Conviviality suspended after surprise tax bill

“The owner of the Bargain Booze and Wine Rack chains has revealed an unexpected £30m tax bill that must be paid by the end of this month.

Conviviality, which is also a drinks wholesaler, said it first discovered on Tuesday that the amount was owed.

Shares in the company were suspended on AIM ahead of Wednesday’s announcement.

Last week, Conviviality cut its annual profits forecast by a fifth and said the tax bill may cut profits still further.

Profits are now likely to be about £55m rather than £70m.

Analysts at Shore Capital said: “We are baffled as to how the company had not taken this [tax] payment into account, given the close proximity of the due date and the materiality of the amount due. We are no tax experts, but it looks like it relates to more than corporation tax given the corporation tax charge and tax paid in 2017 was £6.1m and £8.3m respectively.”

In its announcement to the Stock Exchange, Conviviality said the tax bill had created a “short-term funding requirement”.

The company has appointed PwC to assist with discussions with HM Revenue and Customs, as well as its lenders, credit insurers and suppliers.

PwC will also “determine the potential impact of any resulting funding requirement” on the company’s downgraded profits forecast and “compliance with its banking covenants”.

Following preliminary talks with PwC, Conviviality’s board believed its short-term funding requirement will be “satisfactorily resolved”.

‘Material error’

While it is best known for its off-licence chains, Conviviality is also the UK’s biggest alcoholic drinks wholesaler after buying wholesaler Matthew Clark in 2015 and and wine firm Bibendum the following year.

The company attributed the cut in profits forecast to a “material error in the financial forecasts of the Conviviality Direct” wholesale business.

It subsequently clarified that the material error “related to an arithmetic error in the compilation of the forecast”.

Conviviality also said its sales and orders had held up at levels ahead of last year, but profits margins in Conviviality Direct “softened” in January and February.

Its downgraded forecasts assumed that that the weakness would continue for the rest of the current financial year.

Last week, Conviviality said it had not seen any “material weakness in overall demand” and that its cost-cutting actions were “fully on track”.”

Source – BBC News