High Street Fall out

This week has seen the final demise of Patisserie Valerie, the company has been in trouble for some time and was looking like it could be rescued but to no avail.

On first reflection it would look like this is another victim of the failing high street but on further exploration it would appear not! 

The high street has seen a serious demise over the last 5 years in particular, the main “big shops” are now in retail parks which offer free parking so why would you go to the high street where a lot of the shops are closed, unless you need a mobile phone, or a charity shop it’s just not attractive.

Knowing all of this, when I first saw that Patisserie Valerie or as we affectionately call it, Patsy Vals was going into administration, I just expected it to be another casualty of the high street but there appears to be more to it.  The company said in a statement that it did not have enough money to meet its debts. The biggest shareholder and chairman, entrepreneur Luke Johnson, had been in talks to extend a cash lifeline from HSBC and Barclays. Mr Johnson has personally extended an unsecured, interest-free loan of £3m to help ensure that the January wages are paid to all staff working in the business. This loan will also assist the administrators in trading as many profitable stores as possible while a sale process is undertaken.

KPMG have been bought in to see what can be saved and try to secure as many branches and employees as they can. The loan from The Chairman will help in this and he has ensured the wages are paid which is more than usually happens in these scenarios.

So, if the majority of the business can be saved then why did it go under? Patisserie Valerie has actually been running since 1926, which I was surprised about, as it seems to only be in recent times that it has come to my attention. This maybe attributable to Luke Johnson’s company taking over in 2006 and expanding the company significantly.

The business, it appears, has been brought down through fraud. Last week, Patisserie Valerie confirmed it had found “extensive” misstatement of its accounts and “very significant manipulation of the balance sheet and, profit and loss accounts”.

This includes thousands of false entries in its ledgers, the company said in a statement. Profits and cash flow had been overstated and were “materially below” figures announced in October. Patisserie Valerie almost ceased trading last year after the discovery of the black hole in the accounts. However, a rescue plan was passed by shareholders in November, resulting in the issue of £15m worth of new shares.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the administration was bad news for shareholders.

“Any dim hope investors had of recovering any value from shares they bought in good faith has now been extinguished,” he said.

“It’s one thing to see a company’s shares wiped out by poor trading conditions, or even bad management decisions, it’s quite another to see your investment disappear as a result of fraudulent activity,” he added.

The question over all of this is how on earth did this happen without being spotted a lot earlier? Grant Thornton were the auditors of this company and they missed the fact that fraud was occurring, needless to say, they are under investigation. Alongside this the Finance Director has been arrested and will have a lot of questions to answer.

All the people that bought the re-issued shares have lost the lot, which just goes to show that direct shares are the highest risk investment that you can make and, emphasises just how much having a diversified portfolio is really important in a changing market.

This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.  Investments may fall as well as rise and you may not get back the full amount

Wendy Devlin DipCii CeFa CeMap MP and ER

Financial Adviser