New owners say firm back on track after takeover unearthed butter ban, broken ovens and unpaid suppliers
Patisserie Valerie’s new owner has laid bare the desperate state of the business it bought in January, including a cost-cutting approach so severe that managers stopped using butter in the cake chain’s puff pastry.
The private equity firm that bought the company out of administration for just £5m described its shock at finding broken ovens, unpaid suppliers, and a leak in the roof at a key bakery site.
Patisserie Valerie shocked investors last year when it revealed a multimillion-pound black hole in its accounts that soon sank the business.
The 93-year-old chain Patisserie Valerie has fallen into administration after a turbulent recent few months.
10 October
Patisserie Holdings, the owner of Patisserie Valerie, reveals a multimillion-pound accounting black hole and said its main trading subsidiary – Stonebeach – is facing a winding up order from HMRC. Trading in the Aim-listed shares, which had valued the company at £450m, are suspended.
12 October
Luke Johnson, the chairman of Patisserie Valerie, agrees to pump £20m of his own cash into the chain to keep it in business amid claims of “fraudulent activity”. Johnson, who made his name by rapidly growing the Pizza Express chain, later describes the scandal as a “nightmare” after the board said it was unaware of millions of pounds of bank loans.
26 October
The finance director, Chris Marsh, resigns after being arrested and bailed by Hertfordshire police. The Serious Fraud Office confirms it had opened an investigation into an unnamed individual.
15 November
Paul May, chief executive, is replaced by turnaround specialist Steve Francis. Johnson remains in his role as chairman despite shareholder criticisms, but agrees to waive his £60,000 salary.
16 January
Patisserie Valerie says it had found “thousands of false entries into the company’s ledgers”, resulting in profits “materially below” the numbers reported when the black hole was first found. Forensic accountants say they had found “very significant manipulation” of the chain’s books.
22 January
Patisserie Holdings enters administration after failing to extend banking facilities with its lenders. About 70 cafes close, including the entire Druckers chain, with the loss of just over 900 jobs.
29 January
The Guardian reveals that Patisserie Valerie’s store sales information going back to January 2013 and cash position data going back to September 2014 could be unreliable, according to documents sent to potential buyers.
8 February
Mike Ashley’s Sports Direct says it is making a surprise bid for Patisserie Valerie, but changes his mind two days later.
14 February
Ireland’s Causeway Capital Partners buys 96 Patisserie Valerie cafes and Spar operator AF Blakemore buys 21 Philpotts sandwich shops. The deals raise £13m and save 2,000 jobs.
Matt Scaife, a partner at the Dublin-based Causeway Capital Partners – and the man tasked with turning round the business – said it was clear the company had been “seriously mismanaged” in the run up to its collapse.
“Things had been going wrong for a considerable time and as soon as we arrived the extent of the under-investment became increasingly apparent. There were ovens that had been broken for several months, and there was a leak in the bakery roof. Suppliers were often left unpaid, while new ones were sought. Overall, it was not a good culture,” Scaife said.
Scaife admitted that some of the corner-cutting reached extreme levels, including stripping butter out of key products.
“When someone decides to stop using butter in the puff pastry – in a patisserie – you know that something serious has happened. At the same time there was no head of health and safety in place, which for a food business is extraordinary. It was symptomatic of what was going on across the business,” he said.
Patisserie Valerie, which at one stage was valued at £450m, plunged into administration in January after it was unable to secure new bank finance. The black hole in its finances that precipitated the crisis has turned out to be at least £94m.
Patisserie Valerie’s finance director, Chris Marsh, was arrested and bailed following the accounting scandal. The Serious Fraud Office has opened a criminal investigation but has not commented further. More than 900 staff lost their jobs in the wake of the collapse and the new company now operates 96 outlets with 2,000 staff.
At its height, the chain that started life in London’s Soho in 1926, had almost 200 outlets, employing 3,000 staff around the country.
Luke Johnson, Patisserie Valerie’s former executive chairman and its largest shareholder when it collapsed, has said he had no knowledge of the alleged fraud prior to October. Last week, he said he had been tricked by a fake picture of its financial health and questioned the rosy bill of health provided by auditor Grant Thornton. The chain’s collapse had shattered his self-belief and left feeling him physically ill, he said.
When asked about Scaife’s claims, first made in an interview with the Sunday Telegraph, Johnson declined to comment further on the basis that a criminal investigation remains ongoing.
Six months on from the buyout the “new” Patisserie Valerie is looking much brighter, Scaife said on Sunday, with plans to replace the outlets’ salmon and brown colour scheme and install a smaller menu. Scaife hosted a meeting of 140 key staff last week to thank them for their hard work in helping turn round the business.
“We are delighted with the progress we have made. We found a lot of problems but we also inherited some great staff who really care about what they do. There’s been a lot of hard work but it’s very much back on track,” said Scaife.
