PATISSERIE HOLDINGS (CAKE)

[ADrunkenMarcus]

I do not own shares here either but what do you mean by 'stronger financial controls'?

I can't speak for the original poster, but I'd like whatever actions are necessary to ensure a company reporting almost £29 million in cash does, in fact, have that cash. Defining those actions is somewhat harder!

Best wishes

Mark.

[Dod101]

Actually come to think of it, a false market comes to mind. I wonder if the Executive Chairman will be held responsible. I reckon he should be and that might help to strengthen the financial controls if the man was held guilty and there was a proper meaningful punishment.

I guess it is too early to think of who is responsible but his name should certainly be in the frame, not just the finance director.

Dod

[Bouleversee]

I don't own shares in CAKE but what I hope comes out of it are the requirements for stronger financial controls and - more importantly- much stiffer penalties if management are found to be cooking the books.

I do not own shares here either but what do you mean by 'stronger financial controls'? Until we all get much more information it is difficult to make any meaningful comment but I see in the Sunday Times today that apparently, the board has discovered that the chain had previously unknown overdrafts of almost £10 million. That seems incredible. How could two banks agree overdrafts without a Board resolution at least? What sort of management accounts did they have and who was overseeing them? It sounds as if not just the Executive Chairman (Luke Johnson) was hands off but so was the chief executive. Amazing if it is true.

The auditors do not look too clever either.

How does anyone police this sort of thing? Strong management and more importantly engagement by the management in what is going on is one way but until more info becomes available it is difficult to comment much further.

Dod

The FT said the company said they had a net debt position of £9.8m. They didn't mention overdrafts so presumably that includes the tax bill and unpaid bills to suppliers etc. FT said that Johnson was lending £20m. £10m in a bridging loan to cover immediate outstanding liabilities, but this will be repaid through the proceeds of the share sale. He will also provide a £10m three-year loan, all interest and fee free. After the market closed, Patisserie Holdings said it had raised £15.7m through a share sale at 50p p.s. That was quick. Wouldn't you just love to know who stomped up that cash and how much of it came from connected persons who had sold their shares at the top earlier in the year, if that is allowed to happen. It will be interesting to see what happens to the s.p. on Monday. I wouldn't be surprised if it shot up.

I gather that Marsh was released on bail without being charged with anything.

[ADrunkenMarcus]

Secret overdrafts!

https://www.bbc.co.uk/news/business-45854817

I'd suggest Marsh cannot really be charged formally until they know the full details of what has happened at the company, in order to determine the full extent and nature of any criminal charges which might apply.

Best wishes

Mark.

[johnhemming]

The difficulty here is that there are two potential things that may have been happening
a) That the company actually was not that profitable and this was concealed by the use of unreported borrowing. or
b) Someone has been stealing cash.

The problem with a) is that the business is not actually as profitable as was thought. Still a big issue for the auditors.

[AndyPandy]

Secret overdrafts!

https://www.bbc.co.uk/news/business-45854817

"Mr Johnson said that the past seven days had been "the most harrowing week" of his life, and that he felt a "moral obligation" to rescue the business."

One thing is for sure Luke Johnson's entire career is inextricably linked with what happens from now on at Val Pat.

Hat tip.

Compare that to Messrs Chappell and Green

[ADrunkenMarcus]

One would think that if Barclays or HSBC were going to provide millions of pounds in overdraft facilities then they'd do some diligence on the ability of the borrower to pay, including the borrower's assets, income, cashflow and liquidity? Did they not notice the company was claiming net cash of almost £29 million and yet had such borrowings? Did they not look at the balance sheet and think 'hmmm...'?

Best wishes

Mark.

[johnhemming]

There are a lot of issues here for the banks, auditors and directors. I have some time for Luke Johnson who I have had various dealings with over time and who I overlapped with for a year at my college. I don't think this reflects that badly on Luke Johnson compared to the situation with Green. Perhaps he is too trusting.

[ADrunkenMarcus]

I'm going to keep an eye on developments via this blog which someone else has set up:

http://cakequestions.blogspot.com/

Best wishes

Mark.

[Dod101]

It certainly looks as if Luke Johnson is too trusting but that of course is only a few degrees away from being negligent in his stewardship. It also seems to me that he was spreading himself too thinly, but it also raises questions about governance in general. We can all waffle on but until some facts are established there is not a lot of point because it is mere speculation.

Dod

[Bouleversee]

When I said I wouldn't be surprised if the s.p. went up when trading was resumed, I meant from the 50p that the placing was priced at, of course, not the suspension price. The Times says that "the placing, in which Mr Johnson is expected to buy about £5m of shares, will be priced at 50p compared with the 429.5p at which the shares were suspended. So, following the Unilever fiasco, when most individual shareholders were denied a vote, we now have most individual shareholders being denied the opportunity of reducing their losses. It's not the first time that small shareholders have been excluded from placings, of course, but I'd love to know how Mr Johnson justifies this as he burbles about moral obligation and how the lawmakers allow this discrimination. What mugs we are.

[Dod101]

Off topic but we should all be following up on the denial of a vote in the Unilever case where shares were held in a nominated account.

Dod

[PeterGray]

When I said I wouldn't be surprised if the s.p. went up when trading was resumed, I meant from the 50p that the placing was priced at, of course, not the suspension price. The Times says that "the placing, in which Mr Johnson is expected to buy about £5m of shares, will be priced at 50p compared with the 429.5p at which the shares were suspended. So, following the Unilever fiasco, when most individual shareholders were denied a vote, we now have most individual shareholders being denied the opportunity of reducing their losses. It's not the first time that small shareholders have been excluded from placings, of course, but I'd love to know how Mr Johnson justifies this as he burbles about moral obligation and how the lawmakers allow this discrimination. What mugs we are.

