Cakebox

The defence

As a believer in the CBOX story, I thought I’d try to put a counter argument to an article written by Mr Maynard Paton regarding “some accounting issues” with CBOX which I found it was trying too hard to find petty flaws with the numbers and almost portrayed the company like an outright fraud. Link below: https://knowledge.sharescope.co.uk/2022/01/21/cake-box-holdings-cbox/

Make no mistake, this flaws shouldn’t happen at all but in my view, they’re nowhere near as bad as they are being portrayed.

“Annual report showed different tax expense”: the full year results stated £842,362 in tax against £854,330 in the annual report. Really ?! a difference of £11,698 on a £850k tax bill ?! section 12 taxation has the explanatory notes.

“Annual report included extra £2,016k entry” ( the phantom 2 million entry) within the cash flow statement. We usually get trade receivables and trade payables in there. The only new entry is “the increase/decrease in other financial assets”. And this is very important, because the wrong figure has been circled here : £2,016,111 instead of £1,860,396 and this is most likely “The franchisee support fund” set up by the management during the pandemic in order to loan money to franchisees when banks stopped lending (see full details in the final results).

“2020 sales of £833k restated as £498k” this is quite simple, the first one included results from 6 subsidiaries while the second entry only 4 subsidiaries.

“Management failed to inform us” - regarding the data breach and subsequent GDPR fine. Well, no excuse there : they should have informed everyone straight away. But this is old news.

“Historic errors, etc…” I think it’s a problem mainly around the stock reporting for which they put in place new systems to improve internal audit processes.

Then we have concerns over interest of £5,615 paid on overdue tax. Again, really ?! On a bill of £850k ?! Let’s not forget that FY 2021 was the covid year when everyone held on to tax, vat, etc and postponed all the payables to preserve cash.

Anyway, there is no excuse for the poor writing of the reports and they could do with a proper CFO as the current one has no plc experience: Mr Pardip Dass co-founded the Cake Box franchise business in 2009 and qualified as an accountant whilst working for Starbucks. When I first saw the ceo presenting, I actually thought he was plain arogant, I think they still treat CBOX like their own private business and they are being a bit reckless with the accounting and governance, but I don’t think for a minute they are ill intended. The business is real, paying taxes and dividends, the new shop openings and deposits are real, they just need to do a better job with the plc standards. Even Bioventix had to restate figures a few times, it happens. But to portray Cakebox almost like a fraud, and compare it with LOOP who misled investors into 2 profit warnings and two placings, is simply wrong.

The auditor resignation looks bad, but it’s also important to emphasize that they did sign off the accounts and their main concern was the stock reporting and the GDPR data breach. Nothing else about the financials, which they found in order, that’s very important. And they put the materiality of their findings at £237,000 compare that with the £21mil revenue.

The way I see it, the business is quite simple: they hold several months worth of ingredients (flour, sugar, etc) which they turn into sponges and deliver to franchisees on demand ( c80 % of revenue) and this comes under the cost of sales, so I guess they could under/over state the stock levels a bit in order to help the gross profit. They could also fudge the figures from management’s franchises ( I think they have about 7-10 between them ) in essence they sell sponges to themselves, but still, they wouldn’t be material enough. I’m no accountant and even if I was, they’d still be able to pull the wool over my eyes. All too aware I could be wrong, but I don’t think this management is of that sort. Only time will tell.

Such are the vagaries of stock market.

There is a good piece here, just for the sake of balance. You either go along with this ceo or you don’t.

A conversation with Sukh Chamdal of Cake Box:

https://inthecompanyofmavericks.com/episodes