 11:58

Starting to look more like involved than asleep.

His holding in CAKE was ~£150m and approx 50% of his total (declared) wealth. If that was your position would you take close notice of your asset?

[lefrene] 25/10/2018 11:45

So why did no one in the Bank blow the whistle on the overdrafts? Did no one check CAKE accounts and see that the overdrafts were missing? If you had lent a business £10 million wouldn't you read their accounts both the period before and then the period afterwards? Loads more to come out of this story, either Johnson asleep on the job, or up to his neck in a fiddle, neither will look good on a CV!

[eeza] 25/10/2018 11:03

Creative Management becoming as common as Creative Accounting.

[typo56] 25/10/2018 10:05

Sometimes another scam directors run is vested party interests.

These can be dressed up as 'consultancy services'. Or they may be other types of supply agreements with companies they own. With some AIM companies (e.g. MUBL, RGD and perhaps CRAW) it's been an easy way of diverting profits out of the grasping little hands of the common shareholders! With fashion companies, check the supply chain. Are the suppliers getting the profits?

Of course, any such vested party interests should be declared. It's surprising though how often this gets overlooked, through 'human error'. MUBL and RGD were retro-declared, once they got caught.

Given the other issues that have emerged, it might be worth doing a bit of digging into any vested party interests. It's not always easy, because the AIM directors may avoid being official directors of the company vacuuming the profits, but they may be close family members (which should still be declared IMO). At CRAW Richard Rose's vested party interest in Electro Switch Ltd was no longer declared after he resigned at Electro Switch (conveniently just before CRAW year end reporting). Family members remained directors though. Who knows how much, if anything, Electro Switch now bill CRAW for consultancy services.

[kirk 6] 25/10/2018 07:23

Don't think these will ever resist now can't be trusted one bit

[troy] 24/10/2018 22:55

WTF was Luke Johnson doing ..... Undisclosed share awards ???? FFS !