I don't think anyone should be too hard on this issue. Firstly I suspect anyone interested may well have opportunity to buy at around that price when the market reopens. Mark Brumby's email this morning gave 4 different quick back of the envelope calculations for post suspension CAKE (clearly very rough and ready as lots is just not known). However, his estimates all came out clustered around 50p, for what they are worth.

But more importantly, whatever the rights and wrongs here, for the shareholder on the Clapham omnibus the most important thing is to prevent CAKE going under leaving them with a total loss. That clearly needed nearly instant action and fund raising, and that just isn't compatible with the systems that exist for shareholder participation in offers and rights issues.

I don't write this in anyway suggesting support for Johnson, quite clearly, as the biggest shareholder acting to prevent a total loss is entirely in his interests. And quite clearly his reputation is completely blown. Whatever he may or may not have known about what was going on as chair of the company, with a lucrative sideline in pontificating about spotting fraud, he clearly failed massively at his job.

Peter

[dspp]

1. Assume charitably for a moment that these debts were run up not for direct personal gain, but instead to conceal the true trading position. Given the sums involved (concealed debts of 9.8m) vs a 2017 after tax profit of £16m, it seems realistic that this has been going on for some years. Or rather it is unrealistic to expect this to just have been a one year thing, until facts prove otherwise. In turn that means that many management & board have indirectly benefitted, both through salaries, and through achieving (and in some cases selling) share options, and through dividends and fees. It is of course possible that one or a combination of those indirect benefits was what fed the start of this, and the thin end of the wedge just got bigger and couldn't be reversed out of.

2. If correct, that in turn means there has been a false market in these shares going back many years. The flotation was 2014. And if correct, going back to the initial flotation of 2014 which is not that long ago. And, if correct, going back through multiple audit periods.

3. The placement at 50p, if bought into by the existing board & closely aligned institutions, is likely to hand them de facto complete control of the company.

Not exactly an act of charity .......

In my opinion all members of the the board should be making an uncovered loan, finding their successors, and stepping down, and returning all their fees & earnings from ownership (or as a minimum into escrow, until proven utterly blameless, which of course is a higher standard than is normal). Every single one of them.

I also think that there are serious questions to be asked about the audit.

I don't expect to see this of course.

regards, dspp

[Bouleversee]

If it was a complete basket case, Johnson and cronies wouldn't be taking up the placement. They could have provided sufficient cash to deal with the immediate problem and see them through a rights issue available to all which would have given all shareholders the opportunity to avoid dilution. It looks like a buy back on the cheap to me, with the little man squeezed out and left nursing his losses. Pat Val is clearly not as profitable as we were led to believe (unless someone has actually siphoned off the profits to their own bank account) and it will be interesting to see whether any legal actions are brought by shareholders who were misled into paying high prices.

What has Johnson been earning for being asleep on the job?

It would make a good book.

[Alaric]

1. Assume charitably for a moment that these debts were run up not for direct personal gain, but instead to conceal the true trading position.

You wonder how they managed to hide it in the accounts. Running a cake shop should be a straightforward business. Money in from customers. Money out for leases, materials, staff costs etc. Little scope one would have thought for accounting opinion. Profit should accumulate as cash in bank.

[simoan]

Off topic but we should all be following up on the denial of a vote in the Unilever case where shares were held in a nominated account.

Dod

Well, I got an email notification and was then able to vote the shares in my HL account. I guess it depends what broker you are with - cheap brokers only show their true colours in these type of situations.

All the best, Si

[Bouleversee]

As I understand it, your vote would only have counted if you had switched a share to certificated form.

[Dod101]

As I understand it, your vote would only have counted if you had switched a share to certificated form.

You may be correct because I have never tried voting any of my ISA or SIPP holdings but my understanding of the problem was that most brokers/ISA Managers would agree to vote the shares belonging to the beneficial owner in whichever way instructed (after all the vote is only for or against) but when it came to voting the number of shareholders (rather than the number of shares) for the Court meeting they felt unable to comply with that instruction and it was suggested that only a share certificate could do that. Now well off topic but this should be pursued.

Dod

[YeeWo]

When I said I wouldn't be surprised if the s.p. went up when trading was resumed, I meant from the 50p that the placing was priced at, of course, not the suspension price. The Times says that "the placing, in which Mr Johnson is expected to buy about £5m of shares, will be priced at 50p compared with the 429.5p at which the shares were suspended. So, following the Unilever fiasco, when most individual shareholders were denied a vote, we now have most individual shareholders being denied the opportunity of reducing their losses. It's not the first time that small shareholders have been excluded from placings, of course, but I'd love to know how Mr Johnson justifies this as he burbles about moral obligation and how the lawmakers allow this discrimination. What mugs we are.

- Don't hold CAKE, Appalled however at the roughshod way Small Shareholders have been treated. Forums like LF can and should be the means for a substantial lobby of opinion to be canvassed and mobilised to do something about blatant injustice like this.
- In 2018 it is really silly that Nominee Holders aren't able to exercise their voting rights. I was at a http://londoninnovation.org event last night in Canary Wharf, speaking with a tech-geek who has a start-up SaaS company addressing this problem. He, laughably, thought somebody would pay 1% for the facility. A technological solution however is de rigueur in most industries today, the LSE, listed participants, bank custodians, SIPP providers etc. should be compelled by law to make this available to the little people.
- https://webb-site.com How I wish the London Market had somebody of the intellectual gravitas of David Webb fighting for an equitable market for all investors. Capitalism is pretty tarnished at the moment, bad corporate governance is the last thing we need to see start developing!