Results round-up
Things went from bad to worse for Patisserie Holdings on Wednesday as the company said it has received a winding up petition for its main trading subsidiary, Stonebeach, for £1.14m in tax owed to HMRC, having earlier warned of potentially fraudulent accounting irregularities.
The group, which released a statement earlier saying it had asked for its shares to be suspended from trading on AIM amid a possible fraud probe, said the petition was filed on 14 September and advertised in the London Gazette last Friday, but claimed it has only just become aware of it.
The hearing date is listed for 31 October and Patisserie said that it and its advisors are in communication with HRMC.
The company said earlier in the day that it had discovered "significant, potentially fraudulent" accounting irregularities and as a result, a potential "material" mis-statement of the accounts.
"This has significantly impacted the company's cash position and may lead to a material change in its overall financial position," it said. The business, which owns Patisserie Valerie, Druckers Vienna Patisserie, Philpotts, Baker and Spice and Flour Power City Bakery, said it will conduct a full investigation with its legal and professional advisers into its true financial position.
In the meantime chief financial officer Chris Marsh has been suspended from his role.
Chairman Luke Johnson 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."
The statement followed a report late on Tuesday by Sky News, which suggested that Patisserie Holdings has found a black hole of £20m or more in its accounts.
Neil Wilson, chief market analyst at Markets.com, said "£20m would be a huge blow but not terminal as the company’s net cash position stood at £28.8m at the time of the most recent interim results".
Meanwhile, CMC Markets analyst Michael Hewson noted that in its most recent trading update, the company posted a first-half profit of £11.5m on revenues of £60.5m, which means "on a best case scenario the company may find that its profits for the year could well get wiped out".
Russ Mould, investment director at AJ Bell, said that at the moment, there isn’t enough detail to find out exactly what’s happened although the fact the company says the matter may potentially be fraudulent doesn’t bode well for its shareholders.
"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.
"Sometimes it is easy to spot dubious accounting methods in a company’s financial results, other times you have no clue. Investors trust a company to be open and honest with its reporting as the publication of financial results and trading updates are often the only insight they have into how a business is performing."
Mould said that while it's too early to jump to conclusions about Patisserie, the news 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," he said.
Brewer and pub operator Marston's said full year profits will bubble up 4%, which is slightly less than analysts expected.
The company, which dropped out of the FTSE 250 in May, said a good summer, where trading was boosted by the World Cup and warm weather led to turnover frothing up 15% to more than £1.1bn.
Pub sales increased 3.2%, with like-for-like sales growth of 0.6% and a contribution from opening 14 pub restaurants and bars and seven lodges in the year. In the most recent 10 weeks, LFL sales were up 1.6%, with taverns in line with the rest of the year and the Destination and Premium pubs stopping the rot seen earlier in the year with flat sales in the final quarter and margins declining less than peers.
However, while operating profits improved in each of its trading segments, underlying profit before tax is expected to come in at close to £104m, around 2.5% below consensus due to higher interest charges.
"Although trading in Destination food-led pubs was weaker, this predominantly reflects issues beyond our control relating to unseasonal weather extremes and the World Cup," said chief executive Ralph Findlay. "However we are encouraged that our dining pubs are now seeing improving momentum and we expect to make further progress in 2019."
The beer division increased volumes 47% in the year, boosted by the Wells acquisition last year, increases in market share and new distribution contracts meaning that roughly 90% of 'own brand' volume is now sold outside Marston's own pubs.
The company also has agreed the acquisition of 15 former Mitchell's & Butlers' pubs from Aprirose, a property investment company. Well located community pubs, the portfolio is said to be "highly complementary" to the business model and management expect to complete and lease-fund the deal in the first half of next year, with a £4m investment pencilled in and a target EBITDA of around £0.5m in 2019 and at least £1m in 2020.
Findlay said Marston's was meeting the demands of punters and managing the inflationary cost environment "well", a combination that "gives us confidence for the future".
Marston's shares, having rallied in recent weeks after hitting multi-year lows below 90p in early September, were down almost 3% to 98.3p by early afternoon on Wednesday.
Broker Numis saw the update as showing a "strong performance from wet-led pubs/tenancies during the year was offset by the weak market for pub restaurants over the summer".
The 50 basis point fall in the destination and premium operating margin was expected and implies only only a 30bp decline in the second half. "This compares well to peers (average -70bp) which MARS attributes to a disciplined approach to discounting."
Analysts at Shore Capital expect further operating profit progress of circa £6m in 2019, primarily from the D&P pubs from both new pubs and soft comparatives and further growth in the Beer Co, although this is likely to be modestly tempered by higher interest.
ShoreCap forecasts PBT for the next year of £108.5m and EPS of 14.1p, while Numis has gone for £107.9m and 13.8p.
Paul Hickman, analyst at Edison Investment Research, said the pubco "typifies Britain’s pub presence in large and small communities", is signalling a good outturn for its pub and beer businesses.
The shares are cheap at a 7.1 P/E for the year to September 2018, lower than the dividend yield of 7.8%, and these firm results should help to allay any fears of weakness leading to a dividend cut.