Patisserie Holdings' woes worse than originally thought

Scandal-hit Patisserie Holdings, which discovered a £40m black hole in its accounts last year, said on Wednesday that it had discovered thousands of false entries into its ledgers and that its profitability was likely to be much lower than it originally estimated.

The owner of the Patisserie Valerie and Druckers Vienna Patisserie chains said that its forensic accountants had found the misstatement of its accounts to be "extensive", with "very significant" manipulation of the balance sheet and profit and loss accounts.

"Among other manipulations, this involved thousands of false entries into the company's ledgers. It will take some time before a reliable trading outlook can be completed while the above work streams progress," it said.

"The initial indications from the work carried out to date is that the cash flow and profitability of the business has been overstated in the past and is materially below that announced in the trading update on 12 October 2018, which was based on limited work carried out over a 48-hour period."

The company had said back in October that it had net debt of around £9.8m. It estimated that annual revenue and earnings before interest, taxes, depreciation and amortisation before exceptional one-off costs for the year ending 30 September 2019 could be approximately £120m and £12m, respectively. However, it also stressed at the time of the update that these amounts were based on the limited work that had been performed to date.

Patisserie has hired KPMG to assist it in carrying out a review of all the options available to recover from the "devastating effects" of the fraud, and to preserve value for its stakeholders.

In addition, the group - whose executive chairman Luke Johnson put up a £20m rescue package in October 2018 - has also been in talks with its bankers to extend the standstill of its bank facilities beyond 18 January.

Patisserie confirmed that RSM were appointed auditors today, but due to the fraud and attendant accounting issues it will be some time to complete a restatement of the company's accounts and prepare the audited figures to 30 September 2018.