Shares suspended as retailer uncovers ‘potentially fraudulent’ activity

Shares in Patisserie Valerie have been suspended after the cake retailer revealed “significant and potentially fraudulent” accounting irregularities.

The Birmingham-based business has suspended its chief financial officer Chris Marsh, who has been in post since 2006.

In a short statement to the stock market, the company said it learnt yesterday of “a potential material mis-statement of the company’s accounts”.

Although it has not publicly put a figure on the problems, it is reported there is a £20m black hole in the company’s accounts.

Chairman Luke Johnson, the serial entrepreneur behind Pizza Express and Giraffe, said: “We are all deeply concerned about this news and the potential impact on the business.

“We are determined to understand the full details of what has happened and will communicate these to investors and stakeholders as soon as possible.”

Patisserie Valerie’s most recent published accounts, for the year to September 2017, showed pre-tax profits of £20.1m on revenues of £114.2m.

It had been enjoying a long and successful growth curve with year-on-year increases in sales and profits stretching back at least seven years. In the last five years it has doubled sales and trebled profits.

The group, which also operates Druckers and Philpotts, floated in 2014 and its shares have more than doubled in value. It closed last night at 429.5p, valuing the company at nearly £450m.

Russ Mould, investment director at AJ Bell, said: “Patisserie had, until now, always been seen as a well-run, successful business with growth in profits and dividends.

“In May it reported a £28.8m net cash position and executive chairman Luke Johnson said the business had ‘a strong balance sheet’. Now the business says the accounting issue has ‘significantly impacted’ its cash position.

“While it is too early to jump to conclusions with Patisserie, this latest episode is incredibly damaging for investor sentiment towards corporate reporting transparency in general. Recent financial errors at drinks distributor Conviviality (which led to its demise) are still ingrained in investors’ memories, so too accounting hiccups at supermarket Tesco and telecoms group BT.”